Quality of Solar Assets, Regulatory Stability, Crucial in Solar Project Acquisitions

The solar industry has emerged stronger after the pandemic, which is still raging worldwide. But solar projects have been considered as ‘investment havens’ in the uncertain COVID-19 world because of the steady returns they provide with minimal risk.

In 2020, the mergers and acquisitions (M&A) activity globally remained unaffected by the pandemic – there were 231 large-scale solar projects acquisitions in 2020, compared to 192 transactions in 2019.

A record number of 39.5 GW of large-scale solar projects changed hands in 2020 compared to nearly 26 GW in 2019. This was the largest number of projects acquired in a single year to date.

In India also, things were positive. While the numbers were small compared to the global numbers, it was encouraging nonetheless. In India, nearly 3 GW of projects were acquired in 2020, a 200% rise from 962 MW of projects acquired in 2019.


Project developers were the major acquirers, followed closely by investment firms and oil and gas companies.

To discuss the various factors affecting the Indian solar sector and the future course of the Indian solar industry, Mercom hosted a virtual conference, “Mercom India Solar Summit,” which addressed the ground realities and market outlook amid the rapidly changing solar space.

The virtual event was held on April 8 and 9, 2021.

The event brought together industry leaders and stakeholders who shared their views and ideas and discussed the changing landscape of the Indian solar industry.

In one of the sessions titled “Project M&A – Quality Solar Assets Are in High Demand,” the panelists discussed issues around the acquisition of solar projects in India.

Solar project acquisitions are vital for developers as it allows them to recycle capital and invest back into newer projects providing much-needed liquidity.

The panelists included Rahul Varshney, Country Head-India, Statkraft; Sreekumar Chatra, Partner, Edelweiss Alternative Asset Advisors; Anupam Misra, Senior Vice President, Adani Group Corporate Finance. Raj Prabhu, CEO of Mercom Capital Group, moderated the session.

Speaking on the current market scenario, Rahul Varshney said, “Last year, we acquired Solarcentury in Europe. There were also other projects in India for which talks were going on, but things did not materialize, and we couldn’t close the deals. Before acquiring any project, we look for asset quality, team quality, business ethics, and governance status. The most important question for us is what is there for us and what we will get from it? This is not only true for us, but it holds for all the investors.”

Shedding light on the impediments that make it hard for investors to invest in solar assets in India, Varshney said, “The state utilities are a big risk in India. The continuity of policies and implementation is also a big risk. We are still grappling with open access issues, cost-effective tariffs, and nodal agencies’ inability to sell power to the distribution companies (DISCOMs). These are some of the factors that make it hard for investors to invest in solar assets. We need a long-term perspective. This doesn’t lead to a sense of confidence among investors. Regulatory stability is of prime importance to us. The Centre is moving in the right direction, but the states are lagging. They have to do a lot to instill confidence in investors. The regulatory aspects are affecting the buyers by at least 30%. In the next two years, I think there will be around 3-7 GW of solar assets that will change hands.”

The quality of solar assets is of utmost importance for investors and acquirers. The acquirers undertake necessary due diligence to assess the quality of the solar assets. Selling operating infrastructure and assets helps developers unlock capital, enabling them to take on bigger opportunities.

Commenting on the acquisition of assets and the approach involved in it, Sreekumar Chatra said, “We acquired 12 assets of 813 MW from Engie. It’s a very bespoke arrangement. Under the current arrangement, 74% will be held by us, whereas Engie will hold on to the remaining 26%. We are also planning to gain access to the 2 GW capacity that Engie is developing under the same arrangement. The most important factor that we look into while acquiring an asset is the operating assets’ quality. It is the most important point for us. We have a big appetite to expand, and we are also looking for other acquisitions. There is a lot of appetite for acquisitions in the country, provided that there are quality assets..”

But some issues are pushing the acquisition activities back a bit. A sense of continuity and predictability is required on the government’s part for policy implementation to instill confidence among the investors.

“One of the biggest distractions is the post-bidding changes in the law. This creates a big stumbling block. After the safeguard duty imposition, countervailing duties, and other duties, the developers are not sure how the payments will be made. This makes it difficult for us to acquire projects. There is a value mismatch, as older assets’ prices are above the grid parity prices. There is nearly 5 GW of filtered assets up for grabs. One of the most important points is that we should not compromise on the quality of the assets. Transmission assets are a high-quality asset class, and we will see significant action in this segment. The government should ensure there no more regulatory surprises. There should be predictability, and this leads to a sense of stability which is important for any long-term transaction,” added Chatra.

Adani is one of the leading players in the Indian solar space. In October last year, Adani Green Energy announced that it had added 205 MW of operational solar projects worth ₹16.32 billion (~$222.9 million) to its joint venture portfolio with French oil and gas major TOTAL.

Speaking on the current market scenario and the basic factors vital for the acquisition of the country’s solar assets, Anupam Misra said, “If you look at Adani, we are into project development, transmission, energy and utility, and distribution. What we are witnessing now is a tectonic shift from renewables to new renewables. We acquired nearly 333 MW of solar assets last year. One of the most important criteria in acquiring solar assets is the quality of the solar assets. A lot of assets have come online in the last year or so. There is nearly 4-5 GW of standalone assets, and this bodes well for the future. There is large market brewing in India, and due to the Covid-19 pandemic, a lot of capital has shifted toward transmission and renewables. This year we will see increased activity in the funding and acquisition space. There is a sizeable asset that is going into bankruptcy. Unless and until they get the right price, they are not going to sell. In the domestic market, we are looking at a lot of activities in the next two to three years.”

Commenting on the growing demand for transmission assets in the coming years and the need for regulatory continuity, Misra opined, “Transmission assets are a high-quality asset class. The regulatory framework is in place, and it will be a big market in the coming years. We already have a strong platform in place, and we have a good assessment of what we can price and what we can’t. We have flexibility with the cost of capital, and our main aim is high profitability. We are aiming to achieve the target of 25 GW by 2025. Our main aim is to recycle capital, develop long-term partnerships, and move forward. We can see 5-10 GW of solar assets changing hands in the next year or two. The continuity of regulatory policies and long-term planning is a must to create an investor-friendly atmosphere in the country.”

The three panelists were in consensus that regulatory inconsistencies make up for 30% of the overall risk in acquiring a solar project.