Solar After the Black Swan


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Wikipedia defines a Black Swan event as a metaphor that describes a happening that comes as a surprise, has a major global impact, and is often inappropriately rationalized after the occurence. The phrase “black swan” gained currency a decade ago during the Great Recession after 2008 financial crisis. It was coined by a mathematician & economist named Nassim Nicholas Taleb. 


The Corona virus, is a perfect fit for Taleb’s definition. The extreme worldwide impact, in terms of human lives, dislocation, and economic losses at this point of time cannot even be imagined, forget estimated. “Was the emergence of such a dangerous virus really unpredictable ?” A whole host of Hollywood movies like World War Z, 28 Days Later and almost the blueprint of COVID-19, Contagion have all the time pointed at the bio-bomb mankind was sitting on. Nonetheless, the impact of such viral outbreak was certainly unprecedented and unimagined. 


Black Swan or not, the COVID-19 event will also have a profound impact on the Indian Solar industry. Firstly, let’s look at the electricity generation and transmission industry of India in the recent past. Our PM Modi’s ambition to electrify every village in the country has led to surging demand for grid power. Published data shows that over the five years through 2018, India added output both renewable as well as non-renewable, equivalent to 50 small nuclear power stations. This booming market hasn’t translated into good times for the industry. Less than 5% of these large electricity Companies are barely covering their costs (Bloomberg). The problem has seeds in the success of mass-electrification campaigns like Modi’s. While he drove the march to power outreach to every corner of the country, the distribution networks that are owned by state governments are run more with political objectives than commercial profits. Cheap electricity is a clear vote-winner. Thanks to regulated prices and the general mismanagement of the network, India’s distribution companies (Discoms) lose around Rs.0.35 plus on every watt-hour of electricity they deliver. Topping that with transmission losses and theft, their independent survival looks impossible. With the advent of COVID-19 event Discoms are permitted to extend settlement of their dues to power generators by 3 months and that itself will weigh heavily on the bottomlines of all power generators including RESCOs. Most of these will see their mountain of debt rising to prohibitive extents and thus impacting credit ratings. RESCOs will find more and more difficult to offer packages against these depleted Credit ratings. Most large Solar Companies in the country are staring at this grey-dyed future. 

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Cut back to mid-sized Solar equipment Companies and EPCs. The end-user client of such Companies is India’s industry, corporates and entrepreneurs. It will require zilst Rocket Science to understand that most Corporate balance sheets this year will be stretched. Room for capital asset procurement will be squeezed to say the least. And then amongst the basket of capital assets for any manufacturing industry, Solar system might not figure on the top. 

For Solar system component manufacturers, let us divide these into 3 groups : 1) Cell & Module manufacturers , 2) Inverter manufacturers and 3) BOS manufacturers. 

A major chunk of raw material of Cell & Module manufacturers was imported and mainly from China and the Far-East. With overseas air and sea movement blocked / restricted, this channel will take some time to reach it’s earlier efficiency levels. Local manufacturers of similar items have a splendid opportunity if they are able to deliver quality. 

Next are the Inverter manufacturers. Almost entire ongrid requirement of Solar inverters in India is imported, leave a bit and hence immediate shortage is impending. Also how much import from China will be permitted by the Government will decide the availability of such equipment. Indian manufacturers of Ongrid inverters have not been able to deliver reliable products at competitive prices, though the technology is available. This is their big opportunity ! Offgrid inverter manufacturers in the country are already having a good chunk of the pie having mastered indigenousization. They are the least affected barring few imported components. 

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The third subset are the BOS component manufacturers including the structure, cable and minor items. All these are least affected since their import component was minimal. 

Hence we could deduce that in the medium term cost of a Solar Plants will slightly inflate with major components, panels and inverters heading for short supply. But this will also be offset by low industrial demand envisaged in this financial year. The EPC guys will have to take a shave to survive the low-tide. 

Next is the bunch of medium-small EPC contractors. They will do themselves a world of good by focusing on Government residential Schemes, water pumping Schemes as well as Solar Homelighting. Survival of the fittest will be the mantra

The Government on it’s part can offer 2-pronged assistance to the industry. One is obviously step on the pedal of Solar Schemes and disbursements especially residential / homelighting and minigrids. Secondly, it can create an additional push for the Solar industry without directly investing, by increasing the depreciation rate of Solar Systems for Corporates, thus improving their ROI on Solar investments. Many Companies including PV Power Technologies have written to the Commerce Ministry as well as Finance Ministry with the upcoming woes of Solar industry and hope to see some positive action. 

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Author : AMISH GOSAR The writer is heading the Solar Projects division at PV Power Technologies, Mumbai.

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