Solar PV – Bankruptcies, warranties and implications for Indian project developers

1. “Will PV prices continue to fall forever?”
2. “What will happen to the 25 year warranties provided by PV manufacturers that have gone/will go bankrupt?”
These were some of the important issues raised by Mr. Sunil Gupta, Global Head of Technology & CleanTech at Standard Chartered Bank, Singapore in his presentation at the Intersolar India 2012 event in Mumbai on 5th November 2012. He mentioned that almost nobody globally(even Chinese manufacturers) in the solar PV manufacturing industry is making any profits and the consolidation will continue for a few more years.
According to him, there are 3 key trends that can be observed in the solar PV sector.
1. The solar PV sector will continue to experience slow growth in the near term, followed by acceleration of growth in the medium term.
2. While the oversupply will continue for some time, the price declines will moderate. The current price of PV modules is less than the cost of production and hence these prices are unsustainable.
3. Dislocation of many manufacturers – Due to the consolidation of the PV sector, the number of bankable PV manufacturers is reducing by the day.
Now let us get back to the questions at the beginning of the article.
1. Will the PV prices continue to fall forever?
Mr. Gupta was of the view that the prices will start stabilizing soon because the overcapacity will slowly get out of the system. This is in line with other forecasts about the industry. IMS research, one of the leading global market research firms, predicts that the price drop of PV will stop in Q2 of 2013.
According to IMS, “Relief for the PV module market will finally be in sight by 2013, IHS believes. True, the industry will have to go through another two tough quarters at the beginning of next year, but the overcapacity situation will ease in the second half, and the players that remain should return to profitability. All told, the decline in PV module prices afflicting the market will slow down in 2013 and then eventually stop by the second half of the year. By the fourth quarter of 2013, average crystalline module prices are forecast to reach $0.55 per watt.”
What this means is that project developers in India cannot count on a huge drop in capex for solar projects anymore. Whatever drop in PV prices will be negated by the increase in cost of materials like steel,aluminum, copper, etc that go into the mounting structures and other Balance of Systems(BOS). (The trend in the reduction in capex as notified by CERC is available here .)
2. “What will happen to the 25 year warranties provided by PV manufacturers that have gone/will go bankrupt?”
The number of companies going bankrupt or in danger of folding up has been very high. (A list of major companies that have undergone dislocation can be found here).  In India, there are a few high-profile examples of such situations.
a. Abound Solar, which filed for bankruptcy in the USA, has supplied PV modules for 2 projects in India – 5 MWp of Punj Llyod in Rajasthan and 2 MWp for Solarsis in Andhra Pradesh.
b. MiaSolé, another US based PV supplier, has supplied to a 2 MWp project in Gujarat. It is also learned that VS Lignite Power will be using MiaSolé modules for their 10 MWp project under the Phase 2 of the JNNSM. In case of MiaSolé, the company has not filed for bankruptcy, but has been acquired by China’s Hanergy. So, there is no imminent danger of not honoring warranties.
c. Satcon Inverters, another US based company, had supplied 40 MW of solar inverters for projects in India through Wipro Ecoenergy. The company filed for bankruptcy last month.(Inverter warranties are typically lower at either 5 years or 10 years in some cases).
For project developers and lenders, the biggest concern will be the bankability of the projects that use the PV modules from these manufacturers. According to Mr. Gupta, the risk of bankruptcy of suppliers and dangers to warranty can be mitigated by opting for re-insurance. However, this will increase the cost of the project. His suggestion to project developers is that they should do thorough due-diligence before finalizing a vendor and should take appropriate risk mitigation strategies in order to make the projects bankable.
Mr. Gupta concluded his presentation by saying that the Indian solar market is likely to achieve 8 GW of cumulative installed capacity by 2017, despite the challenges.
PS: A brief roundup of the Intesolar event can be found here and the details of the presentation from Mr. Tarun Kapoor can be found here. REsolve’s presentation on off-grid rooftop PV systems can be downloaded here.

2 thoughts on “Solar PV – Bankruptcies, warranties and implications for Indian project developers”

  1. Pingback: Intersolar India 2012 – A roundup | RESolve Energy Consultants

  2. Pingback: CERC revises capital cost of Solar PV projects to Rs. 8 Crores/MW for FY 2013-14 | RESolve Energy Consultants

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