The deadline for sponsors to submit projects under India’s new National Solar Mission passed last month. Sponsors have to pass through several qualification rounds during the next several months before they will know whether they are one of the lucky few who emerge with a lucrative PPA (Power Purchase Agreement).
In the meantime, the real action is with players who had signed state-level PPAs and who have been automatically grandfathered into the higher national feed-in tariff under the National Solar Mission rules. These parties are preening like peacocks in front of potential investors/JV partners/acquirors because they have what so many others seek – guaranteed access to national level PPA.
By all accounts, sponsors of these grandfathered projects are holding out for a high price. Buyers/investment partners are being careful not to overbid. What is the gap between the parties? Some sellers are apparently seeking as much as 25%-30% “sweat equity” (or an equivalent cash price), a level that makes for an uneconomic investment for a potential buyer/investor – a quick back-of-the-envelope calculation can tell you all this. The peacocks will have to walk their decidedly exuberant expectations down.
On the other hand, buyers are seeking to compensate sellers in the mid single digits. They don’t have as far to move – a reasonable proposition for buyer and seller would be to settle in the range 10% and not significantly higher. But there is little reason where instant fortune is involved.
Disclosure: Author is engaged in the solar power generation opportunity in India.
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