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SunEdison bankruptcy floods India market for green projects

SunEdison Inc's bankruptcy filing is reverberating halfway around the world in India, where developers say the US company's troubles are adding to a surplus of green capacity up for sale.

[NEW DELHI] SunEdison Inc's bankruptcy filing is reverberating halfway around the world in India, where developers say the US company's troubles are adding to a surplus of green capacity up for sale.

SunEdison has said it's searching for equity partnerships for its 2.4 gigawatts of capacity in India following its petition to a New York federal court. That means about 4 gigawatts of clean-energy projects are up for sale, more than 10 per cent of the nation's existing solar and wind capacity, according to industry executives.

"There are 2 gigawatts odd of wind assets comprising medium and small portfolios," Rahul Shah, chief executive at Tata Power Renewable Energy Ltd, the clean-energy arm of Tata Power Co, said in an interview in Mumbai. "In solar, again 2 gigawatts odd, finished and unfinished projects are looking for buyers."

A gigawatt is about as much as a nuclear reactor can produce, and global solar installations last year were about 40 gigawatts.  That much capacity on the market threatens to push down prices and make lenders reluctant to finance projects, meaning a portion of the projects being planned could ultimately be scuppered. In turn, that would endanger Prime Minister Narendra Modi's target to install 100 gigawatts of solar by 2020 at an estimated cost of US$100 billion.

India has 6.7 gigawatts of solar capacity and 26.7 gigawatts of wind power, according to the latest government data.

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A drop in tariffs paid for solar power is being blamed for distorting the Indian clean energy market. SunEdison is partly behind that trend, having taken all 500 megawatts of capacity offered in an auction in November in the southern state of Andhra Pradesh. It offered to sell electricity at a record low for India at the time.

Solar tariffs in India have fallen sharply from 8 US cents a kilowatt-hour in July 2015 to a record low of 6 US cents a kilowatt-hour in January.

"For the likes of SunEdison, who may have to get some kind of capital to be able to build the committed projects, it will mostly be desperate deals at this stage," Jasmeet Khurana, associate director for consulting at solar researcher Bridge to India, said in an interview in New Delhi.

"Premiums will come down because there will be desperate deals." Moreover, some projects may have difficulty finding buyers if the delivery deadline set by power purchase agreements is nearing and the projects aren't yet completed, according to Kailash Vaswani, deputy chief financial officer at ReNew Power Ventures Pvt, an Indian clean-energy company backed by Goldman Sachs Group Inc.

"If one fails to deliver projects on time, the power purchase agreement is scrapped, so unbuilt projects will find it very hard to be sold if that kind of a time bomb is ticking away," Mr Vaswani said in an interview in New Delhi on Tuesday.

"Many of these assets may not even get built."

Investment bankers trying to match buyers and sellers for clean-energy assets say there is limited scope for significant premiums for projects awarded recently.

"This is driven by increased aggressiveness in project assumptions and an overall tightening of returns," Rahul Goswami, a managing director at clean-energy investment bank Greenstone Energy Advisors, said in an e-mail.

Greenstone Energy is involved in some of the transactions involving renewable capacity.

Lower prices for solar energy are only desirable so long as they can be maintained, according to International Finance Corp, a unit of the World Bank. Gaetan Tiberghien, the principal investment officer on infrastructure and natural resources for IFC South Asia, said the market must allow investors to earn a return to keep them interested in funneling money into green-energy projects in India.

"If the risk-return balance is not adequate, there is an increased probability that fewer investors will bid and that awarded projects don't get built," Mr Tiberghien said by e-mail.

India already faces several hurdles in financing Mr Modi's ambitions for renewable energy. Central bank data show that about 14 per cent of loans to the industry have soured or been written off.

SunEdison's filing isn't helping. Last week, SunEdison listed US$16.1 billion of debt in Chapter 11 filings in Manhattan federal court, making it the biggest US bankruptcy in more than a year. The company based in Maryland Heights, Missouri, has 700 megawatts of commissioned assets in India and 1.7 gigawatts of projects being planned.

"Half of the solar installations in the country are looking for buyers, and it's a buyers' market," said Ravi Khanna, CEO of the solar business at Aditya Birla Group, an Indian manufacturer in the Fortune 500.


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