The Bullish Indian Economy

The Indian economy which was in dire straits just a year ago is seeing lots of good news these days. Most investors had given up on the Indian economy and markets as corruption and policy paralysis had become endemic in the last 5 years of Congress party rule. High inflation, commodity prices and billion dollar scams had made retail investors run for the hills. People did not have enough disposable income to spend and jobs had become scarce. Massive scams in telecom, real estate, construction and aviation industry had led to hundreds of thousands of job losses. High interest rates and a predatory government had made Indian industry leaders look to foreign shores when considering investments. Power, capital, labor etc. all had become either too expensive or too inefficient.

However, the new government led by the BJP has done a dramatic turnaround. Despite skeptics, the new PM of India has shown an immense amount of energy and have made many small and big policy changes in just 5 months. The majority of his party has also helped in pushing reforms in defense and insurance. He has also encouraged structural reforms in sanitation and labor. Though critics still say that there have been no actual changes on the ground, even his worst critic will not be able to downplay his commitment and hard work. Sentiment has improved massively and investment/growth should be just around the corner in my view.

Factors leading towards a Bullish India

The Indian economy is also getting big tailwinds from the following factors:

a) The sharp fall in crude oil prices which contributes to more than 50% of India’s large fiscal deficit.

b) Fall in other commodity prices such as coal, iron etc which will also help India, which is a big commodity importer.

c) The new central bank governor Rajan has proved to be immensely effective in his hardline stance towards inflation. The inflation has already fallen to a 5 year low which will strongly help consumers.

d) Interest rates should go down very soon in India, given the inflation is moving down rapidly after 5-6 years of very high inflation. This will boost the infrastructure firms which were down in the dumps for a very long time.

The Indian government’s “Make in India” campaign and strong push for investment from countries like China, Japan and USA is going to see a strong jump in manufacturing in the coming years. Companies are showing a big interest given India’s massive 1.2 billion population. India is a large untapped market which companies would love to tap given the anemic growth being seen in Europe, Japan and now China. India’s low per capital income implies that given the right policies and environment it can grow at very high rates for a very long time. The Indian democracy also ensures that you can get reasonable profits from your investments unlike other countries.

India is a great market to invest in, given the current circumstances. For once I agree with the majority that India is at the cusp of a multi-year bull market.

Solar Powered Charging Station

Just one week before the Earth Day (22nd April), Kyocera installs a 230 kW solar charging station in Japan to charge electric vehicles. Imagine the amount of fuel that will be saved and also the amount of pollution that can be checked by using electric/ solar powered vehicles. We at Greenworldinvestor have always promoted solar energy and its applications. Its high time that people and companies take up the responsibility of saving the environment and screening planet Earth from the ill effects of Global Warming.

There is a dearth of electric cars on the globe. Moreover the solar powered charging stations are also few. It is a problem of the chicken and egg, which one of them came first. Users blame that there are not sufficient electric charging stations and manufacturers feel there are not sufficient electric cars. And so the problem goes hand in hand. However, Kyocera took a step forward in this direction and installed a 230 kW solar powered electric station at the HQ office of Shintec Hozumi, a Japanese automotive parts manufacturer. This solar charging station comes with an EV battery backup. The solar panels used on the rooftop get charged by solar energy and then in turn is used to charge the electric cars.

It looks something like the image below:

Solar Charging Station Kyocera

About Kyocera

Kyocera is one of the oldest solar panel manufacturers and is second only to Sharp amongst the Japanese companies. It  also manufactures industrial ceramics, telecommunications equipment, office document imaging equipment, electronic components, semiconductor packages, cutting tools, and components for medical and dental implant systems. Kyocera Solar Corp. in Japan was founded in 1996 and Kyocera Solar Inc. in the U.S. in 1999. The company has production bases in Japan, Mexico, Europe and China.

PV Tech

The rooftop plant at Shintec Hozumi HQ in Aichi Prefecture, Japan, where PV panels on the buildings’ rooftops top up EV batteries through charging stations. In the event of disaster, the EV batteries can then be used as back up energy for the building. The rooftop PV system, also manufactured by Kyocera, has a generation capacity of 230kW.

Prepaid Solar

One of the biggest problems in the growth of solar energy is the capital cost which accounts for almost 90% of the total lifetime cost of solar energy. Even small scale solar energy systems which can power a couple of lights with energy storage are out of the reach of poor customers in places like India and Africa. These people cannot afford the $200-$500 for such systems, though they spend a greater amount on alternative forms of energy such as kerosene.

Converting these customers towards solar energy makes a huge amount of sense both from a commercial and an environmental point of view. It’s a win-win for the customer, the financing agency as well as the government. There are a lot of social enterprises that are providing financing and products to the bottom of the pyramid customers in India and Africa. We have already featured D.Light as one of the first firms to provide quality products by partnering with SHGs. Now telecom providers in Kenya and Uganda are also starting to provide such services.

Read more about Efficient Solar Products here.

Note prepaid telecom services have been a huge hit in these countries and have allowed telecom penetration to jump exponentially even amongst the poorest customers who make $2 a day. Now the same telecom companies are using their expertise and distribution networks to target their own customers using the prepaid solar schemes. Many areas in the Third World do not have access to the power grid and use primitive fuels for energy. Solar energy is a boon for these people as it does not require a grid. The solar systems are sold for a small payment, while the rest of the cost is amortized over a longer duration. This benefits the customers, as he/she does not have to use expensive kerosene and helps the environment as well. While companies such as Solarcity (SCTY) and Sunrun are doing this for middle class and upper class customers in the USA, these companies are making a huge difference to the poorest of the poor.

India’s power industry remains in the woeful, desperate state because of the endemic corruption, vested interests and regulatory capture by powerful corporates. This regulated industry has become a toy for powerful political and business lobbies who use the industry for their own personal advantage. Despite having one of the largest reserves of coal in the world. India is importing millions of tons of coal. The gas policy is a complete mess held hostage by India’s biggest private company, which excels in “managing the environment” than in business. The country has no oil and now even renewable energy has become a hostage to corporate interests.

Maharashtra infamous for the Dabhol disaster, is in the spotlight again after the state distribution utility was forced to buy high priced wind power. The utility wanted to buy wind energy through a tender, but the state electricity regulation has ruled that it has to buy fixed price wind energy. This does not make sense and will lead to increased cost for customers. While there was no dispute that renewable energy needs to be encouraged and the renewable purchase obligations have to be met, still why should the consumers pay unduly high prices when cheaper RE power can be bought.

The wind power developers have managed to influence the regulators to force the state utility to buy high fixed price wind energy using specious arguments. The state utility wanted to buy wind energy using a reverse auction like what is being done for solar power. Note World Bank recently praised India for having the cheapest solar power in the world, thanks to the reverse auction policies which help in finding the true price of solar power. However, despite having a tried and tested mechanism for buying cheap renewable power, MERC has decided in all its wisdom that the utility will have to buy wind power at high tariffs.

Please note that the lack of market based selling of public resources such as telecom spectrum and coal mines had resulted in scandals. The MERC is inviting the same problem by not allowing market forces to determine the true price of procurement. If wind energy developers do not find adequate returns, they will not bid during the tenders. Fixed priced wind power may result in supernormal return for some leading to corruption.

TOI

Even as MSEDCL is facing allegations of irregularities in power purchase, Maharashtra Electricity Regulatory Commission (MERC) has turned down a plea in which MSEDCL was seeking transparency.

MSEDCL wanted to purchase wind power through competitive bidding, but the Commission wants MSEDCL to buy it at rates fixed by it. MSEDCL filed a petition in MERC seeking a review. The Commission agreed that it was a valid point, but referred the matter to a committee headed by principal secretary (energy), with representatives of wind power companies, Maharashtra Energy Development Agency (MEDA) and consumers representatives. Incidentally, principal secretary (energy) Ajoy Mehta is also managing director of MSEDCL.

JNNSM A Fraud?

India has been rocked by scams in almost all industrial sectors be it telecom, aviation, real estate, construction, defence etc. Renewable energy is not immune to the general malaise and recently a large solar scam was unearthed in India’s southern state of Kerala. Top ministers were involved with actresses making it a regular “tamasha”. As usual nothing came out of it as is the wont with all corruption scandals in India involving top politicians/ bureaucrats. The media circus continues for a month or two before a new corruption scandal comes up. The scandal investigation mainly consists of hyperbole by both sides with little grounding in facts.

Read on GWI India Solar Subsidy JNNSM Guide – What you needed to know.
The Left wind parties in India have termed the whole India solar subsidy scheme a scandal on the basis of the Kerala scandal. We examine if this is true or not. My first impression is that India’s solar subsidy scheme has managed to get one of the lowest electricity rates in the world with solar developers earning little in the way of profits. The reverse auction scheme has seen over competition leading to losses for many of the developers. This means that the scope of corruption is low given that there are little profits to be siphoned off.

The allegations is that while the government pays $3.5/watt for an off grid solar power plant the cost is only $1.1/watt. This is total bollocks. Even the biggest utility solar power plants in the world will cost at least $1.1-1.3/watt in the world with their large economies of scale. Small rooftop solar power plants cost much more as the installation and commissioning costs are much higher. Balance of System costs also are higher for the smaller power plants as they lack the scale. Likewise permitting, inspection and testing costs will be higher. It will cost at least $2.5-3/watt for building an off grid solar power plant, which means that this accusation of windfall profits being made by empaneled solar vendors is nothing but hyperbole.

Business Line

The MPs said the benchmark price fixed by the Government agencies for the off-grid roof top solar units is around 2,10,000 per 1 KVA. They said in Kerala, a consumer pays Rs 1,15,000 to install 1 KVA solar power at his house, while the balance of Rs 95,000 will go to the empanelled Solar Company, through the implementing agency of the State as Centre and State Government subsidies. The MPs argued that the actual cost of panels is about Rs 70,000 per 1 KVA. “This is resulting into windfall profits for companies who are ‘fortunate’ enough to get empanelled by the Government. By investing just Rs 70,000, these companies are getting a profit of around Rs 1,40,000 thousand, which is a profit of 200 per cent,” the MPs said in the letter.

Sharp’s Revenues Double Itself

The Japanese electronics giant Sharp has seen its revenues from solar sales double in the first quarter of 2013 to almost $850 million, as Japan is all set to become the largest/ 2nd largest market in the world for solar panels. Japan has been seeing a huge surge in solar panel demand as the fixed feed in tariff given by the Japanese government for electricity generated by solar panels is leading to crazily high returns. Every big Japanese company whether it is a gambler, oil and gas, telecom company etc. is jumping into the solar plant construction business. Not only are the large mega megawatt solar farms booming in Japan, but also residential rooftop solar installations.

Read more about Japanese Solar Panels here.

Sharp Faces Stiff Competition

Sharp has been battered in all its businesses by competition from the Asian countries such as Korea and China. Sharp has seen its display and electronics business erode due to competition from Samsung and others. In the solar energy segment too Sharp has seen its numero uno position in solar panel sales, being decimated by the Chinese solar majors such as Yingli Green Energy (YGE). Sharp has already decided to get out of a number of markets in solar energy and is also shutting down some of the unprofitable solar panel capacity. The company is in talks to sell a portion of itself to Taiwanese EMS Hon Hai. Samsung has already taken a small equity stake in Sharp to provide the much needed equity. Sharp has now gotten a great tailwind in the form of the Japanese solar boom but I don’t think it will last too long.

Sharp cannot compete in costs with the Chinese companies and the only major reason for its doubling of sales is the domestic Japanese market, where it has the home market advantage. Once the boom peters out, Sharp will again see its sales dwindle. The company manages to sell its high cost panels mostly in the Japanese market and has been edged out in other developed markets. In the booming countries like China it has no market share to speak of. While the yen deprecation might help save the company, it is hard to see a future for Sharp in solar panel manufacturing.