INVEST RAISE ABOUT INSTITUTIONAL arrow_back BACK The opportunities and challenges of investing in Indian solar 21 June 2018 When the UK solar market first took off in 2011, an often-heard question was ‘why bother, couldn’t you just install in much hotter, sunnier climates further south?’ The UK has ultimately proved to be a very attractive solar market although, all things being equal, a kW of solar installed in countries nearer the equator could yield up to double the amount of electricity of a kW installed in the sunniest parts of Britain. When the UK government announced an end to the use of EIS and VCT funds for solar in 2014, it left the door open for such funds to be utilised for overseas projects for a further year. However, weather would by no means be the only factor to weigh up when taking a measured approach to this type of investment. For example, what sort of political and policy risks might be faced; how much does it cost to raise capital; how easy is it to repatriate investors’ money; will the project be built to the same standards as in the UK; would extreme weather events affect the performance of the plant? Setting our sights on India India has an excellent solar resource and a strong pipeline of delivered projects. The country’s government has also previously announced very ambitious solar aspirations as part of its proposed solution to deal with growing environmental challenges and reduce its dependence on fossil fuel imports. However, as seen in the UK, there’s often a large gap between government aspirations and the policies needed for solar to flourish, prompting some UK solar industry veterans to dub the last few years a ‘solarcoaster’. Nevertheless, the positive case for India continues to build on closer inspection. Firstly, the government has been developing a reputation for business-friendly policies to attract foreign investment. Secondly, it has been tackling the corruption which had tarnished some companies’ experience of working in parts of the country. The government has also introduced a number of incentives and specific policies to make solar more attractive to overseas investors, including national and state solar auctions, increased investment in the grid and various favourable tax adjustments. As a result, the country has made global headlines for the record low prices being realised in its latest solar auctions. Challenges along the way Our existing expertise in the wider solar market and partnership with Armstrong Energy, which has experience of Indian solar projects, meant we could get off to strong start in India, although there are undoubtedly challenges when investing in this new market. One of the biggest is acquiring the land for the solar farms. Unlike the UK, there are very few large land owners in India. Instead, land is divided up into multiple small plots owned by individuals, requiring a lengthy and complicated process to assemble sufficient land to build the projects. Dealing with the grid operators (known as ‘Discoms’) can also prove challenging, although this varies from state to state. The operators are not always well capitalised and, unlike in the UK, they also sell electricity directly to their customers. This had implications for the way in which we sought to sell electricity from our projects. One advantage for UK investors is that the grid infrastructure in India shares similar voltages and design characteristics with the UK network, making aspects of the design process much more straightforward. However, the design needs to take account of the very different climate in India, with the weather veering from long dry spells to intense monsoon seasons and the possibility of localised typhoons. The Indian government’s continued focus on tackling corruption has had some unexpected impact on our projects. The sudden overnight withdrawal of two types of bank notes caused problems paying sub-contractors, many of whom have traditionally received cash payments. Then, as part of attempts to simplify and introduce stronger controls on the tax system, a new national sales tax has been introduced. This has, in the short term, significantly complicated our contractual and procurement processes whilst we sought clarity on which tax rates should be charged on which inputs. What does the future hold? As one of the first UK solar investors in India, Downing has already successfully completed its first two solar farms in southern Indian states, with a total capacity of some 20 MWp. We are now building on this success with our third and fourth projects under construction in the state of Maharashtra with a combined capacity of 22MWp. India remains a very attractive market for future solar investment. A quarter of its population of 1.2 billion people have limited access to electricity. The government has made energy access a leading policy objective and, in a very short timeframe, it has already become a leading player in the global solar market, attracting significant overseas capital and spearheading the International Solar Alliance launch. The cost of solar power now undercuts all other energy sources, providing certainty that rapid adoption will continue and ensuring a bright future. - ends - For all press enquiries, please contact: Pamela Morris, PR Director at the lang cat 0131 202 6037 / 07712 515 503 pamela@langcatfinancial.com Jean Birrell, Downing LLP 07799555353 jean.birrell@downing.co.uk Downing Home Our story The team News & views Responsible investing Careers Contact us Invest Bonds EIS Estate planning Downing Fund Managers VCT Existing investor Investor centre Institutional Institutional investors Infrastructure asset management Raise Development Capital Energy Healthcare Leisure Property Wholesale Finance Ventures Ventures home About ventures Portfolio Ventures team Ventures careers Legal & support Privacy & cookie policy Information Security Policy Statement Terms and conditions Terms of business Inducement disclosure FAQs Pillar III Modern slavery statement Fraud prevention Complaints Social Twitter LinkedIn Downing LLP does not provide advice or make personal recommendations and investors are strongly urged to seek independent advice before investing. Investments offered on this website carry a higher risk than many other types of investment and prospective investors should be aware that capital is at risk and the value of their investment may go down as well as up. Any investment should only be made on the basis of the relevant product literature and your attention is drawn to the risk, fees and taxation factors contained therein. Tax treatment depends on individual circumstances of each investor and may be subject to change in the future. Past performance is not a reliable indicator of future performance. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD. VAT Number: 112 940 149 We use cookies to ensure that we give you the best experience on our website. Click here for more information. DISMISS Feedback