Solar is a highly dynamic industry, with a vast number of developers, EPCs and businesses trying to establish their foothold over the market.
While the conventional rooftop solar sector has been mainly driven by rooftop owners investing their capital to build the solar power plant, in the last 3 years, a more innovative model has been growing – this has been variously called the BOO (Build Own Operate) or OPEX (Operating Expense as against the traditional Capex or Capital Expense model) or PPA model (as in this case the owner of the rooftop signs a PPA to purchase solar power from a developer who installs and maintains the solar power plant.
What it is called by (we will call it the OPEX model for this blog post), the basic principle is the same: Instead of a rooftop owner (say a company) investing his own money to put up a solar power plant, a solution provider invests the capital on the solar power plant and also maintains it. In turn, the rooftop owner agrees to purchase the power at a predetermined price for a predetermined period.
A few companies had started offering this solution in India in the recent past, and among them, Amplus Solar is one of the more prominent.
I had the opportunity to meet the MD of Amplus Solar, Sanjeev Aggarwal, at his Gurgaon office a couple of weeks back, and thought I would do a quick post on the company and its offerings.
Uniqueness of Amplus Solar in the Indian Context
Amplus Solar remains unique in the sense that they plan to focus only on one business segment within solar, i.e., the zero/low upfront investment (OPEX) model for solar installations, and make a difference therein. Amplus believes that OPEX can be a sustainable business model for solar and has huge scope in a country like India. This is based on the notion that especially commercial enterprises and industries are not at the luxury to allocate resources for setting up a solar system, which is not a part of their core business and would prefer a zero/low upfront investment model.
Moreover, unlike most solution providers that resort to scores by credit rating agencies like CRISIL to choose clients, Amplus has equipped itself with its’ own due diligence framework. Apart from the client’s reputation and financial background, they focus on building long-term partnerships.
Another highlight is that the PPA tariffs offered by Amplus solar is reflective of market dynamics and varies in different states with structures ranging from fixed to escalating and linking it to the grid prices. This pinpoints Amplus’s emphasis on providing solutions based on customers’ needs and their focus on building effective long-term relationships.
In terms of offerings, Amplus provides you with a PPA-based solar power, either from your rooftop or from a ground mounted solar power plant located off-site.
Rooftop vs Off-site
The advantage with an off-site solar power plant is that it can accommodate a much larger capacity of solar power plant (can run into many MW if you wish), while in most cases rooftops can accommodate much less than 1 MW. Thus, off-site solar power has the potential to satisfy a significant percentage of a commercial or industrial establishment’s power requirements. The only downside is that open-access charges, as applicable by the off-taker, will have to be paid for using the grid.
Rooftop solar, for commercial / industrial sectors, most times cannot provide more than 20-25% of the total power consumption, and for many industrial settings, less than 15%.
With a combination of rooftop & off-site OPEX solar offering, Amplus has been able to close about 20 MW of installations in just over the last couple of years. While this might not look large, you have to consider that, as per Solar Mango estimates based on a study we did recently, the entire Solar OPEX market in India is only about 90 MW in all – so you are looking at Amplus having almost 25% of the market share in this nascent sector.
Challenges facing Amplus Solar
Amplus Solar is one of the first such firms to have received significant financial backing, in their case from I-squared Capital, a US-based private equity firm with $3 billion of assets
Now, given that a few of its pure play competitors are so well backed, Amplus Solar indeed has some time on its hands to shift gears. At the same time, this sector is filled with challenges.
The main challenges that Amplus Solar faces while implementing the OPEX model are as follows:
- Absence of AD benefits
- Smaller customer base due to pure play offerings
In the current regulatory framework, Amplus Solar is faced with a short-term challenge of not being able to take advantage of Accelerated Depreciation benefits. This positions them at a disadvantage compared to other players who can quote lower PPA rates due to AD being favorable for them. However, given that the AD will be reduced to 40% from April 2017 from the current 80%, Amplus believes that its current challenges prepare it better for the longer term to offer a more sustainable solution.
Another challenge is market education. Currently, there is an element of market education that needs to be done for the OPEX model prospects, as a large portion of the target segment (commercial and industrial sectors) have only a vague idea of how this model works. Well, I reckon some of this education has to be done by pioneers such as Amplus.
By accelerating the pace and enhancing the quality of installations, Amplus aims to streamline their operations all over India. In fact, after they received funding in August 2015, more than 20 MW of installations have been already completed under the OPEX model.
Currently, they operate across industries including hospitals, FMCG, textile, hotels, warehouses, automobiles, commercial buildings, toll plazas, and airports, in 12 states.
|On an interesting note, Walmart India has recently partnered with Amplus Solar to install 5 MW of rooftop solar plants across its various outlets in India.|
Recently, I had been interacting with quite a few companies offering solutions in the BOO/OPEX model. Even though I spent less than an hour with Sanjeev Aggarwal, the CEO of Amplus, was impressed mainly owing to the focus that the company has on pursuing the OPEX model – be it on the roof or off it. Some other companies I met were trying to hedge their bets by offering both the Capex and the OPEX models, but Sanjeev was very clear that it was the only model he would focus his company on.
Amplus Solar is fast becoming an established pure play OPEX player in the Indian solar market. With reliable inflow of capital, their vision is to accelerate deployment of solar under the OPEX model and obtain economies of scale that could lead to profits over the long-term.
In terms of future goals, Amplus intends to steadily increase its capacity with plans to add am ambitious 500+ sites with solar installations over the next 2-3 years, amounting to an estimated 150-250 MW. Not easy given the challenges, but a focused player has a reasonable chance to achieve it.
In sum, Amplus is definitely a solution provider to watch out for and are expected to acquire a large share of OPEX-based solar installations in India.
All the best to Amplus, from Solar Mango.
Short Interview with Sanjeev Aggarwal
A section from Solar Mango’s interview with Sanjeev Aggarwal has been given below.
Solar Mango: Tell us briefly about your education and professional background.
Sanjeev Aggarwal: I founded Amplus Energy Solutions Pvt Ltd, one of the fastest growing distributed solar generation companies in India. I specialize in building businesses, project development, investment management and project finance in the energy sector. Prior to Amplus, I led the business development team for AES Corporation in India. I am trained as a mechanical engineer, with an MBA degree from IIM, Ahmedabad.
SM: What got you interested in offering this model?
SA: Energy is the backbone of any industry and is a large portion of day-to-day operational expenditure. At Amplus Solar, we strive to bring down energy consumption costs by assisting consumers leverage uninhabited space and achieve greater control on their energy supply.
I feel the OPEX model helps deliver immediate, risk-free savings on energy with no investment from the customer or any hassle of operations or maintenance and allows the customer to focus on their area of expertise while we focus on ours.
SM: The OPEX model is a nascent model within the solar power sector, which itself is nascent! What are the advantages and challenges faced by a pioneer such as yourself?
SA: In an OPEX model, there is no upfront investment, the customer only pays for what he consumes. This minimizes risk on the part of the customer as the operation and maintenance responsibility of the plant lies with the project developer. This model is quite lucrative to the customer since it involves zero upfront investment, zero maintenance costs and guaranteed energy savings.
The model comes with its share of merits and demerits for the developer as well. For an asset building company such as Amplus, it provides a potential upside through tariff escalations linked to grid, diversified portfolio of customers and modular nature of the projects.
Apart from the advantages, there are certain downsides as well such as lack of consumer awareness, poor bankability of private clients, poor legal enforcement structure, lack thereof and high cost of debt financing, high ancillary charges etc.
Hence, the government would have to promote a robust and streamlined policy framework to help create an ecosystem that would support capacity addition and boost market penetration of solar rooftops.
SM: What is your wish list for our governments – central and state – in order that solar power, especially distributed solar power grows much faster?
SA: The need of the hour is to create an effective ecosystem to enhance solar power generation capacity across India by promoting favorable policies and developing a sustainable regulatory framework.
Enforcement of net metering guidelines across states and renewable purchase obligations, strengthening of grid infrastructure to accommodate intermittent solar power, and promoting storage solutions by way of incentives, subsidies etc. form the foremost tasks of the solar power industry.
While talking about rooftop solar in specific – extension of tax holidays, waiver of electricity duty and banking charge for solar rooftops, activating REC benefits for rooftop projects and captive projects will certainly motivate more rooftop installations to come-up in cities and towns. The industry strongly advocates giving incentives and rebates to the customer to make solar an attractive and viable option. The solar rooftop industry will certainly need better non-recourse financing options by increasing power sector exposure limits of domestic banks.
Going ahead it will be necessary for the state and central governments to conduct targeted studies to assess strengthening of grid infrastructure to accommodate intermittent solar power and banking of power.
SM: What are the key skills that you have in your team that you feel will help you overcome the challenges and grow at the pace you wish?
SA: Amplus has a 75+ dedicated team of professionals who are experts in the power sector and have top-notch industry and educational background. We believe in empowering the team members and keep them motivated so that have a sense of belongingness in their work. The enthusiasm, focus and hard work of the team has helped Amplus grow to 25000kW in just 2 years of its operation.
SM: Even at 100 GW, solar will contribute not much more than 5% of our total power needs by 2022. How do you then foresee solar becoming a more powerful energy source, rather than being a marginal player?
SA: Going forward policy interventions such as demand growth measures, enforcing Renewable Purchase Obligations (RPO), bankability of state distribution companies, investment/ lending appetite at aggressive tariff levels, grid infrastructure to accommodate intermittent supply of RE etc., would have to be key to the sustainable growth of the sector. In addition to this, it is essential to promote the distributed solar market by providing a robust and streamlined policy and regulatory framework to allow capacity ramp-up and large scale deployment across the country. This market needs more focused policy support to ensure effective net metering implementation and attraction of financial investors. Overall, the growth prospects for the Indian solar market are very bright providing an immense opportunity for investors, developers and equipment suppliers.
SM: Would you be willing to share the case study of an installation by Amplus?
SA: One of the interesting projects that we have done is at the Yamaha factory in Noida, India. This 4 MW project is the largest captive rooftop solar project in India where all the power is being consumed by Yamaha. Since starting this project, we completed it within 4 months. This project will sell power under the OPEX model to Yamaha India under a long term PPA of 20 years and then transfer the plant at nominal cost to Yamaha.
To choose Amplus Solar as installer/EPC for you solar system, please contact Mr. Nikhil.