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Let the sun shine on your portfolio

Who says art and wine are the only alternative investments? Solar power, too, is gaining recognition as an asset class


What’s common between an MF Husain painting and a solar panel? Nothing. However, solar power is slowly gaining recognition as an asset class, like art.

It will take time for solar power to acquire the vibrancy of gold or real estate , but it looks like investors and wealth advisors are increasingly eyeing solar units as an alternative asset.

‘Solar funds’ or business trusts that have a solar plant as their underlying asset may well take off in India.

“Solar power plant assets with creditworthy counterparties are perhaps the best asset class for investors looking for predictable cash flows and returns over long periods such as insurance funds,” says Inderpreet Wadhwa, CEO of the US-Exim Bank-backed, Azure Power, which owns 55 MW of solar plants in India. Pashupathy Gopalan, who heads the India, Asia-Pacific, West Asia and South Africa operations of the US-headquartered $2-billion SunEdison, makes three solid arguments for solar funds.

Making the case

First, the solar photovoltaic technology is 50 years old and is, therefore, “beyond proven”. Second, a well-maintained solar power plant will generate power with mulish consistency year after year for a quarter century — which means, visible long-term revenue stream. How unlike art that is!

Third, at least in India, there is no risk of the product — electricity — not being sold.

The buyer is almost all the time a government agency and is bound by a long-term power purchase agreement.

You may dismiss Pashu and Inder as solar-geeks of inevitable bias, but wealth advisors have also begun to look at solar.

“It is already happening,” says IAS Balamurugan of Metis Family Office Services, a wealth advisory.

A client of his offered to invest in a solar asset precisely because it features assured demand and supply.

The fund route

The marquee example of actor Ajay Devgn, who said in 2012 he would invest in solar plants, strengthens the case.

To Rupesh Agarwal, Vice-President, EY, the fact that HNIs and SMEs are putting up rooftop solar plants and availing themselves of tax benefits indicates that “the inflexion point for capital deployment in solar is around the corner.” Solar funds are cropping up in regions far less sunny than India.

The UK-based Foresight Solar Fund raised £150 million last October from the public to invest in solar plants.

Bluefield Solar Income Fund, also based in UK, says in its website that it has been “involved” in £350 million of solar-focussed funds and would “target long-life solar energy infrastructure”.

NRG Yield of the US mopped up $345 million in February through a bond issue that pays 3.5 per cent.

In India, returns upwards of 11 per cent are possible, says Pashupathy Gopalan. It takes about ₹8 crore to set up a 1 MW of solar plant capacity. Calculations provided by his company show that even without ‘accelerated depreciation’, returns can be more than 13 per cent.

Abroad, it is not uncommon to see a group of individuals owning a solar asset through a Trust. Founder of Auroville Consulting, Dutchman Toine van Megan, a solar buff who has made India his home, says his 92-year-old mother owns a part of a rooftop solar PV system in The Netherlands; the energy produced by the solar panels in her name is credited to her electricity bill.

She could not place solar panels on her own roof, since she lives in a multi-storeyed apartment building.

“This is a nice solution for the roof-less to have the benefits of rooftop solar,” says Toine.

Teething problems

There are challenges, but none very big. Madhavan Nampoothiri, Founder & Director, RESolve Energy, a Chennai-based solar consultancy, notes that long-term performance of solar plants in India has not been ascertained yet.

There are other India-specific issues. The recent move of Gujarat’s state-owned electricity retailer seeking retroactive cuts in tariffs, though unsuccessful, has unnerved the market.

In Rajasthan, inadequacy of evacuation infrastructure has forced some plants to reduce generation. But most see these as teething problems in an infant industry. Rupesh Agarwal sums it up thus: as the industry matures and concerns around project quality and stability of cash flows ebbs, investor appetite for solar can only head north.

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