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Softbank Is Making What May Prove to Be the Crucial Investment in India’s Solar Era

June 24, 2015
Tim Buckley

Softbank Corp., the Japanese technology giant, has just given India’s solar-energy momentum a colossal push.

As reported widely on Monday, the company—in partnership with India’s Bharti Enterprises and Taiwan’s Foxconn Technology —is committing to investing some $20 billion to develop 20 gigawatts of new solar energy in the second-most populous country on the planet.

Softbank CEO Masayoshi Son had the quote of the day in a 12-word summation that reveals the no-nonsense rationale behind why a Japanese company sees so much opportunity in India relative to Japan: “Twice the sunshine, half the cost, that means four times the efficiency.”

It’s a no-brainer, in other words, and Softbank is not putting money into a vacuum. Under the recent leadership of Prime Minister Narendra Modi, India aims to develop 100 gigawatts of solar-power electricity over the next seven years as part of a program to roll out 175 gigawatts of renewable energy capacity at a cost of about $200 billion. The Softbank/Bharti/Foxconn stake is good for a full 10 percent of that solar goal, and it is significant for more than just its size—it provides just the sort of foreign capital and private-sector endorsement that will help the Modi government hit its mark.

INDIAN COMPANIES HAVE GOTTEN THE BALL ROLLING WITH CAPITAL AND PROJECT COMMITMENTS THAT INCLUDE INITIATIVES BY COAL INDIA LTD ($1.2 billion for 1 gigawatt of solar), NTPC Ltd. ($10 billion for up to 10 gigawatts of renewables), Adani Enterprises ($10 billion in three solar ventures for a combined 12 gigawatts), Sembcorp ($250 million annually for 0.8 gigawatts of renewables); India Railways ($1 billion for 1 gigawatt of distributed solar on railway stations, Reliance Power (for six gigawatts of renewables through a memo of understanding with the state of Rajasthan), Tata Power Renewable Energy (200-300 additional megawatts per year of renewables), Aditya Birla Group ($1 billion for 1 gigawatts of solar) and Hindustan Powerprojects (1 gigawatt of solar).

It all adds up. It helps, of course, that the U.S. government has pledged $4 billion in solar investment in India and France has committed 2 billion euros, about $2.4 billion dollars.

While Softbank’s move more or less doubles the commitments on the table, it’s important also because the company has been deeply involved over the past three years in the solar surge across India. It knows the territory and understands the market.

THE SOFTBANK ANNOUNCEMENT BUILDS, TOO, ON RECENT MOMENTUM BY EARLY MOVERS THAT INCLUDE TWO U.S. COMPANIES: Sun Edison, which has signed onto a five-gigawatt solar project with the Rajasthan government, and First Solar Inc., which is in a smaller deal with the state of Telengana. Collectively, this activity stands to create more solar-development access to low-cost equity-investment vehicles like those seen in the U.S. yieldco sector.

Just as important, the government of India is working with KfW (the German development bank), the Asian Development Bank and the World Bank to provide and dramatically enhance international financing for India’s solar boom. Bridge to India, an Indian engineering and solar-consulting company, estimates that the plan in the works would provide development debt at about 8.5 percent per year, compared to current debt costs in India of 12 to 12.5 percent and open up access in India for global debt capital.

We’ll be coming out with a report next month that explores the implications of solar revolution in India in much greater detail. In the meantime, Softbank’s infusion moves the Indian electricity market that much further from its reliance on coal.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia.

Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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