The ‘low cost’ approach to economic growth is precipitating a shakedown, forcing businesses in telecom, power, roads, renewable energy and banking sector to shrink, merger, consolidate or shutdown. Across several sectors in India selling ‘cheap’ services to customers may have an appeal, but it is causing financial havoc for companies.
Take renewable power for instance. Despite the widespread use of solar and wind power, the hyper-competition among companies to provide ‘low cost’ power and falling tariffs have caused acute distress.
As the first term of the Narendra Modi government set an aggressive target of 175,000 MW renewable power generation capacity by 2022, companies should have jumped at the opportunity.
They did. But the fall of many of those companies has been equally hard.
Solar energy was to constitute over half of the renewable power installed capacity by 2022. But it has been hit because of falling tariff and also capping of tariff by some state governments.
For the year 2018, investments fell 15 per cent to $9.84 billion. The installations for the year also saw a 15.5 per cent fall to 8263 MW.
Rapidly falling wind power tariff has, proverbially, taken the wind out of the sails for Indian companies. Little wonder, companies are wondering if the bids are sustainable and can be executed by the companies.
While the bids are very aggressive, getting land for renewable projects, wheeling the power to the deficit states or supplying to the grid and other procedural challenges have made the renewable power business a big challenge for the companies.
Reference- The Print, Telegram, Business Standard, Economic Times