India solar groups weigh force majeure to cope with coronavirus

India’s solar companies are banking on government support if a prolonged coronavirus shutdown of businesses in China, their top component supplier, makes it necessary to declare force majeure.

The fledgling industry sources around 80 per cent of its solar modules from China, making India’s expansive clean energy goals heavily dependent on its northern neighbour. But the spread of Covid-19 in China, where the virus originated, has caused factories to shut and brought cargo shipments to a halt.

That has put Indian solar companies at risk of missing deadlines for projects, leaving them facing fines and penalties. 

In response to industry concerns, India’s finance ministry in February said that businesses with supply chains disrupted by coronavirus in China could declare force majeure, using the “act of God” clause that frees them from contractual obligations due to unforeseeable events. 

This gave solar companies the green light to invoke the clause if they were unable to meet deadlines — many of which are for government energy projects.

But analysts say that beyond force majeure, companies may need financial support to deal with working capital costs and interest payments due to the delay.

India has outlined ambitious clean energy targets. It aims to increase its renewable energy capacity to more than 175GW by 2022, with 100GW of that coming from solar energy. Progress has been slowed already by policy confusion and land acquisition issues, with the virus posing a new threat to its plans.

Raman Nanda, chief executive at SoftBank’s renewable energy arm, SB Energy, said: “Coronavirus will impact projects to be commissioned in the next three to four quarters as we and other developers scramble to meet commissioning deadlines.

“We have a plan to deliver on time, but given the rapidly changing situation no plan is 100 per cent guaranteed.”

Mr Nanda said “the government has been supportive”, adding that he expected authorities to recognise force majeure should SB Energy be unable to meet deadlines and invoke the clause.

Sumant Sinha, chairman of ReNew Power, one of India’s largest renewable energy companies, suggested his company was also considering using the clause. 

A prolonged disruption “can impact some of our projects due for commissioning later in the year”, he said. Allowing companies to fall back on force majeure “will provide much needed relief to the industry”. 

Crisil, a local subsidiary of S&P Global, the rating agency, said deadlines on nearly 3 gigawatts of solar projects worth over $2bn risk being missed starting as soon as July. Crisil said that for a 100MW project, for example, fines start at Rs200m ($2.7m) and become more severe thereafter. 

Subodh Rai, a senior director at Crisil, said companies had limited options to mitigate the risk. Prices for parts from alternative suppliers, such as Taiwan or Malaysia, were about 15 to 20 per cent higher. 

If the coronavirus outbreak becomes protracted, there will be “more and more projects coming at risk”, he said.

Vinay Rustagi, managing director of Bridge to India, a renewable energy consultancy, said that even in an optimistic case businesses might not return to normal for two or three months.

The situation highlighted the importance of diversifying away from Chinese imports, including by boosting domestic manufacturing, Mr Rustagi said: “We are extremely dependent on China for meeting our numbers.”