India’s Lanco “Open” to Deals as Solar Industry Poised for Consolidation

Lanco Infratech Ltd. (LANCI), set to emerge as India’s biggest builder of solar power plants, said it’s willing to consider overseas acquisitions with the industry poised for consolidation.

“There’s a shake-up happening in the solar industry,” said V. Saibaba, chief executive officer of Lanco Solar Pvt., a unit of India’s largest non-state power producer. “If any interesting opportunities come our way, we’re definitely open.”

Clean-energy companies are likely to become the most active targets in merger and acquisitions for groups seeking cheap assets to enter the fragmented industry, Allen Wells, an analyst at Morgan Stanley, said in a May 16 note. Last month Total SA (FP), Europe’s third-largest oil company, made the largest purchase ever of a solar cell and module maker with a $1.38 billion deal for 60 percent of SunPower Corp. (SPWRA), said Nathaniel Bullard, solar analyst at Bloomberg New Energy Finance.

Smaller companies may come under pressure to find buyers in Europe, where tariffs paid to renewable energy generators are falling, and China, whose equipment suppliers face declining prices, Saibaba said.

“It will be difficult for many of the small companies to go to the next level,” Saibaba said in an May 27 interview in Gurgaon, near the capital of New Delhi.

Overseas Contracts

Hyderabad-based Lanco is building two of India’s largest solar thermal plants and its biggest photovoltaic plant. Solar thermal technology uses sunlight to heat liquids that produce steam for generators, while photovoltaic panels directly convert sunlight into an electrical current.

The company aims to build 500 megawatts of solar capacity annually in India by 2014, is partnering with Spain’s Initec Energia for technology, and is looking for work overseas as a contractor, Saibaba said. It added orders for 43 billion rupees ($954 million) of solar projects in the financial year ended March 31, the company said in a filing today.

“We see a lot of growth so we’re starting to build our capabilities,” Saibaba said. “We have an edge,” because of the 4,000-employee engineering and construction division of the parent company, which has built coal and hydropower plants, roads, and an airport, he said.

Lanco Solar has opened an office in London seeking contracts to build solar plants in the U.S., Canada, Italy, France and Germany, he said.

Technology Risk

India’s industrial groups may seek to acquire technology that could be brought back to develop a lower-cost manufacturing base at home, said Santosh Kamath, head of KPMG India Ltd.’s renewable energy practice, who estimates that almost 75 percent of what’s necessary to build a solar thermal plant today can already be made in the south Asian nation.

“Acquisitions are a possibility, but the only thing is timing,” Kamath said by telephone from Mumbai. “Once you buy a company, you’re committing yourself to a certain technology.”

India companies may wait a year or two to see which technologies emerge as winners in the new sector before buying equipment manufacturers, he said. In the meantime, some are already tying up partnerships with European companies to make supporting infrastructure, like transmissions towers and solar mirrors, he said.

Financing Deadline

Lanco won a permit to build one of India’s first and largest solar thermal projects in a December auction. It faces a July 9 deadline to get financing from lenders.

“We’re very close,” Saibaba said. “We have an advantage. We’re financially strong as a company.” The parent company had cash and near-cash of 19.5 billion rupees as of Sept. 30, according to data compiled by Bloomberg.

Lanco will build the 100-megawatt plant based on Initec Energia’s parabolic trough-technology that will allow it to store 4.5 hours of electricity in molten salts, Saibaba said. Lanco will also build a second, 100-megawatt for KVK Energy & Infrastructure Pvt., according to an Initec statement on its website.

Lanco is investing $300 million in a factory that has begun producing 50-megawatts a year of modules and will expand to make 80-megawatts of ingots, wafers and cells, as well as 1,250 metric tons of polysilicon by 2012, he said. Later, the company may try to make an alternative raw material to polysilicon called metallurgical-grade silicon in India, Saibaba said.

Lanco and Germany’s Juwi Holding AG won an order last week to build a 75-megawatt plant for Maharashtra State Power Generation Co., India’s largest photovoltaic facility to date. It’s scheduled to complete a 35-megawatt photovoltaic plant in western Gujarat state as early as October, Saibaba said.

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at  landberg@bloomberg.net.

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