The last one week was quite fascinating for me – I had six different meetings, and each with entrepreneurs/businessmen from diverse sectors, but all having a common interest in renewable energy / sustainability.
One of my meetings was with an entrepreneur from Australia, who had developed a cost effective technology for industrial and sewage wastewater treatment. We had the fortune of having the entrepreneur (who has been in the wastewater treatment industry for over 25 years) work from our office the whole of the week. It was quite a learning experience for us while we took him to 5 different industries where large amounts of industrial wastewater was being treated in effluent treatment plants and to a large municipal sewage treatment plant in Chennai. Water is fast becoming one of the most important commodities on earth, so wastewater treatment could throw up some pretty interesting business opportunities.
The other meetings and interactions I had were almost equally interesting. One was with an entrepreneur from Gujarat who has developed a cost-effective gasifier for power generation, and was keen on exploring feedstock such as algae. The other was with a prominent real estate development company, which was keen on exploring opportunities in renewable energy, with a focus on solar energy.
Two other interactions were with companies from the consumer goods industries – one was with an entrepreneur from the food industry and the other from the textile industry. Except for the entrepreneur from Gujarat who had been doing work and research in the field of biomass based power and bio-products for over a decade, most of the other entrepreneurs I met were fairly new to renewable energy, and thus, had almost the same questions for me – which I’m listing below:
- Is solar energy (specifically, solar PV) based power generation, the best business opportunity for my business?
- Outside of solar energy, what are the other opportunities within renewable energy that will be most attractive for my business?
I thought I’d focus on answering these questions as these could be relevant for many more such entrepreneurs in India.
Our specialty focus areas include
A few words on solar PV power generation, especially the grid-connected ones for which the developer is getting paid under the NVVN scheme:
In case of grid-connected solar PV, you derive your returns from the power purchasing authority at a fixed rate for 20 years. In the context, you are selling a commodity for which your buyer has agreed to pay a fixed price through a power purchase agreement (PPA); in a PPA, the tariff doesn’t change with the economy’s tides.
Some of the people I meet ask me if solar PV (or for that matter any other renewable energy power generation that is grid connected) is indeed only a fixed return business with no business upside potential. I’d be wrong if I say there are no upsides. Even commodity businesses such as these have upsides if played the right way. For instance, another business group that wishes to consolidate might wish to buy your solar PV business at a premium. Another example of an upside is where your group might be better placed to exploit related opportunities in the future, when significant breakthroughs and profitable upgrades make renewable energy based power production a more disruptive business.
But in my opinion, businesses should not get into the solar PV power generation sector with such upsides in mind as a major criterion for evaluation. Rather, they should be conceptually comfortable with investing in a long term business with fixed returns.
Let me get down to answering the two questions:
Is solar PV the best business opportunity for you?
The short answer is: It depends on who you are/what your business is, and what you want to be.
The detailed answer follows.
First, it is easy to determine if solar PV is NOT for you.
Solar PV is NOT for you if:
- You do not have access to considerable capital (i.e. in excess of 20 crores), AND/OR
- You do not wish to operate in a long-term, fixed-return industry.
Similarly, it is also easy to determine if solar PV IS for you if all the following criteria are fulfilled:
- You are keen on entering the power industry, AND
- Your company DNA is compatible with operating in a utility service industry such as power, AND
- If your group has access to (significant amount of) cheap capital, AND
- If your business group has a background that increases your chances of getting a license for solar PV under the NVVN scheme
So, if you fall into one of the two above, the answer is fairly simple.
However, many businesses that come to us do not directly fall in one of the two above. In these circumstances, it becomes difficult to determine if solar PV is the right opportunity for them. It requires more brainstorming and discussion about what the group really wants to do before the answer becomes clear. This is something we do with many of the clients who approach EAI.
Let me turn to the second question.
What are the other renewable energy and related opportunities that are attractive for my business?
As most of you will know, there are opportunities in other renewable energy sources that are almost as, if not more attractive as solar – wind, small hydro, biomass based power. True, each such opportunity carries its own risk and return profile, which is true for practically any business opportunity. At EAI, we have developed data sheets and evaluation criteria that enable businesses to determine which of the renewable energy sources they should be focusing on for putting up power plants.
Briefly, outside of solar PV, renewable energy sources that have significant potential in the short and medium term include wind energy, small hydro, biomass-based power, solar thermal and waste-to-energy. Each of these has its own risks and potential. There could be long term bets such as wave/tidal energy, geothermal and solar CSP but the prospects for these are very clear in the Indian context.
That’s about renewable power. But to me, renewable energy and renewable energy based power generation are only some of the opportunities. It is worthwhile for companies to look beyond the renewable energy sources for power. This is true especially for small businesses. And these are opportunities that most entrepreneurs – even some of the larger ones – are not aware of.
I strongly feel that small businesses should be more excited about opportunities that are not directly in power generation, but are either supporting power generation or outside power generation, within the realm of sustainability. And, there are lots of opportunities here, and some of them are fairly sizable.
Identifying sustainability business opportunities
How do these businesses identify and evaluate the opportunities?
In order to do this, either the entrepreneur needs to do the research herself/himself or go through consultants who already are aware of a range of opportunities.
A smart move would be to get the RSS feeds of blogs that focus on the US and European sustainability market. Typically, India is 3-4 years behind US / Europe when it comes to niche opportunities, so spending an hour every day reading what’s happening there could really open your mind to a whole range of new opportunities.
Evaluating sustainability-related business opportunities
Evaluating business opportunities is never easy. While there are many ways one could evaluate an opportunity, I find the following dimensions to be useful for a first level evaluation – Company DNA and Industry Sector. Most entrepreneurs have comfort levels with one of the sectors – manufacturing, trading or services. While this sounds simplistic, you will be surprised how much we are “wired” to a specific type of sector. At EAI, for instance, we are so completely wired to the consulting and services sector – that manufacturing seems to us like a different world altogether!
In addition, each of us is built as an innovator (call it “creative” if you wish) or as a consolidator. Some of us could be a bit of both, but you get the idea.
- Innovator – Typically involves a mindset that places high emphasis on creativity, research or a search for disruptive opportunities. Keen on taking technology/process risks
- Consolidator – Typically involves a mindset that places high emphasis on business development and attention to incremental improvements. Keen on taking business/financial risks.
Thus, when you wish to evaluate a particular sustainability business opportunity, it could be useful to see if it qualifies as a good fit for you on both these dimensions.
Some examples of businesses for the various combinations could give you more clarity:
While not always the case, opportunities in production and manufacturing are usually of large market size, and scales play a major role. Trading and services, being support sectors, have relatively smaller market sizes, typically, and localization, quality, and customization is usually more relevant than scale. I hope I have been able to give you a general direction for taking the next steps if you are interested in exploring renewable energy business opportunities. I’d be happy to assist you with your further queries. I can be reached at the co-ordinates provided below. Hope you found this article useful. Your feedback is welcome. |
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