30 July 2012
Engineering, Procurement, and Construction (EPC) is a common type of contract in the construction industry and is now becoming big business in the solar industry. Under an EPC solar contract, the contractor will handle the design, all aspects of the installation, and in some cases may provide financing or some kind of a financial agreement.
In the Indian solar market there are domestic EPC players like Mahindra Solar, Larsen and Toubro, and Sterling & Wilson. And foreign firms, such as Juwi, Martifer, and Conergy are entering the sector due to its burgeoning opportunities. And finally there are joint-venture firms like Enfinity-Titan, Vikramsolar-Proener, and Greenforce-Gehrlicher Solar.
Competitive advantages for EPC businesses in India are no different than elsewhere in the world, with price competitiveness and quality regarded as the most sought after advantages of EPC services. Value-added services and vertically integrated businesses are less important, but still register as competitive advantages.
Working capital requirements
To sustain business in the future, EPC players will be required to incorporate value added services and other features in their services.
Many of India’s EPC firms have the ability to fund projects with their internal resources, while about a third are funded from equity and venture capital firms. India’s solar market is currently very attractive to venture capital funding and that is in large part because of market demand and favourable business conditions. Existing EPC firms get significant business from existing clients/ patrons, and despite the rapidly growing solar market in India, new EPC players have a more difficult time getting business without an established brand name. Likewise, new entrants find it more challenging to self-fund or to generate venture capital.
For those big-name EPC players in India’s solar market, it’s not unlikely to get three to five projects in a year—both utility-scale and residential.
Because the solar market is ripe with opportunity, many companies are seeking a piece of the EPC action. Some have construction experience, and some do not. Some are from within the solar industry, while others are not. While it is true that the most established EPC firms with name recognition win the most business, they are somewhat threatened by these new entrants such as project developers with construction experience and module manufacturers.
The two technologies that are mainly used by the participant EPC players are poly-crystalline and thin film. Because indigenous production for thin film is almost negligible in India, most of the modules based on thin film technology are imported from abroad, whereas most poly-crystalline silicon is fulfilled by domestic manufacturers. Price is the main determining factor for purchasing modules among EPC firms, with quality a secondary criterion.
Balance of system (BOS) products are also chosen based on price, although many EPC players maintain that BOS products are difficult to obtain in India. The other challenge in terms of supply is in finding trained, qualified technical personnel to work on solar projects.
Seeking the advantage
To gain a competitive advantage in India, EPC players must focus on price. Quality is a close second, but there are other ways in which firms can set themselves apart. Offering insurance, operating & maintenance (O&M), warrantees, financial services, and guarantees can set EPC players apart from their peers. Existing players as well as new entrants need to understand that the business will be viable at higher economies of scale because of the level of competition in the market. Also, to sustain business in the future, EPC players will be required to incorporate value added services and other features in their services along with price competitiveness and quality services to be successful. New entrants with in-house working capital will make a quicker entry in the market than those without; however, they need to focus on establishing their brand in the market in order to grab the market share of existing players.
Written by Varun Mittal, a freelance writer specialising in renewable energy in India.