Risk assessment is an essential part of decision making process for a lender or an investor. There are different types of risks at each stage of starting the module production venture and each risk has to be mitigated in different ways. Before making an investment decision in the solar PV modules segment, one has to thoroughly analyze the risks involved in venturing in to solar PV module production. A clear mitigation strategy should also be put in place before committing on investments. Lenders like banks, VCs and PEs will also be extremely keen on understanding the risks and mitigation strategies.
Risks involved in the investment for solar PV can be broadly classified as follows- project completion risk, country and financial risks, operational risks, market risks.
Time overrun and cost overrun are two major risks associated with project completion risks, which can be mitigated by setting penalty clause for delay, and cost overrun does not usually pose a major risk.
Country and financial risks are usually macro risks, but will be mitigated by maintaining adequate liquidity with the promoters. Operational risks come in different forms like, Government policy and regulatory, supply, technology. Low cost import, excess capacity, infrastructure, certification/testing, delay in obtaining export license and such. While most of these are external risks, they can be mitigated through careful implementation of strategies.
Finally, market risks can be categorized into commodity market, competition from low cost countries, marketing costs abroad, and competition from existing players. All of these can be mitigated by developing a product differentiation strategy and establishing partnerships with marketing channels abroad. It is a wise decision to pay special attention to the above mentioned risks and strategies for mitigation before a decision is made on lending/investing in a Solar PV module production facility.
