Concerns over the drive in India towards solar power are being overplayed in the share price of coal-fired power station operator OPG Power Ventures PLC (LON:OPG).
That’s the view of house broker Cantor Fitzgerald, which says concerns that India might follow the UK and Germany and push fossil fuel to the margins are overdone and the impact on OPG’s business will be minimal.
Recent solar deals in India have suggested a deteriorating price environment in the country, but Cantor says the average solar tariff level is rupees (R)4.18/kWh though three new projects at R3.3/kWh.
The broker has assumed prices of R4.4kWh for OPG, but it sells directly to industrial customers that pay a premium and that makes it very competitive compared to solar power even at those lower prices suggests the broker.
Cantor concedes that there will be a significant amount of new solar capacity added, but demand in India is increasing in step and solar will only account for 6% of the market by 2022.
As such, the broker has left its estimates unchanged as it also expects coal prices, the main cost for OPG, to remain flat in dollar terms.
OPG’s share price has almost halved over the past 12 months, despite a maiden dividend.
There has been one persistent seller says the broker but there is now 166% upside to its target price of 124p and the rating is buy.