August 22, 2019
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SoftBank's bid to build a solar-power empire founders

 Softbank founder Masayoshi Son speaks at a technology and innovation forum in Taipei, Taiwan, June 22, 2019. EPA-EFE FILE/RITCHIE B. TONGO

Softbank founder Masayoshi Son speaks at a technology and innovation forum in Taipei, Taiwan, June 22, 2019. EPA-EFE FILE/RITCHIE B. TONGO

By Phred Dvorak and Rory Jones

Tokyo, Aug 10 (efe-epa).- For years, SoftBank Group Chief Executive Masayoshi Son has talked about building a global renewable-energy empire capable of carrying solar power across continents.

The Japanese investor sought deals of immense scale in Saudi Arabia, India and beyond. He promised to spend hundreds of billions of dollars tackling one of the world's toughest challenges – meeting its growing energy demand with less carbon-intensive sources.

Today, his boldest proposals are foundering, according to an EFE/Dow Jones report.

Son has announced plans to build as much as 220 gigawatts of solar capacity in Saudi Arabia and India by 2030 – equivalent to half of what exists today around the world.

Yet SoftBank has managed to contract for around 3 gigawatts in India and has about 700 megawatts in Japan.

The company hasn't completed a project in Saudi Arabia and doesn't appear close to winning a major contract there soon.

In India, developers including SoftBank were hit last year by unexpected increases in taxes and tariffs, cancellations of auctions and land disputes. One solar park in the country where SoftBank is building a plant has been hit by delays stemming from squatters refusing to move off the land allocated to the project.

Rivals within the company have jousted over who would lead expansion efforts, and executives misread markets or fumbled relationships with government officials, according to interviews with people familiar with its solar business.

Many of its new projects aren't likely to generate the kinds of returns Son had hoped for, the people say.

The problems have sowed doubts among potential partners, leading government officials with grand energy visions of their own to question whether SoftBank is capable of delivering what it has proposed.

In the technology sector, betting big can accelerate growth and disrupt markets, says Manoj Upadhyay, CEO of ACME Solar Holdings, one of India's biggest solar-power developers. "But in infrastructure, it cannot."

Son said SoftBank's solar business has been focusing on India and "is still expanding vigorously" at a pace that could eventually make it one of the world's biggest developers. "As for Saudi Arabia, it has its own internal plans and things to manage, so it will take a little while, " he said at a press conference this week.

SoftBank says it has made inroads in India and Japan, and company executives still see more to come.

"I honestly believe what we're doing today is a tenth, a fifteenth, a hundredth of what's about to happen," says Raman Nanda, chief executive of SoftBank's Delhi-based energy unit.

SoftBank runs and invests in the $100 billion Vision Fund, the world's largest technology-investment vehicle. The company is launching a second fund it says will be even bigger.

For solar ventures, SoftBank has two main energy units – one in Japan, the other in India. Both have said they are responsible for new projects in Africa, and both are exploring opportunities in Saudi Arabia, people familiar with them say.

SoftBank never formally decided who would handle a major Saudi solar development, although the India unit ended up spearheading work, those people say. Both units are called SB Energy, although the India team late last year added "Global" to its name.

Son, who founded SoftBank in 1981, is famous for his grand visions, even among technology founders. In 2016, he orchestrated a $32 billion purchase of United Kingdom-based chip designer ARM Holdings, predicting Arm's architecture would be in 90 percent of a trillion connected devices by 2035.

The Vision Fund, which poured billions into WeWork, rarely cuts checks of less than $100 million and often presses companies to take more money than they had planned.

Son's alternative-energy efforts date from 2011, when a tsunami caused a nuclear meltdown and energy crisis in Japan. Son announced plans for dozens of solar projects at home and began seeking deals abroad, aiming to create transnational power grids that could export solar or wind energy from places including India, Mongolia or the Middle East.

At one point in 2011, Son told his board that he was planning to quit SoftBank for a year to focus on energy issues, prompting a shouting match as they argued him out of it, he has said.

In 2015, Son met Indian Prime Minister Narendra Modi – another renewable-energy fan – and they hit it off, according to Satoshi Shima, then-head of SoftBank's office of the CEO. They exchanged cellphone numbers, Shima says.

The two discussed an investment of as much as $100 billion, Shima says. Son, after the meeting, announced a more modest plan for 20 gigawatts of solar energy in India, at an estimated cost of $20 billion. That is almost seven times what the country had installed at the time.

SoftBank brought in Nanda, a solar veteran who had been working with the company's renewable-energy team in Japan, to run the new India unit.

It landed its first contract for a 350-megawatt plant in December of 2015 – more than half the size of SoftBank's entire Japan solar portfolio – four months after it was founded, with eight staffers.

The real boost to SoftBank's solar ambitions would come months later in 2016, after Son connected with Saudi Arabia's Crown Prince Mohammed bin Salman.

Son has said it only took him 45 minutes to convince the Saudi royal to invest $45 billion in SoftBank's Vision Fund. In return, Son has publicly promised to help remake the kingdom's oil-dependent economy.

As SoftBank sought to deepen its financial ties in Saudi Arabia, discussions between Son and the country's sovereign-wealth fund, called the Public Investment Fund, turned to solar.

SoftBank could help Saudi Arabia achieve its long-sought goal of using less oil in domestic power production and exporting it instead, Son said, by building up the kingdom's solar-power capacity, according to a person familiar with the discussions.

In the fall of 2017, Son and the PIF floated their initial plan with a group of Saudi energy officials. As partners, they would build 1,500 gigawatts of energy-generating capacity, complete with plants to make the solar panels and create 100,000 jobs.

Saudi officials burst out laughing, according to people familiar with the proposal. The 1,500 gigawatt total was more than triple the entire world's solar-power capacity at the time.

Son argued in one meeting that to compete with China, the world's biggest solar-panel supplier, a developer would have to be at that scale and take on that kind of risk, one of the people says.

For decades, the country's powerful energy ministry has driven a hard bargain with international oil companies, seeking to maximize the value of the kingdom's abundant natural resources. They planned to do the same with Saudi Arabia's abundant sunshine as well, and the ministry had its own renewable-energy unit with a less ambitious solar plan.

In March, Prince Mohammed and Son made a surprise appearance at New York's Plaza Hotel. Together, SoftBank and the PIF announced a plan to build 200 gigawatts of solar capacity at a cost of $200 billion by 2030. The press release, issued by the Saudi embassy in the United States and the PIF, didn't mention the energy ministry at all.

The deal wasn't subjected to the kind of vetting and bidding process energy officials in the country use for oil deals, according to people familiar with the process. Energy officials felt slighted by the announcement and viewed it as unrealistic, the people say.

A month later, Son pitched Indian officials a plan to develop 1,200 gigawatts of solar power by 2030, along with 2,200 gigawatt hours of battery capacity to store that energy and manufacturing plants to make panels and batteries domestically, according to people familiar with the proposal. The local industry component was something India dearly wanted.

SoftBank's energy unit in India went shopping for companies to make the batteries needed to support all that capacity. It proposed to invest in a Kentucky-based startup called EnerBlu, which was seeking $60 million to build a modest battery-manufacturing plant, its first. SoftBank said it needed more.

A SoftBank official said Son would want to make a far greater investment and pushed EnerBlu to build a facility that was 10 times the size of its initial plan. SoftBank said it would invest around $400 million, according to former EnerBlu CEO Daniel Elliott.

"Frankly, $60 million doesn't move our needle; I can't take that back to Masa-san," a senior SoftBank executive over India told EnerBlu at a May 2018 meeting, Elliott says.

The world's biggest lithium-battery factory, run by Tesla, currently has a capacity of around 35 gigawatt hours. SoftBank wanted more than 2,000 gigawatt hours of storage for Saudi Arabia and India by 2030, according to one production plan.

SoftBank's Japan solar business was making high returns in the country's heavily subsidized market, targeting around 30 percent investment returns, according to one person familiar with the matter. Son expected returns of 15 percent to 30 percent in Saudi Arabia and India, people familiar with the company say.

In India, government officials reviewing SoftBank's proposal decided the country could absorb only a maximum of 350 gigawatts of solar energy by 2030, an energy official says. With solar technology and prices changing so fast, the government felt it wouldn't be wise to award so much capacity at once, the official says.

Fierce competition for contracts, pressure from local governments wanting inexpensive power, land acquisition struggles and other complications were driving down the profitability of solar-project returns in the country.

Nanda and his team were torn between Son's demand for scale and his push for high returns, the people familiar with SoftBank's business say.

SoftBank skipped one tender for 10 gigawatts of solar-generation capacity.

For another auction of 3 gigawatts last summer, SoftBank told officials it would take the entire amount at a favorable price if authorities revised regulations to let it do so, an Indian official says.

When the government obliged, SoftBank bid for much less, at a much less favorable price, annoying New Delhi.

The award was subsequently canceled.

"Masa-san has a big dream" for unprecedented solar-energy scale, says the Indian official, using a common moniker for Son. "But they are not capable of handling such a large project."

Nanda says SoftBank's India plants "have consistently performed above" targets set by his board and are getting "above-market returns." He says the company has a business that can grow quickly when opportunities arise.

In Saudi Arabia, energy officials had auctioned off solar contracts to other developers based on the lowest price that builders could offer. Saudi officials proposed buying electricity from SoftBank at prices similar to those achieved at auction, which would allow profit margins of 4 percent to 6 percent, the people familiar with the matter say.

By early this year, Son had told officials their proposed returns were too low for SoftBank to invest, a person familiar with Saudi Arabia's renewable program says.

The murder of Saudi journalist Jamal Khashoggi in October, accompanied by allegations, which Saudi Arabia denied, that Prince Mohammed was involved, complicated the kingdom's relationship with SoftBank and made it difficult for the company to do anything together with the country publicly, people with knowledge of the events say.

SoftBank walked away from its proposed deal with EnerBlu in January. EnerBlu, drained of money by the long courtship with SoftBank, has filed for bankruptcy protection.

"SoftBank shows up and says they're going to do all this stuff," says Elliott, who is now working for a private-equity firm in California. "Shame on us for trusting them."

SoftBank says it decided not to proceed with the deal because its due diligence concluded EnerBlu wasn't equipped to handle the scale needed. "No commitments were made at any stage," according to a company statement.

On Jan. 15, the Saudi energy minister unveiled a scaled-down energy plan calling for 40 gigawatts of solar-power generation by 2030.

The energy ministry, which has begun auctioning new projects, is responsible for 30 percent of that and the PIF and international partners the remaining 70 percent, according to a diagram of the plan.

SoftBank wasn't mentioned in the new strategy, and it isn't one of the 60 firms that have received an initial green light to bid on the ministry's latest project.

SoftBank remains an "important partner for PIF and for the Kingdom," the fund said in a written response. It declined to comment on specific investment decisions. EFE-EPA

dj/dl

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