Table of Contents
List of Figures
1. Power Sector Breakup ………………………………………………………………………….. 06
2. Market Structure of SPV ……………………………………………………………………...... 08
3. Market Structure – Solar Thermal Power ……………………………………………………… 09
4. Solar Energy Market – Capacity and Growth ………………………………………………….. 10
5. Market Segmentation …………………………………………………………………………... 11
6. Major Players in the Industry ………………………………………………………………….. 12
7. Industry Drivers and Challenges ………………………………………………………………. 16
8. Tropical Location Impact ……………………………………………………………………… 17
9. Cost of Energy Sources ………………………………………………………………………... 21
10. Key Success Factors …………………………………………………………………………… 23
Executive summary
The hunger for energy is increasing with each passing day in the modern world while the primarily used conventional non-renewable sources of energy to satisfy the same are getting scarcer. The need of the day is to fully utilize the abundantly available renewable sources of energy which includes wind, solar, geothermal and biogas. Though these renewable sources of energy are being harnessed to some extent, a lot needs to be done to fully utilize them, which will be a solution to the energy crisis in the world.
The contribution of renewable resources in meeting the energy demands in India is very little and the solar energy sector is still in its nascent stages contributing less than 1% in total energy production from renewable resources. The solar energy is harnessed basically by two methods: solar photovoltaic (SPV) and solar thermal power. While in developed countries economies of scale is pursued to minimize cost, in developing countries like India the cheap labour is fullu utilized to give superior operating costs and higher margins. Major Indian players in the business are Reliance Industries, Moser Baer, Tata BP Solar India Ltd. and others.
What attracts a new entrant into the market?
Tropical location : India gets abundant supply of sunlight thereby increasing the potential of harnessing the solar energy.
Government initiatives: The Indian government has taken many initiatives to encourage use of solar energy and the Ministry of New and Renewable Sources of Energy has introduces schemes like Solar Mission, Aditya/ Akshay Urja shop and many subsidies and policies to attract more and more players in the business.
Complementers, activist groups, new players for polysilicon and increasing efficiency with the advent of new technologies is making this sector more lucrative for new entrants.
What challenges a new entrant faces in the market?
High costs of solar power, high dependence on raw material like polysilicon, volatility in polysilicon prices, land scarcity can create challenging situations for a new entrant.
There is a high entry barrier for suppliers of raw materials (polysilicon), moderate for cell manufacturers and low for installers and integrators.
What are the key success factors?
The key success factors involve technological like modular design and quality, commercial like economies of scale and access to market, organizational like long range planning abilities and encouragement to innovation and socio- political factors like government policies, Kyoto protocol etc. The most critical among them are the technological factors.
What is the future of the industry?
The future of the solar energy industry is bright with increasing demand of enrgy from renewable sources of energy. This is a growing sector in India with increasing FDI . There is a need to bridge the demand supply gap and with increasing government incentives, scope for employment generation and export attractiveness, this is bound to be a profitable venture for a new entrant in the sector.
The Renewable Energy Sector
Wind Energy, Hydro, Biogas and Solar Energy are the principal renewable sources of energy. Renewable energy capacity has reached 13,242 MW in India which accounts for 8% of the total installed power capacity in India. It has witnessed a growth of 128.2% in installed capacity from 3400 MW in 2002 to 7760 MW in 2007. The Ministry of New and Renewable Energy (MNRE)- the nodal Ministry of India at the National level for all matters relating to new and renewable energy, plans to take the total renewable energy capacity to more than 26,000 MW during 11th Five-Year Plan. Wind energy accounts for 70% of the total renewable energy capacity. India plans to more than double its renewable energy capacity by 2012.
Fig: 1 – Power Sector Breakup
Source: Solar Energy – India : ResearchonIndia.com, February 2009.
Solar Energy Sector
Solar energy is one of the promising and reliable source for generating power and thermal applications. Use of electricity and non-renewable forms of energy in air-conditioners, refrigerators and cars by millions of citizens in a developing country like India which is expected to grow exponentially leads to the serious issue of exhaustion of these non-renewable energies. Hence, solar energy which is renewable and non-emissive plays an important role for the generation of the energy can be used for improving environment and life-style of people at large.
Characteristics of Solar Energy Sector
Solar companies from industrialized nations and developing countries differ in their strategic approach. Companies from the developed nations are pursuing economies of scale in their manufacturing processes by using automated equipment to minimize labour costs and improve quality. These huge investments in new equipments gives them higher operating cost structures. The companies from the developing economies utilize labor to perform tasks that are done by equipments in the industrialized countries. The relatively inexpensive cost of labor in developing countries translates into superior operating cost structures and higher margins for the companies. But once the solar energy companies in the developing countries scale up their operations to the size of their counterparts in the developed countries, the cost structure and the policy will become essentially the same one we find in the developed world. As the solar industry in the developing economies grows, it is doubtful that the labor intensive manufacturing will be able to keep up with technology advances and economies of scale. In the coming years, operating cost structures will equalize globally and lead to a price competition
The bulk of India’s production capacity is based on crystalline technology. Initially lighting and telecom application were major. Now entire thing has been covered – rural application, urban and commercial applications. Today the domestic market for PV is about 60 MW and current year we expect it to expand to about 100 MW, all of which is being used for domestic application.
Internationally, there has been a pressure on crystalline due to the way industry growth has moved in last 5 years, which has resulted in shortage of silicon wafers. Now this shortage of silicon wafers has been used by the global industry as an opportunity to scale up in the production of Thin Film. By and large 88% of the production is based on Crystalline globally.
Methods to Harness Solar energy
Solar Photovoltaic (SPV)
This converts light directly into electricity. India ranks 7th in worldwide solar cell production
Solar panel production is done using two technologies :
Crystalline silicon cells – Most dominant technology with more than 90% market share
Thin-film cells – Fastest growing technology due to silicon shortage.
generation of power from solar differs, based on the technology and Crystalline Silicon is giving about 16% efficiency at the production level, while at laboratory stage it is about 24%, similarly is in the case of thin film, it is about 7% in the field, while at lab it is much better.
E.g. Standalone Power Plant
MNRE has funded 33 grid interactive SPV power plants with total capacity of 2.12 MW
Fig: 2 - Market structure for SPV market
Source: Tata Strategic Management Group, Ernst & Young
Solar Thermal/Concentrated Solar Power (CSP)
It involves converting light first into heat and then electricity. In solar thermal energy plants, sunlight is reflected off concave mirrors or lenses to heat oil in metal tubes, which is then used to generate electricity. Power generated can be connected to the grid or supplied to retail/bulk consumers. Examples are Water Heating, Solar Ponds, Solar Cooker, Solar Air Heating
Fig: 3 - Market structure for CSP market
Source: Tata Strategic Management Group, Ernst & Young
Solar Energy Sector – Market Size, Growth Rate and Segmentation
India has Solar Photovoltaic power generation potential of 20 MW per sq. km while Solar Thermal power generation potential of 35 MW per sq. km. The grid connected installed capacity at the end of 10th five year national plan was about 3 MW. It is targeted to add 50 MW during the 11th plan. Solar energy market is worth USD 124 mn Solar energy accounts for a fraction (less than 0.1%) of the total renewable energy installed capacity in India[1]. India has long term goal of generating 10% of the country’s electricity from renewable sources by 2032. Crystalline market share currently is over 90% and thin film is about 6-7% but will grow in the future. In the crystalline PV, the trend is to go to thinner wafers and cells, so less Silicon is used and another trend is to employ metallurgical grade Silicon for wafer manufacture.
Fig: 4 – Capacity and Growth
Source: Ministry of New and Renewable Energy Sources
Market segmentation
Fig: 5 – Market Segmentation
Major players in Indian solar energy market
Solar PV Market: There are 9 solar cell manufacturers, 22 PV module manufacturers and 50 PV systems manufacturers in India. Key players in Indian Solar PV market are BHEL, BEL, Tata BP Solar, Central Electronics, Maharishi Solar Technology, Synergy Renewable Energy, Schott solar, Moser Baer, and Signet Solar India. Acme Energy Solutions plans to set up Asia’s biggest solar thermal energy power plant of 10 MW capacity in Nagpur.
Many companies have announced sizeable investment in solar power recently.
Fig 6 – Major Solar Investments in India
Source: Ministry of New and Renewable Energy Sources
Industry Analysis
Silicon and Wafer Suppliers
The industry attractiveness of the silicon suppliers is high in the recent years. This is reflected in the high prices of polysilicon over the last few years. The PV module manufacturers have been willing to invest large amounts of money as prepayment for polysilicon[2] projects reflects this high attractiveness.
Competition/Rivalry: The industry is currently less competitive with a few large players bringing in most of the capacity. The degree of rivalry is poised to increase in the coming years with new players coming in.
Substitute: The main product of the industry, polysilicon, never had a substitute for several years and this reduced the threat of substitutes. Polysilion was the major constituent for the manufacture of crystalline silicon-based Photovoltaic Cell. But recently, upgraded metallurgical silicon has emerged as a viable substitute. As the confidence in upgraded metallurgical silicon increases, the industry attractiveness of polysilicon companies bound to decrease.
Barriers to Entry: The silicon supplier industry is characterized by high capital costs, long lead time for setting up capacity, economies of scale and the effect of learning curve that creates the difficulties in mastering the manufacturing process easily. These create high barriers to entry.
Bargaining Power of Suppliers: The silicon raw material does not have too many supply constraints. So the bargaining power of suppliers is low.
Bargaining Power of Buyers: There are a large number of PV module / Cell manufacturing companies, which emerged in the last few years. Moreover, there are capacity constraints in polysilicon, which created silicon crisis a few years back. These characteristics make the bargaining power of buyers limited. There were a few companies which attempted to backward integrate into polysilicon, but the level of difficulty involved in manufacturing polysilicon ensures that not all companies are willing or even capable of adopting backward integration.
Threat of New Entrants: New entrants into the manufacturing of polysilicon industry are expected to bring down the prices of this prime ingredient of solar photovoltaic cell. Due to the increasing need for polysilicon and the deficiency in energy present in the country, the new entrants are expected to improve the industry conditions of the PV module and cell manufacturers and bring down the cost of all the players in the industry.
Cell and PV Module Manufacturers
Competition/Rivalry: This part of the supply chain is less concentrated with a large number of players and greater rivalry among existing players.
Substitutes: Governments all over the world are giving incentives to renewable sources of energy. Considering this, the substitutes for Solar energy sector are other alternative sources of energy, such as biomass energy and wind energy. Threat of substitutes is limited for the solar power sector due to the energy scarcity prevailing in the country. Solar energy systems are used mainly by railways, telecom, space organizations etc., and the use of substitutes are more costly and inconvenient for them. Moreover, for telecom companies and space organizations, generating electricity from other resources are not convenient due to the need for continuous fuel supply in the case of non-renewable alternatives like generators, and the inconvenience of power transmission mechanism.
Economies of Scale: The PV manufacturing industry is technology intensive, and also has economies of scale. But the number of new companies entering the industry is very high in the recent years due to the incentives given by the government of India. The players who have the economies of scale are going to dominate this industry and the entry barrier is bound to increase as these players scale up their operations.
Bargaining Power of Suppliers: The bargaining power of suppliers (ie.Polysilicon manufacturers) is relatively high for the crystalline silion based PV manufacturers as explained earlier. For thin film based PV manufacturers, the bargaining power of suppliers is comparatively lesser.
Bargaining Power of Buyers: The demand for Solar PV has remained robust due to the strong government incentives. But as the product differentiation is very less and the switching costs between the similar projects are less, the bargaining power of buyers is poised to increase in the future, as the number of players and the competition in the industry increases.
PV System Integrators and Installers
The attractiveness of this part of the supply chain is relatively less due to the large number of players. Players in the industry need to follow unique approaches in terms of products or services in order to differentiate themselves from competitors and increase the wedge between buyers willingness to pay and the cost of the company. Some of the unique approaches that can help the company are : better reliability compared to competitors, superior aesthetics of the panels and strongly backed warranties.
Competition/Rivalry: This part of the supply chain is the least concentrated one. There are a lot of installers for solar PV in every region of the country. So the industry rivalry is high.
Entry Barriers: The entry barriers are minimal in the industry because of the limited technology / economies of scale constraints.
Bargaining Power of Suppliers: The bargaining power of PV manufacturers has been relatively high due to the supply conditions and the large number of players in the integration and installation industry. Morover, the system integrators and installers don’t have the ability to backward integrate to cell or PV manufacturing. Therefore, the bargaining power is less and the potential for supernormal returns is limited.
Bargaining Power of Buyers: Since there are a lot of System integrators and installers, the bargaining power of buyers is high. Buyers can choose one system installer over the other without any switching cost and too many significant differences in service quality and price.
Demand Drivers and challenges of the Solar Energy Sector
Fig 7 – Drivers and Challenges
Source: Solar Energy – India : ResearchonIndia.com, February 2009.
Demand Drivers
There is a supply deficit of over 70 GW of energy in the market and further immediate peak energy saving potential of 9.240 GW which gets lost due to the transmission inefficiencies. India has the potential of generating around 50,000 MW of solar energy while its installed solar capacity stands at around 100 MW. Hence, India has a virtually large untapped market for solar energy despite of the prevalence of the following advantages:
Tropical Location
India has high solar insulation with about 300 clear days of sunshine in a year across various locations and receives solar energy equivalent of over 5,000 trillion KWhr/yr, which is far more than the total energy consumption of the country. The daily average solar energy intake varies from 4-7KWh per sq m depending upon the location. If one percent of the land is used to harness solar energy for electricity generation at an overall efficiency of 10%; 492 x 106 MU/year electricity can be generated
Fig 8 – Tropical Location Impact
Source: Potential of CSP in India, ASSOCHAM South Asia Renewable Energy Conference, 2009
Complementors
Carbon credit market acts as a complementor to the solar energy sector. Carbon credits are a part of international emission trading norms. The extent to which a solar energy maker is emitting less carbon, as per the standards fixed by UNFCCC, the company get credited. This Credit, called Carbon Credits, are bought over by companies to offset their carbon emissions. The carbon trading also enables the companies to reduce the price of solar energy equipments to customers. Last year global carbon credit trading was estimated at $5 billion, with India's contribution at around $1 billion.
Activist Groups
Activist groups like Greenpeace and Mount Pleasant Solar are actively engaged in the promotion of solar energy as a solution to the problems created by the climate change. As part of its drive to see fossil fuels phased out in favor of renewable sources of energy in order to prevent further potentially devastating climate change, it is very important to Greenpeace that solar energy becomes widely used. The initiatives taken by climate change activist groups provide the solar industry the much needed support.
Governments
The governments of the three biggest trading blocks of the world, Japan, USA and Europe, are actively engaged in the promotion of solar energy. The political support provided by the governments aim at capturing the multiple benefits inherent in solar photovoltaic technology, ie. A global multi-billion dollar SPV market. These government programs intend to create a strong domestic market for the solar companies to give them a massive competitive advantage in the global market. Various concessions and incentives given by Government of India to the manufacturers as well as the users of solar energy to promote the sector are:
· Financial assistance amounting up to Rs. 12 per KW hour in case of solar PV with maximum capacity of 50 MW and up to Rs. 10 Per KW in case of solar thermal Power plant for a period of 10 years
· Zero excise duty for manufacturers
· 100% depreciation in the first year of installation of the systems
· Low import tariff for several raw materials and components
· Soft loans for users, manufacturers and intermediaries
Other Government initiatives affecting this sector are:
Liberalization of FDI Regulations:
- 100% FDI under the automatic route is now permitted in all segments of power sector including trading;
- Equal participation opportunities have been extended to both domestic and foreign investors.
Source: DIPP
Solar Mission is one of the major initiatives taken by the government. The proposed target is to reach 20 GW by 2020, 4-5GW of installed solar manufacturing capability by 2017 and 100 GW by 2030 or 10-12% of total power generation capacity estimated for that year.
New players entering polysilicon market
About 10-15 new players[3] are expected to start manufacturing polysilicon – the prime ingredient for solar photovoltaic cells. Increase in supply of polysilicon is expected to bring parity in prices of polysilicon and boost the solar photovoltaic industry.
Source: MNRE
Major export demand Impact
After the Kyoto protocol, developed countries like US, UK, Germany are moving towards solar
power to bring down pollution levels from power generation sector. These countries are importing solar power generation equipments from countries like India. More than 80% of the solar PV cells produced in India is exported to countries like Japan, US and Australia.
Minimal fuel and environmental risks
Climatic changes are forcing the governments to give more importance to alternate sources of energy. In solar power systems there are no harmful gas emission, no wasted water, no noise and no waste generation. Volatility in oil prices have increased the focus on renewable sources of energy like solar energy. Once solar power system is installed, the cost of generating electricity is fixed over the lifespan of the system with no risk of shortage of fuel or rise in fuel prices[4].
Efficiency
With the advent of next Generation technologies for Solar PV (thin film, nanotechnology) technologies, the average efficiency (energy conversion) of the solar panels could be increased from 12 percent to 20 percent. This will act as a catalyst to the demand for the solar energy systems.
Challenges faced by the Industry
There are various factors hampering the growth of the solar industry
High Costs
Initial cost of both Thermal and PV based solar energy systems is higher compared to the cost of conventional energy systems and also other non-conventional energy systems. The capital cost to set up a photovoltaic plant generating 1 MW of electricity is almost USD 5.1 mn. The running cost is also high as the solar cells also need to be replaced after every 7-8 years. The estimated unit cost of generation of electricity from solar photovoltaic and solar thermal route is in the range of Rs. 12-20 per kWh and Rs.10-15 per kWh, respectively, which is 4-5 times higher than the other forms of the energy[5].
Fig 9: Cost of Renewable Sources of Energy
Source: Solar Power: The New Sunrise Business in India, Frost and Sullivan Report for MNRE
High dependence on raw material import
India does not have any major domestic source for polysilicon, a prime ingredient for solar cell production. Solar cell producers in India import almost 100% of their wafer cell requirement[6].
Manufacturing Process
Manufacturing is High technology intensive process requiring high skills and know-how. Innovations and R&D plays a major role changing the technology day by day and entry for the new players is challenging due to the long standing of the major players in the market.
Raw material and waste products
Raw materials like plastics and metals like Cadmium used for producing solar PV cells are non-biodegradable and hazardous, thereby impacting the environment. Silicon although being recyclable, most of the waste generated are non recyclable and hence poses the problem of the disposal of the same.
Volatility in polysilicon prices Impact
Polysilicon, main raw material for silicon wafer cells, constitutes about 80% of the solar cell cost. Higher polysilicon prices increase the cost of installation of photovoltaic panels and push up the cost of solar power generation. Spot prices touched $380-400/Kg in 2008, almost 10 times the $40/Kg spot prices in 2004. The prices are expected to come down in 2009 as the global supply is expected to double in 2009.
Land Scarcity
Per capita land availability is a scarce resource in India. Dedication of land area for exclusive installation of solar cells might have to compete with other necessities that require land. The amount of land required for solar power plants is about 1 sq km for every 20-60 megawatts (MW) generated[7].
Key Success Factors
Fig: 10 – Key Success Factors
Technological KSFs
The key to success for the company is to invest in future technologies, without over-stretching the financial resource base. Creating feasible technological design which fits with available infrastructure is necessary for developing sustainable competitive advantage. Modular design adds to convenience and cost effectiveness. Quality and reliability of the product is an important success factor for the businesses in the industry due to the lack of differentiation between the products.
Commercial KSFs
The commercial Key Success Factor lies in the ability of the company to increase the wedge between buyer’s willingness to pay and the cost to the company. In order to increase this wedge, the company needs to have a compelling value proposition along with competitive lifecycle cost. This industry is characterized by the importance of learning curve which can reduce the life cycle costs of the firm. The firms also need to have economies of scale to achieve low cost model. A KPMG[8] report on Solar energy sector, sponsored by Greenpeace, suggests that the solar energy production needs to be scaled up to achieve a reduction in the price to the level of conventional energy. There are costs involved in creating the required market size, and either industry, government, or energy users will have to pick up the cost of transition. The continued globalization gives the companies access to various markets and allows them to tap the energy markets across the world with undesired current energy levels.
Organizational KSFs
In terms of organizational KSFs, an organization should take a proactive strategy towards renewable energy, which should be strongly endorsed throughout the company. Long-range planning abilities or scenario planning enables organization to overcome situations of crisis. This emphasizes the importance of organizational learning capabilities, another important KSF. The company’s culture should be supportive towards innovation. Mergers and acquisitions is among the current trends in the industry and is important to achieve economies of scale. Effective management and far-sightedness in terms of technology and market trends will help in achieving measurable results. Partnerships with suppliers are a key factor in this industry due to the high bargaining power of suppliers and silicon scarcity.
Socio-Political KSFs
The socio-political support from the activist groups, governments and international environment protection agencies to curb the emission from non-renewable sources of energy act as a key success factor for the companies in the sector. Insufficient energy supply across the world and de-regulated energy markets act as a catalyst to the companies in the sector. Non-emissive renewable sources of energy command a positive impression across the globe due to its relative environmental benefits. A good reputation of the company attracts the customers as well as investors.
Future Outlook of the Sector
Investments (FDI)
· Currently, India is receiving the committed investment of about US $7 Billion.
· By 2012, the country is expected to receive an additional investment of about US $15-20 Billion( FDI + private sector)
Bridging Power demand supply gap
· There has been a huge power demand-supply gap which is continuously increasing with the robust economic growth (8 percent).
· Solar power through Grid-connected and off-grid installations can be used for electrifying remote locations.
· Capacity addition of one-MWp grid solar power plant would help meet electricity needs of about 5,000 families which could contribute to substantial saving considering an average of about 2 million KWh (units) electricity is generated from a megawatt peak-capacity solar power plant.
Energy conservation in buildings
· The problem of acute shortage of electricity supply coupled with peak load energy deficit in urban areas can be tackled by judicial integration of Solar PV and Solar Thermal energy System into Energy Efficient Building design, known as Solar passive Architecture Concept.
· The additional cost of 5 to 10 percent towards passive design features can save significant amount of conventional energy (30 t0 40 percent) that is used for lighting, cooling or heating.
Avoiding GHG Emissions
· Prominent form of clean energy is generated that avoids Green House Gas (GHG) Emissions.
· 1 KW of Solar power capacity avoids 1 MT of CO2 emissions annually.
Employment creation
· It has been estimated that a one-MW Solar Power plant capacity can generate 25-40 direct jobs and another 400 indirect jobs.
Export earnings
· Assuming the export trend to be the same, export revenue of about US $4-6 Billion could be generated over next 3 years.
References
1. Joseph Berwind, Investing in Solar Stocks, McGraw Hill Professional, 2009.
2. An Internal and External Analysis of BP Solar and Shell Renewables, ivoryresearch.com, http://www.ivoryresearch.com/sample1.php
3. Analyst / Investor Meeting Presentation, First Solar, June 2009.
4. Hammond P., Outlook for Alternative Energy Investing, Simmons & Co. International.
5. India’s Ambitious Solar Power Plans, Rediff.com, June 2009 http://business.rediff.com/slide-show/2009/jun/23/slide-show-1-solar-power-and-indias-ambitious-plans.htm
6. India Sets Out Ambitious Solar Power Plan to be Paid for by Rich Nations, Guardian.co.uk, August 2009, http://www.guardian.co.uk/environment/2009/aug/04/india-solar-power
7. India Warms up to Solar Energy, UPIAsia.com, September 2009, http://upiasia.com/Economics/2009/09/16/india_warms_up_to_solar_energy/2804/
9. Indian Power Sector – An Overview, DPNC Consultants Private Limited.
10. Indian Power Sector: An Overview of Renewable Sources of Energy, Infrastructure Development Corporation Limited.
11. Report of the Working Group on New and Renewable Energy for XIth Five Year Plan (2007 – 12)
12. Shirish Garud, Potential of CSP in India, ASSOCHAM South Asia Renewable Energy Conference, July 2009.
13. Singhal A.K., Solar Energy Technologies and Programs for Urban Areas, 3rd South Asia Renewable Energy Conference, April 2008.
14. Solar Energy – India, ResearchonIndia.com, February 2009.
15. Solar Generation, EPIA, Greenpeace, 2004
16. Solar Energy: From Perennial Promise to Competitive Alternative, KPMG Report for Greenpeace, 1999.
[1] Solar Energy – India, Report by Researchonindia.com, February 2009.
[2] http://www.reuters.com/article/pressRelease/idUS118055+31-Mar-2009+MW20090331
[3] Ministry of New and Renewable Sources of Energy, Government of India.
[4] Sunmediaonline.com
[5] Solar Power: The New Sunrise Business in India, Frost and Sullivan Report for MNRE
[7] Renewablenergyworld.com
[8] Solar Energy, From Perennial Promise to Competitive Alternative, KPMG, September 1999.
[9] Solar Power: The New Sunrise Business in India, Frost and Sullivan Report for MNRE
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