2nd RE-Invest to open amid regulatory uncertainty

For solar and wind power projects, the Union government would only accept bids which are reasonable, power minister R K Singh said at a press conference recently. “I am here to protect the people’s interest. If I come across any bids which are excessive, we will cancel it,” he said.

Singh, who is also minister of new and renewable energy, said this while announcing the second version of RE-Invest — a congregation of global renewable industry that opens on Tuesday after a hiatus of four years.

Since 2014, India has added 34,000 MW of solar and wind capacity, said Ministry of New and Renewable Energy (MNRE) officials, adding the sector has received financing commitment of ~3,952.44 billion.

RE-Invest 2014 saw a commitment of 2,00,000 MW by 126 investors and a financing commitment of around ~9,000 billion by 27 banks and financial institutions.

The statement by the minister has led to industry speculating that government regulations would have a larger role to play than market forces. The statement came in the wake of the MNRE alleging cartelisation by Japanese investor SoftBank Energy in a recent tender.

“Such instances confuse the investors. Is the Indian market so immature or is it too protective? Or it’s just policy irrationality?” said an executive of a leading renewable company.

In the past two years, optimism in the sector has weaned off. The same falling tariff that was cheered for is now a cause of worry. While foreign funding has been healthy, indigenous banks continue to be wary of investing in renewables. The sector is considered to be as risky as conventional energy which is currently the hotbed of non-profitable assets.

“We have expressed concern to the government about several issues attached with the banks funding renewable projects. There are few companies eligible for funding from banks with PCR (Provisioning Coverage Ratio). Then there is the risk of payment from states that are usually laggards in power purchase. Also, constantly changing regulatory regime has not let tariff stabilise,” said a senior industry executive who recently represented to the government over financing woes.

Last year, under the new Goods & Services Tax (GST) regime, solar panels were taxed under the 5 per cent category. This year, India has imposed 25 per cent safeguard duty on imported solar panels. For a country that has built 90 per cent of its capacity on cheaper imported panels, a cost escalation of 70-80 paisa per unit is catastrophic. This takes the tariff above ~3 per unit — which will hardly find takers in the financially beleaguered state owned discoms.

Sector analyst Bridge to India in its latest report said Q2FY18 saw a steep fall in commissioning of utility scale capacity to 702 MW, down 80 per cent over Q1FY18. “This is partly because capacity scheduled to be commissioned in the quarter fell due to slowdown in tender

issuance in 2016-17. Moreover, there have been delays of 6-12 months across the board,” it said.

The report adds that Q2 also witnessed the largest ever capacity tendered — 23 tenders with a cumulative capacity of 21,186 MW were issued, a 77 per cent increase over Q1. The projects awarded so far saw an average tariff of ~2.5 per unit. There are 9,000 MW of projects in pipeline to be awarded.

Those under construction are facing cost escalation and are likely to approach the government for revision in the tariff. The ones to be bid out are mostly by states which would not accept higher bids (above ~3.5/per unit). In the past, states cancelled older projects when the tariffs fell.

Wind power projects — where bidding mechanism was introduced last year — has seen only five rounds of bids. The latest round saw reduced amount of 1,200 MW against government commitment of 2,500 MW of capacity in each tranche.

A section of the industry wants scrapping of reverse bidding mechanism in the renewable sector. “The government wants to cap tariff but doesn’t follow any rationale in that. I as an investor look at more than a dozen variables and then decide my bid. Still, there will always be an outlier in every tender. In the past one year, you name it and every noted company has either kept out of bidding or has not quoted below ~2.8/unit,” said the promoter of a leading solar company. At ~3 per unit, the internal rate of return (IRR) of a solar project is close to 12-14 per cent.