So­lar tenders and auc­tions have slowed in In­dia

Power Watch India - - GREEN AHEAD -

While so­lar in­stal­la­tions in In­dia have picked up speed, ten­der and auc­tion ac­tiv­ity has been slow­ing down over the last cou­ple of quar­ters. Ac­cord­ing to Mer­com’s In­dia So­lar Pro­ject Tracker, about 1.9 GW of so­lar was ten­dered in Q1 2017 (1 GW of this was a re­tender), com­pared to 3.4 GW in Q4 last year. There were 1.3 GW of so­lar projects auc­tioned in Q1 2017, com­pared to 255 MW in Q4 2016. The slow­down in ac­tiv­ity has been dis­con­cert­ing to de­vel­op­ers and man­u­fac­tur­ers that have been po­si­tion­ing for much higher lev­els of ac­tiv­ity based on In­dia’s so­lar in­stal­la­tion goal of 100 GW by 2022.

In­dia needs to in­stall 18 GW of so­lar per year through 2022 to reach the 100 GW in­stal­la­tion tar­get set by the Modi govt. The pace of tenders and auc­tions must pick up quickly if the govt wants to meet its so­lar in­stal­la­tion goals and show the in­vest­ment com­mu­nity and the in­dus­try that it is se­ri­ous. Com­pa­nies who have in­vested hun­dreds of mil­lions to ex­pand to meet the de­mand and build projects are anx­iously wait­ing for ac­tiv­ity to pick up.

Some of the rea­sons for de­cline in ten­der and auc­tion ac­tiv­ity in­clude, poor fi­nan­cial con­di­tion of dis­tri­bu­tion com­pa­nies (dis­com), trans­mis­sion is­sues, weaker power de­mand and in­creases in cap­tive gen­er­a­tion by com­mer­cial and in­dus­trial com­pa­nies. Dis­coms that are con­tin­u­ing to strug­gle fi­nan­cially are not tak­ing on new gen­er­a­tion that is more ex­pen­sive than coal, which is lead­ing to cur­tail­ment of so­lar and wind projects as well as pay­ment de­lays to de­vel­op­ers.

In some states, weak power de­mand is re­mov­ing the ur­gency to speed up the pace of so­lar tenders and auc­tions. In­crease in cap­tive gen­er­a­tion by in­dus­trial cus­tomers have com­pounded the sit­u­a­tion since they are re­quir­ing less power gen­er­a­tion from dis­coms.

The World Trade Or­gan­i­sa­tion (WTO) rul­ing against In­dia’s do­mes­tic con­tent re­quire­ment (DCR) has re­sulted in con­tin­u­ous can­cel­la­tions and post­pone­ments of planned DCR tenders.

The re­cent record low bid of Rs 3.30 (~$0.494)/ kWh at the REWA so­lar park auc­tion is play­ing a big role in the slow­down of auc­tion ac­tiv­ity as gov­ern­ment agen­cies and states are stalling to rene­go­ti­ate PPAs that are more ex­pen­sive than the bids re­ceived at REWA.

Cur­rent sce­nario

For dis­coms, coal is still the cheap­est option avail­able. Ac­cord­ing to Mer­com’s De­cem­ber So­lar Quar­terly Re­port. Dis­coms have re­sorted to spo­radic cur­tail­ment from some so­lar projects in Ra­jasthan and Tamil Nadu be­cause cheaper power is avail­able on the power ex­changes. Even when there is de­mand, sev­eral states have com­plained that dis­coms are re­sort­ing to power cuts in­stead of buy­ing power on the ex­changes to save on costs.

Mer­com pre­vi­ously re­ported that power pur­chase agree­ments for 1.1 GW of so­lar in Jhark­hand are yet to be signed be­cause the state dis­com is not ac­cept­ing the quoted tar­iffs. Ac­cord­ing to Mer­com’s In­dia So­lar Pro­ject Tracker, tar­iffs quoted in the state ranged from a high of Rs.5.59 (~$0.0824)/kWh to a low of Rs.5.08 (~$0.0749)/kWh. The state had ten­dered 1.2 GW of so­lar since De­cem­ber of 2015 in an ef­fort to achieve its 2,650 MW so­lar tar­get by 2020, but there has been no ac­tiv­ity since. In this case the dis­com was un­will­ing to sign the PPAs for tar­iffs above five ru­pees per kWh claim­ing it is not vi­able for the dis­com. The sit­u­a­tion will get even more chal­leng­ing af­ter the re­cent REWA auc­tion. Due to ag­gres­sive re­new­able en­ergy tar­gets in some states like Ra­jasthan and Tamil Nadu, so­lar grew even at high tar­iff lev­els only to leave the states strug­gling with fi­nances a few years later and find­ing it dif­fi­cult to take on new so­lar gen­er­a­tion.

“It has been dis­ap­point­ing with the de­lay in tenders. Af­ter Septem­ber 2016, tenders have slowed down for IPPs. It is less likely we will see new tenders af­ter the REWA bid as each bid is now be­ing ex­pected to meet the REWA num­bers, which is ridicu­lous. The Kadapa So­lar Park tenders are post­poned as Andhra Pradesh has pulled out be­cause they now have sur­plus power and their cash flow sit­u­a­tion is bad. Dis­coms are cur­rently of the be­lief that so­lar tar­iffs are fall­ing, so let us wait, with states claim­ing that they are power sur­plus and don’t need any kind of power, let alone so­lar, stated a large de­vel­oper while in con­ver­sa­tion with Mer­com.

Raj Prabhu, CEO of Mer­com Cap­i­tal Group warned about this af­ter the REWA auc­tion say­ing,

“Although this is the low­est tar­iff ever recorded in In­dia, this auc­tion has sev­eral spe­cial at­tributes which makes it hard to di­rectly com­pare with pre­vi­ous low bids. The size and lo­ca­tion of the projects, pay­ment guar­an­tees, deemed gen­er­a­tion ben­e­fit, longer con­struc­tion time­line, the re­cent so­lar mod­ule price crash, and yearly tar­iff es­ca­la­tion for 15 years - all make the low bids unique.” Prabhu con­tin­ued, “The fear is that me­dia, gov­ern­ment of­fi­cials and an­a­lysts will hype up the low bids and other states will then start pres­sur­ing de­vel­op­ers to match bids from the REWA auc­tion tar­iffs, which has hap­pened in the past.”

Sev­eral other de­vel­op­ers told Mer­com that as of now Bi­har, Jhark­hand, Tamil Nadu, Ra­jasthan, and Ma­ha­rash­tra are the prob­lem states. Ac­cord­ing to Mer­com’s In­dia So­lar Pro­ject Tracker, ten­der­ing ac­tiv­ity has de­clined in these states with most of the old tenders be­ing con­tin­u­ally ex­tended.

Tamil Nadu Gen­er­a­tion and Dis­tri­bu­tion Cor­po­ra­tion (TANGEDCO) had ten­dered a to­tal of 1,000 MW of so­lar in two sep­a­rate tenders, but re­ceived tepid re­sponse due to TANGEDCO’s rep­u­ta­tion of cur­tail­ing power, as well as de­lay­ing pay­ments.

What we are hear­ing from de­vel­op­ers and govt agen­cies:

Pro­ject de­vel­op­ers have told Mer­com that ten­der de­lays and ex­ten­sions have been dis­cour­ag­ing and there is in­creas­ing pres­sure to meet REWA bid num­bers. If other states want us to of­fer REWA tar­iff rates, it is not pos­si­ble and is lead­ing to de­lays and ten­der ex­ten­sions, stated a so­lar pro­ject de­vel­oper.

The WTO rul­ing has stalled most ac­tiv­ity in the DCR cat­e­gory and only a small num­ber of DCR tenders are com­ing out, fur­ther stalling progress, stated an­other de­vel­oper. With all the chal­lenges, we do not want to risk money by bid­ding in a prob­lem state where the dis­com might not want to sign the PPA on the price quoted, stated an­other pro­ject de­vel­oper. This is called the “RUMS (REWA Ul­tra Mega So­lar) Ef­fect,” stated an of­fi­cial at Na­tional Ther­mal Power Cor­po­ra­tion (NTPC). The REWA auc­tion in Mad­hya Pradesh was path-break­ing and all other states are strate­gis­ing to put forth tenders at par with the REWA auc­tion. Tenders that have been is­sued have been de­layed. Also, due to states ask­ing for a pref­er­en­tial tar­iff (a tar­iff at which the state can af­ford buy­ing power), some NTPC tenders have been de­layed, com­mented the NTPC of­fi­cial.

Close to 20 GW of so­lar have been ten­dered out of which more than 10 GW have been in­stalled - our pipe­line is huge. Plus, ten­der­ing work is done on a fi­nan­cial year ba­sis, so if you con­sider the months of De­cem­ber, Jan­uary, Fe­bru­ary, and March, these are just fill-overs, stated an MNRE of­fi­cial. The Mad­hya Pradesh REWA auc­tion has also put a sort of wrench in the works as states are try­ing to re­work their re­spec­tive tenders in ac­cor­dance with it, added the MNRE of­fi­cial.

We in­vited an ex­pres­sion of in­ter­est (EoI) from de­vel­op­ers for 100 MW of so­lar at Samb­har fa­cil­ity, Ra­jasthan, but we have not is­sued the ten­der af­ter re­ceiv­ing the EoIs. The REWA auc­tion has forced us to re­con­sider the ten­der and the di­rec­tives therein, stated an of­fi­cial at Samb­har Salts Ltd.

An­other MNRE of­fi­cial stated, ten­der­ing is in the hands of state nodal agen­cies and state gov­ern­ments. The state de­cides RPOs and ex­e­cu­tion, and all [states] have slowed down ten­der­ing as ev­ery­one wants cheaper so­lar power.

Re­luc­tance on the part of dis­coms to buy from so­lar gen­er­at­ing projects in the pres­ence of cheap power from other sources, is the main cul­prit, stated an of­fi­cial at New and Re­new­able En­ergy Devel­op­ment Cor­po­ra­tion of Andhra Pradesh (NREDCAP). The trans­mis­sion sys­tem also needs to be de­vel­oped in the state to al­low op­ti­mum util­i­sa­tion of so­lar projects. This is an­other rea­son tenders have slowed down in the state, added the NREDCAP of­fi­cial.

Many tenders have been de­layed as we want to meet de­vel­oper’s de­mands. In REWA, the state got a low price by pro­vid­ing guar­an­tees and other in­cen­tives. We would like to do the same in Te­lan­gana, and this has re­sulted in a slow­down in tenders so we can re­vamp, stated an of­fi­cial at Te­lan­gana New and Re­new­able En­ergy Devel­op­ment Cor­po­ra­tion.

Of­fi­cials at most state nodal agen­cies re­it­er­ated that ten­der re­jig­ging in light of the REWA auc­tion is be­hind the de­lay or slow­down in so­lar tenders.

“We hope this is a short-term is­sue which, once re­solved, tar­iffs will get down to re­al­is­tic lev­els and there will be a big spurt in ac­tiv­ity. How­ever, if some of these press­ing is­sues are not re­solved quickly, growth will stall. There needs to be a pol­icy mech­a­nism put in place to avoid the stop and start in ten­der ac­tiv­ity ev­ery time there is an out­lier in terms of a low bid. How­ever, if states re­vise their tenders to in­clude all of the pos­i­tive as­pects of the REWA ten­der, it could be a win-win for all,” said Raj Prabhu, CEO of Mer­com Cap­i­tal Group.

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