A Mer­com re­port gives de­tails of a new record low so­lar tar­iff of Rs 3.30/ kWh which was logged at the Rewa so­lar park auc­tion in MP.

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In the re­cently con­cluded 750 MW Rewa so­lar park auc­tion in Mad­hya Pradesh, bids reached a new record low of Rs.3.30 (~$0.494)/kWh (lev­elised tar­iff over 25 years) over a ru­pee lower than the pre­vi­ous low tar­iff of Rs.4.34 (~$0.065)/ kWh, which was recorded in Ra­jasthan in Jan­uary 2016. The win­ning bid for first year tar­iff hit a new low at Rs.2.97 (~$0.0444)/kWh and will es­ca­late by Rs.0.05 (~$0.0007) over 15 years, bring­ing the lev­elised tar­iff to Rs.3.30 (~$0.494)/kWh over 25 years.

In an ex­tremely com­pet­i­tive auc­tion, bids sub­mit­ted were 10x the ten­dered vol­ume at 7,500 MW for a ten­dered ca­pac­ity of 750 MW. Last year Mad­hya Pradesh ap­proved ex­tend­ing a pay­ment guar­an­tee for the Rewa so­lar park. The guar­an­tee will en­sure against any pay­ment de­fault to projects in­side the so­lar park, stated a Mad­hya Pradesh Urja Vikas Nigam (MPUVNL) of­fi­cial. The of­fi­cial also added that the so­lar park is a joint ven­ture of So­lar En­ergy Cor­po­ra­tion of In­dia (SECI) and MPUVNL. The pay­ment guar­an­tee and deemed gen­er­a­tion ben­e­fit were con­tribut­ing fac­tors in at­tract­ing th­ese low bids. The im­ple­ment­ing agency (MPUVNL) did not put an up­per limit ca­pac­ity for bid­ders - any bid­der was able to bid for the en­tire ca­pac­ity (750 MW).

ACME So­lar won with the low­est bid to de­velop a 250 MW project (Unit-2) quot­ing a tar­iff of Rs.2.970 (~$0.0444)/kWh for the first year and a lev­elised tar­iff over 25 years of Rs.3.30/

kWh (~$0.0494)/kWh, fol­lowed by Solen­ergi which won a 250 MW project (Unit-3) quot­ing a first year tar­iff of Rs.2.974 (~$0.0444)/kWh at a lev­elised tar­iff of Rs.3.304 (~$0.0495)/kWh. Mahin­dra Re­new­ables was the other win­ner for a 250 MW project (Unit-1) with a first year tar­iff of Rs.2.979 (~$0.0445)/kWh and a 25 year lev­elised tar­iff of Rs.3.309 (~$0.0495)/kWh.

Sem­b­corp Green In­fra, SBG Clean­tech, Hero Fu­ture En­er­gies, Enel Green Power, So­lairedi­rect, Re­New Power, Azure Power, Adani, and Cana­dian So­lar were some of the other de­vel­op­ers who par­tic­i­pated in the auc­tion.

“We saw record low bids largely be­cause of our progress made on the so­lar park in­fra­struc­ture, un­like other so­lar parks where projects were ten­dered dur­ing ini­tial stages of park devel­op­ment. We in Mad­hya Pradesh waited to cre­ate con­ducive in­fra­struc­ture, and the re­sults are here for ev­ery­one to see,” said an of­fi­cial at MPUVNL.

An­other of­fi­cial at MPUVNL be­lieves that this low tar­iff is fea­si­ble. “The low tar­iff is not a sur­prise as th­ese projects are vi­able for de­vel­op­ers at th­ese costs. If you fac­tor that all of th­ese projects are in the same lo­ca­tion, de­vel­op­ers have elim­i­nated a lot of ex­tra work [costs] com­pared to, for ex­am­ple, a sit­u­a­tion where the same ca­pac­ity is di­vided into 15 projects that would have in­cluded ex­penses like tem­po­rary trans­mis­sion and in­fra­struc­ture costs re­lated to each project. This is not the case here,” said an­other of­fi­cial at MPUVNL.

The con­struc­tion of a trans­mis­sion sub­sta­tion within the so­lar park has also led to height­ened in­ter­est among de­vel­op­ers said a gov­ern­ment of­fi­cial. This sub­sta­tion will take care of all evac­u­a­tion from the park. In­ef­fi­cient evac­u­a­tion in­fra­struc­ture was one of the ma­jor prob­lems faced by de­vel­op­ers in other so­lar parks, ac­cord­ing to the re­cent Mer­com Quar­terly In­dia mar­ket re­port.

“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. 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. A pos­i­tive take­away from this auc­tion is it demon­strates that if you re­move some of the de­vel­oper risks by of­fer­ing pay­ment guar­an­tees and deemed gen­er­a­tion ben­e­fits in a park with a solid in­fra­struc­ture, tar­iffs have room to come down. How­ever - mostly thanks to Chi­nese mod­ule prices de­clin­ing by about 30 per cent over the last year - with­out which any bids to build projects be­low Rs 4.0/kWh would have been al­most im­pos­si­ble,” said Raj Prabhu CEO of Mer­com Cap­i­tal Group.

Even though direct tar­iff com­par­i­son be­tween coun­tries is chal­leng­ing due to many vari­ables, the new low tar­iff of Rs.3.30 (~$0.0494)/kWh, a record low for In­dia, is still not the low­est tar­iff in the world (See chart above).

IFC, a mem­ber of the World Bank Group, is ex­tend­ing its global ex­per­tise to struc­ture and im­ple­ment the trans­ac­tion to help at­tract pri­vate in­vest­ments of about $750 mil­lion (~Rs.50.2 bil­lion) for devel­op­ment of the 750 MW Rewa so­lar park.

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