DEEP DIVE: Intense Competition Drives Solar Tariffs to a New Record Low of Rs.2.62/kWh at Bhadla Phase-IV Solar Park Auction in India
May 11, 2017
The solar tariff in India breached the Rs.3 (~$0.046)/kWh mark in the recently concluded 250 MW Bhadla Phase-IV Solar Park auction. The winning tariff of Rs.2.62 (~$0.0405)/kWh quoted in the Bhadla Phase-IV auction is 17 percent lower than the Rs.3.15 (~$0.048)/kWh quoted at the 250 MW Kadapa Solar Park auction by the National Thermal Power Corporation (NTPC) just a month ago. The project completion timeframe is 12 months from the date of signing of power purchase agreement (PPA).
Phelan Energy Group, a South African developer foraying into the Indian solar market, and Avaada Power Private Limited, the renewable energy arm of the newly emerged Welspun Energy, won bids to develop 50 MW and 100 MW of solar projects respectively by quoting Rs.2.62 (~$0.0405))/kWh each. SBG Cleantech was awarded a 100 MW capacity at a tariff of Rs.2.63 (~$0.0407)/kWh. “The firm had bid for the entire capacity (250 MW), but could not offer the lowest tariff. The lowest bidders were awarded the capacities they bid for and the remaining was awarded to SBG Cleantech,” stated a SECI official.
The tariffs quoted ranged between a high of Rs.3.59 (~$0.055)/kWh and a low of Rs.2.62 (~$0.0405)/kWh. In all, 10 bidders quoted a tariff of Rs.3 (~$0.046)/kWh or below.
The SECI official further stated, “We were expecting such low prices. The base price had been fixed at Rs.3.01 (~$0.0465)/kWh before the start of the reverse auction.” The SECI official also said that SECI set up a payment security mechanism in order to ensure timely payment to the developers. This fund will cover three months’ payments.
Solar irradiation in Bhadla is more than any other solar park across the country and the guarantee against payment defaults led to such low rates, stated a source at Mahindra Renewables.
Usually EPC costs, financing and irradiation are the major concern while bidding for any project. In this case module prices are lower in India than elsewhere in the world and irradiation is very high, hence the low bid, an official at Phelan Energy Group told Mercom. The SECI, which is the PPA signatory, is one of the most trusted agencies in the Indian solar sector, and it is a long term PPA, another reason we were comfortable bidding at low price, added the official at Phelan Energy Group.
Talking to Mercom, a ReNew Power executive stated, “The off-taker is SECI and it has also formed a payment security fund. All these combined with falling module prices led to such low tariffs.”
After being inactive for so long, Avaada Group’s intent seems to be – come out strong and win the project at any cost.
According to Mercom’s India Solar Market Update Q1 2017, the average selling prices of Chinese modules in India are approximately in the ~$0.31(~Rs.20.06)/W range. By the time the PPAs are signed and procurement begins (around Q4 timeline), module prices are expected to decline but expectations are too aggressive in the $0.24-0.25 (~Rs.15.53-16.18)/W range.
“The pent-up demand for projects is so high that developers are more concerned about winning projects than worrying about returns. Developers have invested heavily to build big teams in anticipation of massive auctions that have not happened. The winning bid has fallen by 17 percent in a month based on the demand supply imbalance and developers are willing to go as far as they must, to win a project. The project completion time is almost the same as the Kadapa auction but developers are betting on higher insolation, the SECI payment guarantee, and aggressive module price estimates to justify this new low bid at Bhadla solar park,” said Raj Prabhu, CEO and Co-founder of Mercom Capital Group. Now that the tariffs have come down to where the government wants, does this mean we will see a deluge of auctions? The industry certainly hopes so.