Madhya Gujarat Vij Company Limited’s (MGVCL’s) empanelment tender, one of Gujarat’s largest, to install 1 GW of residential rooftop solar systems in urban and rural areas has hit a roadblock because of the high earnest money deposit (EMD) amounts specified for various capacities.
Rooftop solar tenders and EMD
The MGVCL issued two empanelment tenders under the Phase-II grid-connected rooftop solar program of the Ministry of New and Renewable Energy (MNRE) and the SURYA Gujarat program in Gujarat. One of the tenders was to install 700 MW of residential rooftop solar systems in urban areas. Another one was to install 300 MW of residential rooftop solar systems in rural areas.
When rooftop solar project tenders are floated, the total capacity is divided into capacity ranges. For each capacity range, there is an aggregate capacity specified. Bidders are notified of the minimum and maximum they can bid under each capacity range.
The bidders thereafter bid for these capacity ranges. When calculating the earnest money deposit amounts for the capacity bid by developers, the project cost of the overall aggregate capacity is taken into consideration.
In the rooftop tenders issued by MGVCL, the EMD amounts are charged for the total capacity under each category even if the engineering, procurement, and construction (EPC) companies are bidding for only a part of the aggregate capacity. This has made it difficult for Micro, Small, and Medium Enterprises (MSME) and other small-scale EPCs to bid for the projects.
MNRE recently announced that the EMD of 2% of the estimated project cost would continue for all renewable energy tenders issued on or after January 1, 2022.
Mercom India spoke to a few developers to understand how the EMD amount has impacted the bidding for these tenders.
T.S. Jain, Managing Director of Citizen Solar, a Gujarat-based solar module manufacturer, said, “Previously when tenders were issued in Gujarat, the EMD amounts were always in lakhs. For the last two rooftop tenders in the state, it was ₹700,000 (~$9,160) and ₹1.2 million (~$15,704). MGVCL, in its latest tender, has divided the total 1 GW rooftop solar capacity into two tenders, 700 MW for urban areas and 300 MW for rural areas. The EMD for each bidder, regardless of the capacity ranges they have bid for, comes to approximately ₹20-₹25 million (~$261,728 – $327,160). Smaller EPCs who cannot afford this will end up dropping out, leaving just the bigger players to handle the overall capacity.”
Shashank Bhavsar, a partner in RE 360, another Gujarat-based EPC company, said, “This is one of the largest rooftop solar capacities tendered in Gujarat and the country. Going with the same conditions as the previous tenders would make the process much easier for all the EPC companies in the state. Earlier the EMD amounts were fixed for the tenders since the quantum was less. Even if they consider increasing the EMD for these tenders to ₹2.5 million (~$32,716), most EPCs can still afford to bid. Currently, it is ten times more than what it should be, which is why most small-scale EPCs will drop out. A few bigger players with their own manufacturing units will be the only ones to win the projects.”
A senior executive from another Gujarat-based EPC company said, “The new 700 MW and 300 MW tenders by MGVCL have been halted for a while now due to the disagreement between the bidders and the DISCOM concerning the high EMD amount, which most Micro, Small and Medium Enterprises (MSMEs) cannot afford. If we compare it with previous rooftop solar tenders in the state, the policy was very different. The developers were required to submit a one-time fixed EMD per category, regardless of the capacity, be it 1 kW, 2 kW, 4 kW, or 10 kW. In the new tenders, a developer must pay a separate EMD for every part they bid. If, as a developer, we wish to bid for 1 kW to 100 kW capacity, we will end up paying approximately ₹25 million (~$327,160) upfront to MGVCL before starting the projects, which is very tough for us. So, most of us have to commit to small capacity ranges, which does not become feasible cost-wise.”
Jain said that most of the participating developers in the pre-bid meeting said the EMD requirement was high. “The DISCOM has said they will approach the MNRE and make the changes only after their approval. After that meeting, we are still waiting for updates and expect the tender deadlines to be extended. At the meeting, we also discussed the impact of basic customs duty on the project cost and requested an extension until March when the prices would stabilize.”
Bhavsar said, “The tender norms are as per the MNRE regulations, so their approval on calculating the EMD will be essential. We have been doing this for the last five years in Gujarat and have seen considerable progress in the tender process. The process has become more transparent, and there are guidelines for faster approvals reducing the time to commission the projects, and even setting up the net metering. So, if they continue with the same and just reduce the EMD, we see the sector in the state going a long way.”
“In Gujarat, larger capacities like 1 GW or even 2 GW can be easily covered as the acceptance rate is much higher with the new transparent process. Previously moving files through DISCOMs was difficult and the process used to take three to four months. Whereas now the process takes just a month or so, which includes commissioning to set up net meters etc.”
“The simplified process alongside feasible EMD amounts, providing an equal platform for all EPC players, will help take the rooftop solar capacities to a new high across the country,” Bhavsar said.
With the changes still under discussion and awaiting approval from MNRE, the tender, if amended, will make way for more such tenders across the country with higher capacities rolled out and could ensure more participation from all EPC companies.
If India has to reach the 280 GW of installed solar capacity by 2030, developers feel tender specifications should be made simple, and prohibitive EMD requirements should be avoided.