Land and Transmission Availability May Make or Break India’s Mega Solar Tenders
Large tracts of land in a single location are hard to come by in India
A plethora of mega tenders have been announced in the domestic solar sector lately. While these huge tender announcements sound exciting and bode well for the country’s ambitious solar target, developers are worried that these tenders favor a few large companies, as land procurement and transmission availability becomes a huge challenge at this scale.
Implementing agencies are consistently beginning to announce multi-gigawatt size solar tenders to expedite installation activity. What worries developers is the maximum allowable bid sizes – which was 2 GW in the March NTPC tender. SECI, meanwhile increased the maximum bidding capacity by a single bidder to 1.8 GW. Smaller developers are unlikely to have the means to secure land for a project of this size, let alone compete on cost.
The big unknowns are the availability of thousands of acres of land in a single location, and the transmission infrastructure considering the constraints in connectivity at the interstate transmission system (ISTS).
“There are not a lot of solar projects that are a gigawatt in size around the world. It is unclear how such massive tracts of land can be procured by developers in one of the most populated countries in the world,” said Raj Prabhu, CEO of Mercom Capital Group. “Solar projects are attractive due to their distributed nature and can be closer to end users, thereby reducing transmission losses – a big challenge in India.”
ISTS tender announcements have witnessed an uptick after the Ministry of Power issued an order stating that no interstate transmission charges and losses will be levied on solar and wind power projects commissioned through March 31, 2022.
Here is a list of some recent mega tenders announced:
- In May 2018, the Solar Energy Corporation of India (SECI) tendered 5 GW of manufacturing capacity to be set up across the country. The manufacturing capacity will be linked to ISTS-connected solar photovoltaic (PV) projects for an aggregate capacity of 10 GW.
- In March 2018, the National Thermal Power Corporation (NTPC) tendered 2 GW MW of ISTS-connected grid-connected solar PV to be developed across the country.
- In February 2018, the SECI tendered 3 GW of ISTS-connected grid-connected solar PV projects to be developed across India.
- In July 2018, the SECI tendered 3 GW of ISTS-connected grid-connected solar PV projects to be developed across India.
When contacted, Mercom’s source from one of the bidding companies in the SECI 3 GW auction said, “The SECI may ask others to match L1 bid in the auction.” Mercom previously reported that the tariffs quoted in this auction ranged between a high of ₹2.90 (~$0.0423)/kWh and a low of ₹2.44 (~$0.0355)/kWh, a difference of ₹0.46/kWh between the highest and lowest bid.
The source further added, “It will be tough to execute projects if SECI asks to lower the prices. They have allowed companies to bid for 2 GW at once, and if you see the final result, one company has to develop more than 1 GW in one go.”
“Now, consider that all these developers must execute projects around the same time. I am not saying that land is not available, but yes, suitable land won’t be available for so many projects at the same time. Project development is a phased-out job. Implementing agencies must consider that while issuing tenders. Once the LoAs are awarded, except for a few, developers will be scrambling,” opined the source.
“The increment in maximum allowable capacity to bid is also putting undue pressure on local developers. They can only bid low for small capacities, but even this can be an albatross around their neck in the long-term scenario. If they have been bidding low each time to get a project, they will find it hard to execute,” added Mercom’s source.
Currently there are likely only two or three companies in India that can execute projects at that scale and maybe 10 developers that can continually bid for projects in the 200-500 MW range. This is an added challenge for developers still reeling from the announcement of 25 percent safeguard duty.
When contacted, another winner of multiple solar auctions in India said, “Companies are developing new strategies to stay ahead in the solar sector. These mega-tenders have opened avenues for foreign companies (developers) to come in and establish themselves in India. In that light, anyone who can get land easily will emerge victorious; and at the same time, there will be at least 7-8 developers looking for the same piece of land. Imagine if one company is awarded 1,100 MW at the price it bid for. It will be easier for them to get land, if they are sponsored by a bank, but it will surely create problems for the other bidders who do not have the same wherewithal.”
Developing a large, utility-scale solar PV project is both land and capital intensive. Even for projects inside a solar park, it takes a few years to tender and develop the entire proposed capacity. In the scenario of these mega tenders, all the projects are supposed to be developed outside solar parks. Many Indian developers have reiterated the fact that, “The government finds it tough to source land for large solar parks. How are private developers going to do it all, let alone swiftly for these standalone projects?”
An official at another project developer told Mercom, “In a few years, these mega tenders will ensure that the government becomes dependent on a few (two, three) players for the development of the entire sector. What will happen if even one or two of them were to default on their promises, or their PPAs? For how long can the government bet on one or two horses? If the success of these mega tenders is to be ensured, the maximum allowed capacity must be reduced so that more players can come in; a greater number of players will mean that all the projects do not stand a chance of getting stuck between just one or two bidders, and hence less of a chance of delay in development.”
“Take for instance the mega manufacturing plus project tender. The minimum capacity to be bid is 1 GW manufacturing which will result in 2 GW of projects. Tell me, which company has the resources to execute a 1 GW manufacturing unit and at the same time start developing 2 GW of solar PV capacity? These tenders will ensure more Indian companies just sit and be on the sidelines as foreign firms carve out chunks for themselves in the Indian solar sector,” the official further complained.
Indian firms are increasingly looking towards initial public offerings (IPOs) to infuse fresh inflow of cash into their businesses. It will be tough for firms to regularly participate in, win and execute on projects in such tenders in which the size of the balance sheet and the borrowing capacity will determine who the victors will be.