Why MPUVNL’s 35 MW Rooftop Solar Tender Saw Steep Dip in Tariffs

A series of innovative additions were made to the tender for the project developers

September 24, 2018


The rooftop solar photovoltaic (PV) auction for the development of 35 MW of grid-connected rooftop solar under RESCO model by Madhya Pradesh Urja Vikas Nigam Limited (MPUVNL) yielded unexpectedly low tariffs for rooftop solar PV in India.

As reported previously by Mercom, AMP Solar India quoted the lowest tariff (L1) of ₹1.58 (~$ 0.022)/kWh.

Here are the key points that made these low tariffs possible.


  • Pre-identification of 643 project sites and grouping them into 27 project groups created the much-needed market for RESCO developers. This saved the bidders from spending their energy in identifying procurers that have enough electricity demand and space for rooftop solar solutions.
  • MPUVNL extensively collaborated with the beneficiary consumers to obtain pre-clearance on the terms of power purchase agreements (PPAs), which usually pose a challenge in the way of implementation of a typical RESCO project.
  • Project grouping has been done based on the profile of the ultimate paying entity, (whether central government department or state government nature of end-use), thereby ensuring that each group has similar projects. For example, all government colleges spread all over the state constituted one group, while all medical colleges of the state formed another group.
  • The group capacity ranges from 50 kW (individual private organization) to 5.4 MW (all projects of a genre across the state under one government department). Bidding was separately undertaken for each group, and winner has to implement all the projects in that group. It enabled better risk profiling, good economies of scale, efficient material procurement, project execution planning and efficient financing.
  • It was not possible for the bidders to visit all the 643 sites coming under the RESCO tender for due diligence. So, for the first time in India, unique data room was created and made accessible to the bidders to address information asymmetry. This includes information like Google coordinates of the buildings, indicative solar PV array layout superimposed on Google image and electricity consumption history. The bidders even knew the number of panels and inverters, and the length of cable needed to implement the project. This greatly reduced the risk profile of the projects and enabled more informed bid participation.
  • To reduce the entry barrier, no technical criteria were asked for eligibility, and net-worth requirement has been kept at just ₹10 million/MW. Since under performance gets naturally penalized through reduced revenues, no operational performance guarantee has been sought from the developers. Further, bidders have been allowed to consolidate the net-worth of affiliates, where their holding is greater than equal to 26 percent, in order to become eligible under this tender.
  • RESCO bidders have been asked to quote first year tariff for the interested project group, which is escalated at 3 percent annually during the PPA tenure. DISCOM tariffs usually increase by around 4-5 percent per annum. Since the aim is to make the RESCO mode the preferred choice of the customer, it is appropriate that the RESCO tariff has a similar yearly profile as that of the DISCOM. With the RESCO tariff escalating at 3 percent per annum, the present difference between the DISCOM tariff and the RESCO tariff would only increase over the coming years and, therefore, the RESCO mode would become increasing attractive.
  • This structure could be a win-win for all the three: consumer, developer, and government. Consumer can easily compare tariffs to move to rooftop project, which will increase only moderately and would be only 2.09 times at the end of 25 years. It helps the developer by keeping tariff more aligned with the cost of maintaining rooftop system, even until the last year of the project life. Longer operating life maximizes the utility of the government subsidy.
  • Annual escalation makes it extremely important that “year” is defined appropriately. If the “year” is defined as, for example, financial year, it might lead to an incentive to commission the project just before the end of the financial year and, thus, enjoy a short “first year”. Hence, “First Operational Year” has been defined as the “the period commencing from the initial part commissioning and expiring at the end of the calendar month in which project completes 12 months from the CoD”. Thereafter, each period of 12 months till the expiry date of the PPA has been defined as the “Operational Year”.
  • There is more clarity on several contractual innovations, namely: how change of law will affect the bid tariff, clearly derived percentage change in bid tariff if safeguard duty is effected, facilitative cash flow, early monetization, deemed generation, payment security, payment certainty even in disputed invoice, penalty on shortfall of generation, compensation on early termination etc. The documents have an appropriate risk allocation between building-owners, RESCO developers and MPUVNL.
  • In this tender, MPUVNL has clearly articulated the incidents which can be categorized under change in law and impact on tariff once such incident occurs. When the safeguard duty was imposed on solar cells and panels, MPUVNL explained its impact on tariff and made it clear that it shall be provided as a pass through if safeguard duty is effective after the bid submission date.
  • Procurer should provide payment security in any of the forms mentioned in the RfP. Government entities are required to provide a payment security equivalent to 120 percent of the estimated average monthly billing or of previous operational year, while private entities are required to provide payment security equivalent to 400 percent. For the government organizations, a government guarantee or assurance would also be considered.
  • Selected bidder can request for advanced subsidy up to 50 percent of the applicable subsidy for the project group by paying a bank guarantee of equivalent amount; the advance subsidy should be paid within 15 days from signing of the PPA. Payment of the remaining subsidy is supposed to be made within 45 days from the completion of project.
  • Apart from timely CoD, other intermediary milestones have been defined to check for likely delays, which otherwise get surfaced only when situation is beyond the stage of recovery. There is a provision for load dispatch for such delays. However, if the contractor catches up those delays and achieves timely CoD, such load dispatch on intermediary milestones are waived off.
  • RESCO tender puts in place seasonally indexed test of generation to assess project completion. It ensures that beneficiary consumers are fairly provided with assured generation from rooftop projects. The reason for proving a seasonally indexed test is that solar insolation differs during each month and so does the generation; hence, it would not be easy to assess acceptability of rooftop system, unless compared with seasonally indexed benchmark. This also ensures that the government’s funds paid as subsidies are optimally utilized through properly functioning projects.
  • MUVNL has ensured proper project sizing to streamline demand and revenue for bidders. Developers are allowed to resize the project within -20 to +50 percent range of declared capacity. PPA defines the billing at generation meter for grid interactive rooftop system. With this, even though system has lesser consumption in some period, the RESCO developer would be still paid for its generation, and the beneficiary consumer would enjoy the net exported energy as a credit for future consumption under MP’s Net Metering Regulations.
  • Part commissioning is allowed for all the project groups in this tender. This allows early monetization for the developer, as part capacity for large projects gets commissioned. This is especially helpful where sites have several independent buildings where standalone systems can be installed.
  • Even if there is dispute in invoice, procurer is liable for payment of 90 percent of disputed amount under protest within fifteen (15) business days after the date of receipt of the invoice. Once the dispute is settled, the correction amount shall be adjusted with monthly interest rate of 1.50% computed on daily basis.
  • Since under the RESCO mode, the selected contractor makes upfront investment on behalf of the consumer and later recovers it through charging electricity bills, it is in the contractor’s interest to appropriately maintain the solar system. Hence, the requirement for submitting Operational Performance Bank Guarantee (O-PBG) has been waived. It would help the contractors in reducing their transaction cost and reducing the working capital requirement.
  • Bidders were apprehensive about the period during which grid is curtailed and whether such periods will be included in the calculation of Capacity Utilization Factor (CuF) and revenue. It was clarified promptly in the replies to queries that, “Hours during which grid is unavailable shall be included neither for calculation of revenue nor for CUF for performance monitoring”. Any other position would be rather unfair for either the Procurer or the Contractor.
  • The PPA forbids premature termination for initial five years. Subsequent to that, if termination is triggered by event of default by developer, or procurer, or without any such default, the procurer wishes to terminate early, then in all the three scenarios, the procurer has to pay aging linked termination payment, differently quantified. Such compensation takes care of debt liability of the project and encourages the contractual performance by both the parties. In such a situation, MPUVN will take out its subsidy share, calculated on a pro-rata basis.
  • It is required that every system installed under the RESCO tender should be Remote Monitoring System (RMS) enabled. The data from such RMS enabled projects would be monitored or analyzed remotely by nodal agency, independently or at its centralized monitoring center. The power producer must ensure the availability and connectivity of the RMS system to be at least 98 percent. This will help MPUVNL in ensuring that projects for which subsidy were provided are operating as per the specifications provided in the RfP.

These salient features were incorporated into this tender which in turn gave such spectacular results, said Manu Srivastava, Principal Secretary and Commissioner, New and Renewable Energy Department, Government of Madya Pradesh.

It would be imperative for the country’s solar dream that this model is utilized and replicated by other agencies as well. “It should be replicated by other states if they want to help rooftop solar PV grow,” Srivastava said in a conversation with Mercom. Mercom’s team interacted with Srivastava on the sidelines of REI Expo 2018.