New Record Low Solar Tariff of Rs.3.30/kWh Logged at Rewa Solar Park Auction in Madhya Pradesh


First Year Tariff of Rs.2.97/kWh – One of the Lowest in the World

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 (levelized tariff over 25 years) over a rupee lower than the previous low tariff of Rs.4.34 (~$0.065)/kWh, which was recorded in the state of Rajasthan in January 2016. The winning bid for first year tariff hit a new low of Rs.2.97 (~$0.0444)/kWh and will escalate by Rs.0.05 (~$0.0007) over 15 years, bringing the levelized tariff to Rs.3.30 (~$0.049)/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 the state government of 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 an MPUVNL official. The official also added that the solar park is a joint venture of Solar Energy Corporation of India (SECI) and Madhya Pradesh Urja Vikas Nigan (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 levelized tariff over 25 years of Rs.3.30 (~$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 levelized 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 levelized tariff of Rs.3.309 (~$0.0495)/kWh.

“ACME is really proud to participate in the Indian government’s continued effort to make renewable energy more bankable and attractive for both financial investors and Indian utilities.  Given the strong framework and infrastructure readiness for this project, thus eliminating construction risk and counterparty risk for lenders, there is already interest from the lender community,” commented Mr. Manoj Kumar Upadhyay, Founder & Chairman, ACME Group.

“The REWA project is an excellent example of a win-win which can be achieved by proactive measures from the government and increased awareness of investor and lender requirements. Excellent work was done by project advisors and government in devising notable features like sovereign guarantee, running a very structured process, top rated off-taker “take or pay” and state of readiness of the solar park. That coupled with our great experience with the MP government and utility because of our existing plant in the state (25 MW) gives us tremendous confidence to expand our 1.5 GW portfolio with this asset win. We are sure this will be a great addition to our portfolio and we look forward to execute,” continued Kumar.

Sembcorp Green Infra, SBG Cleantech, Hero Future Energies, Enel Green Power, Solairedirect, ReNew Power, Azure Power, Adani, Aditya Birla, 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,” stated 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,” said Raj Prabhu CEO of Mercom Capital Group. “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 percent over the last year – without which any bids to build projects below Rs.4.0/kWh would have been almost impossible,” he further commented.

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 below).

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 the development of the 750 MW Rewa Solar Park.

Article updated February 12, 2017 to include quote from ACME executive.

Image Credit: “Starokozache Solar Park” (CC BY-NC-SA 2.0) by Activ Solar