Solar Tariffs May Settle Around ₹2.50/kWh After Factoring BCD in Future Auctions
The stakeholders discussed solar tenders and auctions and the future trajectory of the industry
April 16, 2021
Despite the Covid-19 pandemic, the tendering and auctioning of solar power projects went on unhindered in 2020. About 32.5 GW of tenders were announced by various organizations, and 22 GW of projects were auctioned during the year.
The year also saw aggressive bidding, which resulted in record low tariffs. The Solar Energy Corporation of India’s (SECI) auction of 1,070 MW of solar projects in Rajasthan (Tranche III) resulted in India’s second-lowest tariff of ₹2 (~$0.270)/kWh. The low tariff was due to several reasons: foreign players’ eagerness to enter the Indian solar market and low cost of borrowing, and expectations of module price fall in the future.
Later, the ₹2 (~$0.270)/kWh barrier was breached in the Gujarat Urja Vikas Nigam Limited’s (GUVNL) (Phase XI) auction for 500 MW of solar projects, with a quoted tariff of ₹1.99 (~$0.0269)/kWh.
In 2020, SECI accounted for nearly 41% of the total tenders. The state-owned Andhra Pradesh Green Energy Corporation Limited (APGECL) accounted for nearly 19% of the total tenders announced in the year. Out of the total 22% of the solar auctions, around 73% of projects were auctioned by SECI, followed by the National Hydroelectric Power Corporation (NHPC) and NTPC with 9% and 8%, respectively.
The issues relating to tendering and auctioning of solar projects and the road ahead were deliberated at a panel discussion in the recently-held Mercom India Solar Summit 2021.
The session titled “Tenders and Auctions – From Pipeline to PPAs, How We Get There” shed light on what the implementing agencies are doing to ensure that tenders are structured well to receive a good response. The session also dealt with low tariffs, cancellation of auctions, and the future course to be taken by the implementing agencies.
The panelists included Sanjay Sharma, General Manager, SECI; SS Mishra, General Manager, NTPC; and Lakshmi Narayanan, DGM, Ayana Renewable Power. Priya Sanjay, Managing Director of Mercom India, moderated the session.
Speaking about the postponement of auctions for 25 MW of tenders, Sanjay Sharma said, “The auctions have not been postponed. What’s taking time is signing the power purchase agreements (PPAs) and the power sale agreements (PSAs). For the solar tenders, we have received a good response. Barring the manufacturing-linked tenders, the response has been encouraging. Only Adani participated in the manufacturing tender, and no one else participated, so that was a big stumbling block.”
He said that the response to the wind energy tenders was also encouraging. “For Tranche VII, Tranche VIII, and Tranche IX, we surpassed the tendered capacity of 1,200 MW, and we received bids for 1,210 MW. We have received a response for 3,200 MW against the tendered capacity of 1,200 MW for Tranche X. Hybrid tenders have also received a good response, and we got an aggressive tariff of ₹2.41 (~$0.032)/kWh,” he said.
“The thing is that we are not able to get good buyers,” he said, noting that the response from distribution companies (DISCOMs) was poor.
Sharma said that there was a need to streamline the tendering process and the aggregate demand from the DISCOMs. ” DISCOMs first see the discovered tariff, and then they show their appetite, and this is a major hindrance,” he added.
Highlighting the role of NTPC as an implementing agency as well as a developer, S.S.Mishra said, “We have the double role of a developer as well as an implementing agency. It’s a challenge, but we are geared up for this. As an implementing agency, we put tenders, and we also participate in the competitive bidding process. We are ready for capacity addition in both solar and wind. For solar, we are planning to add 3-4 GW capacity per annum, and we have a fund allocated for large expansion plans.”
He said that there was a need for greater stability and visibility in the market. “There is a need to turn the tenders into PPAs, and that is of vital importance. The market is getting resettled, and things will become more streamlined in the future.”
Sharing his views on the low bids, Sharma said it was neither good nor bad for the sector.
“The tariffs are dependent on several factors. Some of the factors are module prices, market conditions, and the number of bids in the market. It depends on the bidder’s appetite, and the cost of financing has also gone down, which has affected the tariffs. The low discovered tariffs have affected the signing of PPAs and PSAs of older auctions. We are in a fix right now. With the Basic Customs Duty (BCD) imposition, the module prices will go up, which will affect future auctions. In the future auctions, if the tariffs are higher, we’ll be able to sign the older PPAs and PSAs and clear the backlogs,” he said.
Mishra concurred with Sharma about the increase in module prices that will affect the tariffs in future auctions.
“The impact of the duty will be somewhere around the ₹0.45/kWh, and the tariffs will be in the range of ₹2.50 (~$0.033)/kWh -₹2.60 (~$0.034)/kWh. The prices of modules have gone up, so the tariffs will increase. There is a need for a certain amount of stability and predictability in the market. The market should not be speculative,” he said.
Bringing the developer’s perspective to the table, Lakshmi Narayanan said that all developers look for assured offtake. “If the developers are certain of assured offtake, there is a jump in the subscription. The implementing agencies should also look into the signing of PPAs and PSAs.”
Another aspect that needs to be looked into, according to him, is the ‘Change in Law’ clause. He called for clarity on how the developers will be compensated.
“The cost of financing has gone down, and the interest rates have bottomed out, which has been the main contributing factor for low bids,” he said.
About developers with access to foreign funds, Lakshmi Narayanan said, “On a net-to-net basis, the arbitrage is less, so we are interested in raising funds from foreign players rather than domestic debt. We prefer foreign funds, even though there is a low MCLR rate domestically. There is a growing trend in the recent auctions, with most of the players being big corporates. In the last two to three years, large corporates like NTPC are making it to the top, and this trend is bound to continue.”