Solar Tender, Auction & Commissioning Delays Causing Liquidity Issues for Developers

Deposits stuck with SECI and NTPC are preventing developers from actively bidding multiple projects simultaneously


According to several solar developers Mercom interacted with recently, there was unanimous agreement that the cost of participating in large-scale solar tenders has reduced their ability to actively bid for other projects. These costs, coupled with delays and extensions of tenders have tied up millions in the form of bank guarantees.

To participate in central government tenders, solar energy developers have to submit bid bonds or earnest money deposits (EMDs) in the form of bank guarantees with the Solar Energy Corporation of India (SECI), NTPC, and state agencies. Other charges that are part of the tender process include document fees, processing fees, and success fees.

EMDs can range anywhere between ₹400,000 (~$5,500)/MW to ₹1 million ($14,000)/MW plus 18% Goods and Services Tax (GST). For example, for the 1.2 GW solar tender issued by SECI last year, the EMD was set at ₹1 million/MW. This means that a developer looking to bid for 600 MW capacity in this tender would have to submit bank guarantees of more than ₹600 million ($8 million). In addition, bidders are also mandated to submit non-refundable processing fees that can range from ₹500,000 ($4,230) to ₹1.5 million ($20,800) depending on the capacity that is being bid for. These EMDs are mandated to be valid for around 240 days from technical bid opening and are submitted with technical and financial bids.

Costs from bank guarantees and processing fees on their own may not seem extremely high, but developers often face cash flow issues when auctions are delayed or canceled and reissued. Over the last two years, there have been a large number of tenders that have been delayed or canceled. In April 2019, Mercom published a report that shed light on how solar auction cancellations need a fix for market sentiment to improve.

“Once the EMD is deposited with the respective government agency for a tender, and its auction is cancelled or delayed, it can take around two to three months for it to be returned and can prohibit developers from participating in other opportunities. On top of this, highly competitive bids due to low tariff caps are also reducing chances of winning projects at a decent margin, and now you are seeing tenders being undersubscribed,” added a business development executive at a Delhi-based solar energy company.

According to a solar developer, the bid bonds or EMDs can take up to 45 to 60 days to be returned after the technical bid opening. A representative from the company told Mercom, “In the past, EMDs would take a few months to be returned. In the case where a bid opening gets delayed or canceled, we would have to write to the respective authority for timely release of the EMD.”

Once the project is allocated and PPAs are signed, developers have to provide performance guarantees (PBGs). A PBG is an irrevocable unconditional bank guarantee deposited by solar power developers to SECI/NTPC after 30 days from the date of issuance of the letter of intent. These are mandated to be valid for around six months beyond the commercial operation date (COD) of the project. However, even in the case of PBGs, which are to be returned immediately after the successful commissioning of a project, there have been instances in which they have not been released to developers on time. In September 2019, the Ministry of New and Renewable Energy (MNRE), tried addressing this issue by directing SECI and NTPC to release PBGs for solar and wind power projects that have been commissioned. According to the letter, PBGs should be released within 45 days from COD, subject to the submission of all required documents.

A source at a solar energy development company told Mercom, “For solar developers to participate in auctions, the whole process can cost a lot money and often, EMDs and PBGs get stuck. Further, if you need ₹100 as the bank guarantee, you need to deposit ₹20 in the bank. This is just the cost of attempting to participate in a tender. The amount is reimbursed only after the reverse auction process is complete, or the power purchase agreement (PPA) is signed.”

In May 2019, the Central Electricity Regulatory Commission (CERC) ruled in favor of three solar project developers regarding the return of their PBG to the tune of ₹255 million ($3.7 million). In its order, the commission ruled that the retention of the performance bank guarantees by NTPC is illegal and arbitrary.

Due to the current competitive landscape, wherein developers are finding it extremely difficult to win renewable energy projects, interest in these tenders is at an all-time low. Many tenders are being left undersubscribed or extended due to a lack of participation.

For instance, in August 2019, the SECI tender to set up 1.2 GW of solar was undersubscribed by 50%, receiving bids for only 600 MW of solar capacity. Then in May 2019, SECI’s 1,200 MW of ISTS-connected solar-wind hybrid power projects (Tranche-II) was also undersubscribed by 300 MW. Undersubscription can causes more delays, which further reduces the ability of participants to bid in more tenders.

It seems that government agencies have heard the stakeholders as EMD amounts in recent SECI and NTPC tenders have been reduced to around ₹400,000 ($5,500)/MW.

Investments in renewable energy projects has also been affected by this and solar IPPs are cautious of bidding for tenders. Since September 2018, infrastructure financing has taken a hit in India. Government agencies need to focus on creating a conducive and inclusive environment for the tendering and bidding process of renewable projects in India. This can be done by  providing flexibility to developers to participate in more tenders by returning EMDs and PBGs. In addition, SECI and NTPC need to reduce incidents of delays and cancellation of tenders to usher in more stability for developers that are looking to participate in them.