India’s Karnataka invites solar bids worth 80 MW

18. August 2011 | Markets & Trends, Industry & Suppliers, Applications & Installations | By:  Mohit Anand

The Indian state of Karnataka is inviting bids for solar projects worth 80 megawatts (MW). A draft of the power purchase agreements (PPAs) offered under the policy has also been released. Criticism is aimed at both the lack of experience required for developers, and the benchmark tariffs set.

Table with Bridge to India's assessment of Karnataka's new solar policy

Bridge to India's assessment of Karnataka's new solar policy. Image: Bridge to India.

Under its new solar policy introduced last month, 30 MW of solar thermal and 50 MW of photovoltaic projects will be selected on the basis of the discounts offered by developers on the benchmark tariffs of INR 14.50 ($0.36) per kilowatt hour (kWh), as defined by the Karnataka Electricity Regulatory Commission (KERC). Furthermore, developers will sell their power to state distribution companies (DISCOMS).

Karnataka has set the submissions deadline, for requests for selection (RfS), for October 20 2011. 

Benchmark tariffs

The benchmark tariff is based on certain assumptions made by KERC as per its tariff order of 2010. The capital expenditure (CAPEX) used to arrive at the benchmark tariff is INR 155 million ($3.87 million) per MW for photovoltaics, which is higher than the average CAPEX of INR 130 million ($3.25 million) currently seen in the market.

The Capacity Utilization Factor (CUF) considered, meanwhile, is 19 percent for photovoltaics. There is no on-ground plant performance data available for Karnataka to support this CUF, however.

The Ministry of New and Renewable Energy released the plant performance data of 15 MW worth of photovoltaic projects last month from across the country, with the average CUF at 15.85 percent. This is significantly lower than the benchmark used by Karnataka, though none of the projects in the data set are located in the state. The interest rate of 12 percent on debt considered for the tariff is also lower than the market standard by up to 200 to 300 basis points.

These assumptions are out of line with the on-ground realities, raising doubts over the viability of the benchmark tariff.

Karnataka Renewable Energy Development Limited (KREDL), the nodal agency for the competitive bidding of the projects, has established strict guidelines for the eligibility of bidders, which can include standalone developers or consortiums.

The number of members in a consortium will be limited to three, with information required on each of the members. In the case they are selected, members of the consortium shall collectively hold at least 51 percent of the subscribed and paid-up equity share capital of the Special Purpose Vehicle (SPV) at all times, until three years from the Commercial Operations Date (COD) of the project.

The lead member shall have a 26 percent shareholding of the SPV until three years from the COD of the project. Thereafter, all members of the consortium shall, until expiry of the agreement period, hold not less than 26 percent of the subscribed and paid up equity share capital of the SPV.

These requirements are expected to inhibit the transfer of PPAs by developers looking at exiting early from projects by selling their PPAs at a premium.

The technical requirements are as per the CERC standards followed in other policies. Once again, the bid invitation does not lay down any requirements for the selection of engineering, procurement and construction (EPC) players for projects.

Technical requirements with regards to the competency of EPC players are crucial to ensure the successful execution of projects. KREDLs requirements appear to fall short of ensuring a high standard of construction and performance of the power plants under the Karnataka solar policy.

The time given for development for the photovoltaic plants is 18 months from the date of signing the PPA. This will likely give adequate time to developers to commission their projects unlike the National Solar Mission, allows only 12 months for photovoltaic projects.

Mohit Anand is a senior consultant for Bridge to India, a consulting company with an entrepreneurial approach based in New Delhi, India. Founded in 2008, the company provides market analysis and market entry advisory to international solar companies looking to enter the Indian market.


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