India: TANGEDCO's 500 MW Tamil Nadu solar tender represents risk, says Mercom

Last week the Tamil Nadu Generation and Distribution Corporation (TANGEDCO) issued a 500 MW request for selection (RfS) for 500 MW of solar power in the Indian state of Tamil Nadu.

With a bid submission deadline of November 18, and relatively favorable tariffs on offer, the tender is likely to attract sizable interest.

However, Mercom Capital founder and CEO Raj Prabhu believes that the RfS represents a risk for solar developers due to TANGEDCO’s past history of late tariff payments and above-average levels of curtailment.

An upper limit tariff for the solar tender has been set at INR 5.10 ($0.0763)/kWh without accelerated depreciation, as mandated by the state-administered Tamil Nadu Electricity Regulatory Commission (TNERC). Developers can, however, bid with accelerated depreciation, which heaps on an additional tariff benefit of INR 0.54 (0.008)/kWh.

Bidders will have their tariff set only once the discount they offer is deducted from the upper limit tariff. Developers can bid for between 1 MW to 50 MW for a single solar installation.

According to Mercom, each bid’s Capacity Utilization Factor (CUF) – the ratio between the PV plant’s actual output and maximum possible output – has been set in the range of 17 to 19% calculated on an annual basis.

Given Tamil Nadu’s issues with solar curtailment this year, TANGEDCO will seek to compensate solar developers for any loss of tariff greater than 175 hours per year. However, in calculating generation compensation, the utility will use a CUF of 19% – which could lead to significant losses, particularly on larger PV plants, says Mercom.

“TANGEDCO is a high risk off-taker due to their history of late payments and curtailment,” said Prabhu. “Companies that plan to bid for these prokects will be doing so at their own risk. Solar projects already have the ‘must run’ status, which means solar power gets top priority and cannot be curtailed.

“Compensation for grid unavailability contradict the must-run policy.”

TANGEDCO has confirmed that power generation in excess of the maximum CUF specified will be purchased at an average pooled price, the PPA tariff or the applicable preferential tariff – whichever is the lowest. Where generation does not meet CUF of 17%, the developers are then tasked with paying TANGEDCO for the shortfall in terms of units, priced at a level set by the Central Electricity Regulatory Commission (CERC).

Tamil Nadu currently has around 1.6 GW of solar PV capacity installed, according to Mercom’s calculations, which is around 19% of India’s entire capacity. This latest 500 MW tender is being auctioned to enable TANGEDCO to meet its Renewable Purchase Obligation (RPO), which was set by TNERC at 2.5% for FY 2016-17, and 5% for FY 2017-18.