India: Demonetization issues add to curtailment concerns in Tamil Nadu solar auction

The current 500 MW solar auction offered by the Tamil Nadu Distribution and Generation Company (TANGEDCO) has received a mere 117 MW of bids as concerns mount over the distribution company’s (DISCOM) reputation for late payments.

The situation has also been exacerbated by India’s demonetization program, which is causing short-term cash flow problems for small developers operating in the state, according to Mercom Capital Group.

TANGEDCO established for its 500 MW auction a tariff benchmark of INR 5.10/kWh ($0.0763/kWh) offered without accelerated depreciation. Thus far, less than 25% of the DISCOM’s original procurement goal has been achieved, and a spokesperson has stressed that the expectation was for more interest in the request for selection (RfS) issuance.

According to Mercom Capital Group CEO Raj Prabhu, TANGEDCO has developed an unwanted reputation as a late-payer of tariffs, and is also prone to curtailing solar power in favor of cheaper alternatives on the grid.

Add to that mix cash issues caused by Prime Minister Modi’s crackdown on the black market (Indians were recently issued with a 50-day notice to replace old 500 Rupee and 1,000 Rupee notes for newly introduced 500 and 2,000 notes in an effort to clear out its shadow economy) affecting smaller developers and the situations are ripe for unusually subdued demand for solar in the state.

Tamil Nadu’s Electricity Regulatory Commission is tasked with a Renewable Purchase Obligation (RPO) target of 2.5% for fiscal year (FY)2016-17, rising to 5% for the following FY. This equates in real terms to 1.2 GW of new solar power this year, and 2.4 GW next year.

The latest Mercom Capital Group data puts Tamil Nadu’s cumulative solar capacity at 1.6 GW.