The reasons India’s 10 GW solar tender will not attract big developers

From pv magazine India.

A series of pre-bid meetings and repeated extensions of the bid submission deadline have not yielded the desired response from solar developers to the Solar Energy Corporation of India's (SECI's) manufacturing-linked tender for 10 GW of PV power.

Gopal Lal Somani, a former director at the Jaipur-based Rajasthan Renewable Energy Corporation Ltd (RRECL), has told pv magazine there are several reasons India's traditional solar players are steering clear of the planned auction, which requires successful bidders to commit to establishing a total 3 GW of domestic annual solar manufacturing capacity.

Mr. Somani says the imposition of safeguarding duties on Chinese and Malaysian solar products has created financial uncertainty, and the cancellation of tendering exercises across the nation – as well as the imposition of tariff ceilings – have further shaken the confidence of developers.

The industry insider – who helped Maheshwari Mining and Energy Pvt Ltd secure development of 40 MW of solar in Uttar Pradesh – says the decision by SECI to impose a maximum INR2.50/kWh ($0.034) tariff – excluding safeguarding duty – without consulting the Central Electricity Regulatory Commission (CERC) or its state counterparts (SERCs) means PV projects are not viable in states that are not rich in solar irradiation.

Tariff expectations are unrealistic

Developers feel the record tariffs seen in India – of INR2.44/kWh – are not financially viable, as falling module costs have been wiped out by depreciation of the rupee against the dollar, adds Mr. Somani.

Confidence has been further undermined, says the former RRECL director, by delayed or defaulted payments for energy from cash-strapped state distribution companies in Andhra Pradesh, Telangana, Tamil Nadu, Rajasthan and other areas that show little appetite for more clean energy.

Mr. Somani adds, even existing local solar manufacturers feel the requirement to commit to a 600 MW annual production capacity – for each 2 GW of generation capacity allocated – is not financially attractive under SECI's tariff price ceiling.

Finally, Mr. Somani told pv magazine,concerns remain about the ability of state and interstate transmission infrastructure to absorb new solar.

All those factors, together with the rising cost of land and the time consumed in revenue land leasing, increase the CAPEX required for solar power plant installation, with the result that projects at the SECI benchmark tariff become unviable.

A closer look

Bid size: As per the tender, developers can bid for a minimum manufacturing capacity of 600 MW, and would be assured PPAs of 2 GW for each such commitment.

“Allowing individual bid sizes of 250 MW – five times 50 MW – in the tender document, does not provide [a] level playing field to all [types] of … investors, i.e., small, medium and big players, and hurts the sensitivity of the bidding process defined in the Electricity Act 2003, and Competitive Transparent Bidding Guidelines of 2017,” says Mr. Somani.

Timeframe: The total capacity auctioned is expected to be completed in a phased manner, and the PPA will cover project milestones of setting up integrated solar manufacturing facilities. The completion deadlines set will not achieve the national target of 100 GW of solar by 2022. Under SECI's tender rules, manufacturing capacity must be set up within two years. This timeframe is impossible for any manufacturer in the country to achieve, looking at the prevailing paralysis in policies and the approval process required for land allotment and other permits, says Mr. Somani.

State utility unwillingness: Long-term PPA payments for thermal power are based on a two-part tariff: the fixed cost – INR1.60/kWh – and the variable cost per unit, of INR1.65/kWh. Thus the average unit cost for thermal power comes in at around INR3.25/kWh. If distribution companies do not purchase thermal power under a PPA, a fixed tariff becomes payable.

Utilities refuse to sign PPAs

The states argue that to buy solar energy, they must curtail the equivalent amount of power from thermal plants, and pay fixed charges of INR1.60/unit as a result. Therefore, even if they buy PV power at INR2.44/kWh, the total cost of power for them works out at around INR4.04/kWh. They also cite the difficulty in hedging the intermittent nature of renewables.

SECI is now finding it tough to execute large-capacity PPAs with state utilities, as they flatly refuse to sign the agreements. Compounding the problem, SERCs are not compelling the utilities to commit to solar by enforcing them to fulfill their renewable purchase obligations (RPO).

Technical challenges: Mr. Somani adds, of the SECI tender: “The maximum tariff payable to solar developers is INR2.50, excluding safeguard tariffs. The low benchmark tariff will limit the entire development to … Rajasthan, where it will face technical challenges in power evacuation to distant load centers. The interstate transmission infrastructure will be utilized to 30% of [its] designed capacity, and [the] transfer of solar power to distant load centers during low-sun hours will be a challenge. The technical losses will be huge, apart from frequent incidences of power swings.

“The land cost has been increasing in the close vicinity of transmission and EHT [extra high voltage] substations. International developers and independent power producers backed by private equity funds like SoftBank, would prefer to build projects in government-provided solar parks, where land and transmission infrastructure is provided to them on a plug-and-play basis. But the cost of using these solar parks is substantially high.”

Recommendations

According to Mr. Somani, tender announcements and auctions cannot be a good indicator of future solar activity because projects auctioned at low tariffs may never be realized. It is time for the government to provide clarity around the safeguard duty and address trade issues.

The government also needs to come up with favorable land allocation and acquisition rules, and put in place a safe, secure and adequate transmission system, says the former solar industry professional.

He also calls for federal and state electricity regulatory commissions to consider factors including land; the capital cost of modules and inverters; balance of supplies – AC and DC; connectivity and transmission costs; EPC margin; safeguarding duty; working capital margin; operation and maintenance; interest costs; and return on equity and project returns with a debt service coverage ratio acceptable to lenders, when formulating tenders and any tariff bid ceilings.

Solar tariffs have already reached grid parity, says Mr Somani, so if regulatory commissions take actions over the RPO, utilities cannot object to incorporating more renewable energy.

Finally, says the industry insider, there is a need to provide a level playing field for all sorts of investors, and to streamline financial institutions to ensure timely project funding.