Andhra Pradesh’s curious 6.4 GW solar tender

Andhra Pradesh completed auction for its mega solar tender last week. Winners include Adani (2,400 MW), Shirdi Sai and HES Infrastructure (believed to be affiliates of Greenko, together 2,500 MW), NTPC (600 MW) and Torrent Power (300 MW) with tariffs ranging between INR 2.47-2.49/ kWh. Another 600 MW project was won by Adani with a bid of INR 2.59/kWh but the state government has not accepted this relatively high bid. Projects would be developed in 10 government solar parks across the state.

The state has had to offer a sweet deal to attract developers following its regressive actions in the last two years;
Bidding interest was confined to select domestic developers with tariffs expectedly coming at significantly higher levels than in recent auctions;
These projects, if implemented, would pose serious grid management problems given that Andhra Pradesh’s total power requirement is only around 9 GW but the state already has total operational renewable capacity of 7.9 GW;

Andhra Pradesh became a pariah state for the renewable sector after its brazen attempt to renegotiate all past PPAs in July 2019. Subsequently, the state also cancelled all under development projects, withdrew financial incentives provided to open access projects as well as banking provision for renewable power. The PPA renegotiation case is still stuck in the High Court, which has in the meantime directed DISCOMs to reduce tariff payments to IPPs to INR 2.43-2.44/ kWh, down 43% over the capacity-weighted average contracted tariff of INR 4.28/kWh. The move has caused huge financial stress to investors. Renewable capacity addition in the state fell sharply from 1,138 MW in 2019 to 269 MW in 2020.

Unsurprisingly, the state has had to offer a sweet deal to attract developers. Payment security package comprises letter of credit for an unprecedented four months beside a state government guarantee. PPA tenor is longer at 30 years instead of standard 25 years and solar park charges have been kept low (see table below).

Table: Solar park charges payable by developers, INR/ MW

Source: BRIDGE TO INDIA research

Despite the sops, the state failed to attract interest from most of the developer community. Bidding interest was confined to select domestic developers. Tariffs are expectedly significantly higher than in recent auctions with estimated equity returns considerably over 20%.

The tender seems like an exercise in grand-standing and reviving the government’s reputation. The apparent objective is to reduce burden of tariff subsidies (FY 2020, INR 75 billion (USD 1 billion) arising from providing free power to farmers. The sheer scale of the tender is hard to justify. Andhra Pradesh’s total power requirement is only around 9 GW and the state already has total operational renewable capacity of 7.9 GW. We believe that these projects, if implemented, would pose serious grid management problems.

There is another fly in the ointment. The High Court has put a stay on the tender following an appeal by Tata Power. The core issue is that the state government has stripped APERC, the state power regulator, of all jurisdictional powers including tariff approval and dispute resolution in violation of the Electricity Act. The High Court is due to hear the matter next week.