SECI has issued a new request for selection (RFS) for creating integrated module manufacturing capacity of 5 GW. Interested parties can bid for setting up manufacturing capacity in blocks of 1 GW each. The only financial incentive available to them – assured aggregate project development capacity of twice the manufacturing capacity over four years! These projects can be set up anywhere in India and connect to the inter-state transmission system (ISTS). Combined manufacturing and project development capacity shall be allocated through a single auction process with a ceiling tariff of INR 2.93/ kWh for power generation. Winning bidders would therefore be allocated manufacturing and project development capacity of 1 GW and 2 GW respectively or multiples thereof.
- The new scheme design is challenging with many curious features;
- Few players have the willingness and capacity to participate in a tender of this scale/ complexity;
- Weak module pricing outlook and poor competitiveness continue to hurt the prospects of local manufacturing;
The RFS comes after MNRE issued a concept note and an EOI on domestic manufacturing back in December 2017. The note proposed 30% capital subsidy for an aggregate integrated manufacturing capacity of 10 GW. We understand that 45 responses were received from a diversified mix of project developers and manufacturers.
The new scheme design is challenging with many curious features. All major raw materials, other than polysilicon, for manufacturing have to be sourced locally. Manufacturing capacity needs to come online within a period of three years and there are stiff penalties for not meeting even the intermediate milestones. The project development business would be free to use any modules irrespective of source or place of manufacturing – possibly to ensure scheme compliance with WTO agreements. Project development needs to be phased out evenly over four years with projects commissioned in last two years getting only 90% of the bid tariffs.
Our simplistic back-of-the-paper calculations suggest that 10% extra tariff on generation side would be equivalent to about 30% of capital cost for the manufacturing line. The government is essentially creating a subsidy pool out of extra revenues offered to project developers. But we believe that few players have the willingness and capacity to participate in a tender of this scale/ complexity. Combined capital cost of a 1 GW manufacturing line and 2 GW projects is estimated in excess of INR 110 billion (USD 1.6 billion). Minimum net worth requirement for bidders is INR 20.4 billion (USD 300 million). Our list of potential candidates is limited to ReNew, Adani, Softbank and Tata Power.
The scheme timing is also unhelpful because of the weak outlook on module pricing through most of 2018 and early 2019. Chinese and other international module suppliers are aggressively expanding capacity whereas, demand is set to weaken in most large markets. There is also no clarity as yet on safeguard duty decision. Lack of progress is baffling as the prolonged uncertainty is very damaging for the industry. It appears that MNRE may be trying to reach a consensus on the duty level together with Director General of Safeguards (DGS), local manufacturers and project developers.
