Competition in the Indian solar market intensifies further

24 April 2017 |

First round of bids was submitted for Solar Energy Corporation of India’s (SECI’s) 750 MW tender in Bhadla Solar Park, Rajasthan last week. A total of 33 developers are believed to have submitted bids for an aggregate capacity of 8,750 MW – an oversubscription of almost 12x. Coming in the wake of intensely competitive bidding in Rewa and Kadappa tenders, the signs are that competition for new projects is getting fiercer particularly as the supply of new projects has slowed down in the last twelve months.

  • The large oversubscription in Bhadla can be attributed primarily to easing up of new tender announcements and greater private sector interest in the sector;
  • Lower solar tariffs should ideally provide demand boost for solar projects but ironically they are adding to short-term slowdown as central and state governments reconsider procurement policies;
  • We expect a slight reduction in new solar capacity addition in India in 2018 before activity picks up again from 2019 onwards;

Most of the active project developers in India including Adani, ReNew, Acme, Azure, SolaireDirect (Engie), FRV, Sembcorp, EDF, Canadian Solar, Aditya Birla, Shapoorji Pallonji, Mytrah, Fortum and Trina Solar have participated in this tender. Notably, Welspun has made a comeback after the sale of its assets to Tata Power. ReNew, SoftBank and Saudi based Alfanar have submitted bids for the entire 750 MW capacity. Adani and SolaireDirect have bid for 550 MW and 500 MW respectively.

We believe that the large oversubscription in Bhadla tender is primarily due to slowdown in new tender issuance but improved credit rating of SECI is also a relevant factor.

The Indian government’s announcement of 100 GW solar target led to a big surge in new tender announcements in H2/2015 and H1/2016 with some large states front-loading their solar power procurement programs. At the peak of tender activity in 2016, SECI tenders were oversubscribed by only about 2x (Maharashtra 450 MW, Andhra Pradesh 400 MW) or even undersubscribed (Odisha 300 MW, Karnataka 950 MW). But growing interest from many large global and domestic solar developers in the sector combined with slowdown in new tenders is leading to a tough competitive environment for project developers.

Figure – Solar tender auction completion

The main problem here is sustaining a high level of new solar power demand from states when many of them are facing power surplus. Solar tariffs in the sub-INR 3.50/ kWh (US¢ 5.4) range should provide huge demand boost for solar power in the long run but ironically, lower tariffs have led to unique challenges in the short-term. Central and state governments are reconsidering their procurement policies leading to postponement of some tenders. Meanwhile, some DISCOMs, having completed auctions with higher tariffs (notably Jharkhand and Odisha), are now having second thoughts on signing PPA’s.

We believe that this short-term lull will lead to fierce competition for new tenders and a slight reduction in new solar capacity addition in 2018 before activity picks up again.

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