Last week, we wrote about the proposed MNRE scheme to procure round-the-clock renewable power with blending with thermal power. As we noted, the need for firm, predictable power is all too clear. But it is odd that the government is asking the project developers to provide a solution for this. Not only is the scheme beyond scope of most renewable developers, it is also unlikely to receive reasonable bids from thermal IPPs because of their stressed financials and limited competition. The responsibility of blending power from different sources should instead lie with the grid operator, load despatch centres and DISCOMs.
- The government is expecting project developers to bear additional risk and responsibility that they are not suited for;
- In the integrated project development-cum-manufacturing tender, the winning bidders have demanded cross-subsidy equivalent to more than 4x the capital cost of investing in manufacturing business;
- The developers and DISCOMs seem unwilling parties in this wasteful approach;
If the government persists with the scheme, it would be forced to pay over the odds for blended power. We have seen this recently with module manufacturing. After failing to incentivise domestic manufacturing over many years, the government launched integrated project development-cum-manufacturing tender in May 2018. The tender was repeatedly undersubscribed, cancelled and modified. In the end, the government is believed to have awarded 4,000 MW capacity to Azure and Adani (exact capacity still not confirmed) at a tariff of INR 2.92/ kWh, 14% higher than average tariff for SECI solar tenders in the last year.
This is a stupendous waste. In present value terms, the extra tariff is equivalent to a cross-subsidy of INR 20.2 billion (USD 285 million) per GW of cell and module manufacturing capacity, almost 4x the total capital cost of investing in such facility. The subsidy is potentially even higher because power generation projects are expected to come up over an extended period of 5 years when power tariffs could be much lower than seen in the last year. In effect, the government is asking DISCOMs (in turn, the end consumer) to bear the burden for poor competitiveness of domestic manufacturing business and its own failure to support the same.
There are several other instances where we believe that the government is mistakenly expecting to pass additional risk and responsibility to project developers:
- SECI’s 7,500 MW tender for projects in Leh-Ladakh region with over 2,000 km of high voltage transmission lines in developer scope,
- Forecasting and scheduling responsibility imposed on individual power projects rather than on grid management agencies,
- Focusing on provision of storage capacity at individual power project level rather than at transmission and/ or distribution level.
These proposals suggest an implicit admission of failure by the government agencies in fulfilling their obligations. But growing risk aversion means that the developers may shun these proposals altogether or extract too high a price. On their part, the DISCOMs may refuse to buy costly power thereby scuppering the government proposals.