Gujarat conducted e-auction for a 500 MW utility scale PV solar tender last week. Capacity has been won by four developers at tariffs between INR 2.98 – 3.06/ kWh – Kalthia Engineering (50 MW, INR 2.98), Gujarat State Electricity Corporation (GSEC) (150 MW, INR 3.00), Acme (100 MW, INR 3.06) and Azure (200 MW, INR 3.06). Losing bidders include Hero, Adani, Shapoorji Pallonji, Mahindra, Mytrah and Fortum.
- Tariffs have gone up by 22% in 3 months because of the threat of safeguard duty;
- Ministry of Power statement that developers would be expected to bear duties only as applicable on the date of auctions is being disregarded by them;
- We expect little progress on over 11,700 MW of tenders stuck in pipeline until there is clarity on duty decision;
Gujarat has the highest rated DISCOMs in the country. It also enjoys the reputation of a highly efficient and well-managed power sector. State tenders have always been extremely competitive as a result. But tariffs in the latest tender are relatively much higher, up by INR 0.55 or about 22% over the recent Bhadla auctions by SECI. Main reason is the threat of safeguard duty – 30% duty would mean tariff going up by about 16-18%. The Power Minister has made comforting noises on pass-through of duties but the industry clearly remains cautious. The state did not offer any concession on change in law provision unlike Karnataka. International players, usually much more risk sensitive, stayed out with the exception of Fortum, which was also very conservative.
With the benefit of hindsight, Gujarat may not have actually gone ahead with this auction although recent news articles suggest that power situation in the state is getting worrisome. With tariffs coming at higher than expected levels, it remains to be seen if the state will exercise any part of the 100% green-shoe option.
The role of state public sector companies in Gujarat tenders is intriguing. It makes no sense that state government owned companies are participating in government tenders and crowding out private sector competition. We saw the same trend in the last 500 MW auction in the state in September 2017 when GSEC and Gujarat Industries Power Company (GIPC) together won a total capacity of 150 MW.
The auction sends a clear message for MNRE and power procurement agencies including NTPC, SECI and DISCOMs. Uncertainty is undesirable for all stakeholders and the duty decision should be expedited. By the same logic, auctions should be held back until the status of duty investigation is clear. It may be a while before we see any further auctions in the sector.