It is raining solar auctions in India, but high competition persists

Last week, three e-auctions of solar projects were completed by National Thermal Power Corporation (NTPC). Our summary observations are as below:

Competition continues to be intense with Softbank-Bharti group JV winning 350 MW in Andhra Pradesh at a price of INR 4.63/kWh. Interestingly, despite winning the previous allocation of 500 MW at INR 4.63/kWh, SunEdison didn’t qualify for the second round in this project.
BRIDGE TO INDIA expects tariffs to go down further for upcoming auctions in Rajasthan (420 MW) and Karnataka (600 MW) with some possible upward adjustment in the market thereafter.
Projects with domestic module stipulation see price premium of 11%.

The three auctions completed last week were for the following projects:

A 350 MW solar project in government solar park at Gani-Sakunala, Andhra Pradesh was won by a Softbank-Bharti group JV on PPA basis at a price of INR 4.63/kWh;
3 x 50 MW projects in government solar park at Gani-Sakunala, Andhra Pradesh were won by Azure Power (100 MW) at INR 5.12/kWh and Adani Group (50 MW) at INR 5.13/kWh respectively on PPA basis – these projects had the stipulation of using domestically manufactured cells and modules;
4 x 65 MW projects were won by Vikram Solar (130 MW at INR 56.28 million/MW), Jakson (65 MW at INR 56.34 million/MW) and Tata Power (65 MW at INR 56.40 million/MW) on EPC basis in Bhadla solar park, Rajasthan again using domestically manufactured cells and modules – these projects will be developed and financed by NTPC.

After announcing the 100 GW target, Indian government is walking the talk. Auction process has already been completed for over 10 GW of solar projects and a further 6.5 GW of solar projects are expected to be allocated in the next three months. This frenetic pace of activity is a big step-up in contrast to historic solar capacity addition of approximately 1 GW per annum over last three years.

Despite the huge pipeline, the auctions continue to see intense competition with tariffs coming down sharply. Several developers including Indiabulls, FRV, ReNew, Reliance, Azure Power, Orange Renewables and Acme have shown appetite to win projects at tariffs of less than INR 5/kWh.

While several market participants have expressed concerns at such low tariffs, BRIDGE TO INDIA believes that competition has been particularly intense for these projects as they offered the best risk profile for international developers in India – no land acquisition or transmission connectivity risk combined with possibly the best India off-take risk in the form of NTPC. It is also worth noting that: i) these projects were the first to be auctioned under National Solar Mission after a gap of about two years; and ii) projects have been auctioned in such large sizes for the first time in India providing developers with significant scope to optimize operating costs. Earlier auctions typically had a cap of 50 or 100 MW per developer. Both these factors added further to the intense competition.

BRIDGE TO INDIA expects strong competition to persist for solar park based bidding in Rajasthan (420 MW) and Karnataka (500 MW open and 100 MW DCR) organized by NTPC. These auctions are due in next two months. Indeed, tariffs could go down even below INR 4.63/kWh as solar park charges for these states are lower than that in Andhra Pradesh. Going beyond that, we expect competition to ease slightly for projects tendered by Solar Energy Corporation of India (SECI).