Gujarat Urja Vikas Nigam Limited (GUVNL), Gujarat government holding company for power distribution and transmission businesses in the state, announced a new 500 MW solar tender last week. The tender has an innovative provision in the form of a 500 MW green-shoe option. If GUVNL deems the lowest auction tariff attractive, it can exercise an option to increase the tender capacity up to 1,000 MW provided bidders are willing to match the tariff. With this tender, total new RE capacity tendered in India from December 2017 onwards has gone up to 12,755 MW.
- High RE demand would be difficult to sustain as total power demand growth remains stuck in low single digits;
- Connectivity to national grid is allowing greater RE access for land and resource constrained states but likely to build up grid stability challenges;
- Procurement agencies may be set for tariff surprises as growing viability concerns and reducing competitive pressure may finally lead to tariffs going up;
The new tender rush is in stark contrast to the only 7,200 MW of new capacity tendered in the 11 months from January – November 2017. MNRE’s pressure on states to accelerate RE procurement seems to be working although we believe that the actual numbers would still be way short of the MNRE plan to auction 21 GW by end March 2018. Power demand growth in the country remains steady at about 4% as per the latest numbers available. The good news is that RE growth is beginning to make aconsiderable dent in thermal power demand and capacity addition.
SECI has issued seven of the fifteen new tenders totalling 7,295 MW (57% of total tendered capacity) since beginning of December 2017. Three of these tenders are for 2,000 MW each, where bidders can elect to build projects anywhere in the country and connect to the national grid. Most such projects are likely to be located in Gujarat, Tamil Nadu (for wind) or Rajasthan and Madhya Pradesh (for solar). Details of ultimate offtakers are not available at this stage but we expect most of this power to be bought by hinterland states including Punjab, Haryana, Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh. It is an appealing route for these land and resource constrained states to buy RE power at low cost. But concentrating more capacity in select states may pose problems from a grid stability perspective in the future and the policy makers need to be watchful on this front.
Most of the other new location-specific tenders have been issued by Karnataka (2,260 MW), Maharashtra (1,800), Uttar Pradesh (1,275) and Andhra Pradesh (750)
All figures in MW
There are two other interesting developments in recent new tenders. With the threat of safeguard and/or anti-dumping duty looming, Gujarat and Karnataka have chosen to offer change-in-law protection to developers insulating them from this risk. We expect other states and even SECI to follow suit. The other one relates to benchmark ceiling tariff, set at INR 2.93/kWh in Andhra Pradesh and Karnataka, 3.00 in Maharashtra and 3.43 in Uttar Pradesh and Assam. Expectations have been set low after the recent auction results. But what if tariffs start rising in response to growing viability concerns and reducing competitive pressure? Procurement agencies may be set for some surprises on this front.
