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MNRE plays a dangerous game


06 August 2018 | BRIDGE TO INDIA

MNRE plays a dangerous game

SECI has cancelled 2,400 MW of the 3,000 MW solar tender for which an auction was completed about three weeks ago. Capacity was won by Acme (600 MW, INR 2.44/ kWh), Azure (300 MW, 2.64), Canadian Solar (200 MW, INR 2.70), Adani (300 MW, INR 2.71), ReNew (500 MW, INR 2.71) and SoftBank (1,100 MW, INR 2.71). All bids other than Acme’s have been rejected. This cancellation comes in the wake of other recent cancellations by Uttar Pradesh (1,000 MW state tender, winning tariffs of INR 3.48-3.55) and Gujarat (500 MW state tender, winning tariffs of INR 2.98-3.06). Meanwhile, SECI has also cancelled a 2,000 MW pan India wind tender, which was undersubscribed because of developer concerns around transmission capacity.

  • It is not logical for procurement authorities to cancel auctions when winning tariffs are well below the ceiling tariffs;
  • Unrelenting focus on price is detracting from the government plans and overall vision for RE sector;
  • Procurement authorities run the risk of turning developers away if tender cancellations are not curbed immediately;

The reason given for all the solar tender cancellations is that the winning tariffs were deemed to be too high by MNRE and/or the DISCOMs. But the winning tariffs in the SECI tender were well below the ceiling tariff of INR 2.93 (there was no ceiling tariff in other tenders). Ceiling tariffs are supposed to be approved by power purchasers in advance to ensure that winning tariffs are acceptable to them. Logically, therefore, the reason given for tender cancellation does not make sense. Additionally, it is clear that MNRE and SECI have been acting in haste to issue as many new tenders as possible without seeking due purchasing commitments from DISCOMs.

So far in 2018, auctions have been completed for 12,570 MW of solar projects. Almost one-third of this, 3,900 MW capacity, has been cancelled. The cancellations are obviously a setback to the government’s growth plans for RE. We believe that increasing tender cancellations is a damaging development for other reasons. It shows growing mismatch between expectations of procurement authorities and project developers and indicates a likely fractious relationship between the two over potentially troubling issues including safeguard duty, transmission infrastructure, grid curtailment etc. More importantly, if this trend persists, developers are bound to lose confidence in the sector. The lesson for MNRE and SECI is clear in our view. Rather than relentlessly issuing new tenders, they need to follow a more orderly project development process in close coordination with DISCOMs, Power Grid Corporation and other agencies to avoid such incidents.

Procurement authorities rightly require developers to provide bank guarantees and other documentary evidence to ensure their commitment. But developers also spend considerable time and effort in participating in tender processes. Shouldn’t they be compensated every time an authority backs out of a tender for no valid reason?


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