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NTPC jumps into the bidding arena


22 October 2018 | BRIDGE TO INDIA

NTPC jumps into the bidding arena

Uttar Pradesh conducted auction for its 500 MW utility scale solar tender on 10 October 2018. Winning tariffs came at between INR 3.17-3.23/ kWh (USD cents 4.4). Capacity was won by NTPC (160 MW), Adani (100 MW), Sukhbir Agro, Eden, Solar Arise and Avaada (50 MW each) and Maheshwari Mining (40 MW).

  • The tender marks the first instance of NTPC participating in and winning a project auction;
  • DISCOMs are not keen to buy solar power bilaterally from NTPC as tariffs offered by private developers in auctions are significantly lower;
  • NTPC’s aggressive bidding in this tender is an effort to stay relevant in the solar sector;

The last such auction by Uttar Pradesh – for a 1,000 MW tender in July 2018 – saw winning tariffs of between INR 3.48-3.55/ kWh. This tender was subsequently cancelled because the DISCOMs felt that the tariffs were too high. Tariffs have fallen in the latest tender because of clarity about safeguard duties and steep fall in module prices in the intervening months. But the new tariffs are still over 30% higher than tariffs in the recent Gujarat auction. Might Uttar Pradesh cancel this tender too? We do not believe so. The state has lower radiation, higher land prices and much worse DISCOM ratings in comparison to Gujarat, so the difference is justified. Moreover, public sector giant, NTPC, is a major winner this time and any cancellation talk would be unthinkable.

Indeed, the most interesting facet of this tender is NTPC’s foray into project auctions. To the best of our knowledge, it is the first time that NTPC has participated in and won a competitive auction. The move marks a radical departure from the company’s usual business – where PPAs are negotiated bilaterally with the offtakers and it earns a cosy regulated return of 15%.

We believe that NTPC has been forced to abandon its preferred formula because of DISCOMs’ unwillingness to pay higher tariffs to the company. Private developers are able to outcompete the company with their aggressive financial engineering and procurement tactics. As a result, NTPC has had to cancel most of the projects tendered by it on an EPC basis. The company has an ambitious target of developing 15,000 MW of solar capacity by March 2022. It has another target of getting 28.5% of its total energy from RE sources by 2032. But as on 30 June, 2018, total RE portfolio stood at only 930 MW (870 MW solar, 50 MW wind and about 10 MW small hydro), a mere 2% of its total capacity.

NTPC’s participation in the Uttar Pradesh auction is a bid to stay relevant in the rapidly transforming power sector. This formula, however, requires a different business paradigm. And despite a major advantage over private developers – it has direct recourse to state government in the event of a DISCOM default – we are not sure if NTPC could (or should) compete with private developers.


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