SECI has again extended bid submission date for the 10 GW integrated project development and module manufacturing tender. Revised date is 12 November, 2018. This is the fifth such extension after another round of poor response from the industry. We understand that many developers and 5-7 Chinese module manufacturers are keen to participate in the tender. But the conditions are punitive and they have been arguing for relaxation on several grounds.
- The theory of combining two disparate parts of the value chain – manufacturing and project development – does not stack up;
- Few companies want to be present in both manufacturing and project development;
- The government is betting big on this tender to the detriment of other schemes and sector initiatives;
The two main changes being sought by the industry are increase in ceiling tariff (from INR 2.75/ kWh) and relaxation in cross-liability structure. There are some other areas of concern including high performance guarantees (combined INR 4.7 billion (USD 64 million) for manufacturing and project development) and stringent implementation period (two years) and minimum capacity utilisation (50-60% in the first two years) for the manufacturing component.
We continue to maintain that the integrated tender design is poorly conceived. In theory, developers can bid extra tariff for generation to cross-subsidise their investment in the challenging manufacturing business. But the low ceiling tariff does not leave much allowance for this. And most potential bidders – Softbank and Adani are the only two parties possibly interested in both components in our view – do not want an integrated play. The peculiar tender design is forcing them to consider complicated joint-venture arrangements, which could unravel down the line.
On its part, the government seems to have (wrongly) committed itself fully to the tender. SECI and MNRE are seriously looking into the industry concerns and it remains to be seen what concessions would be made. In fact, progress on all other tenders has been suspended while this tender is in the pipeline. But we see very low odds of a successful outcome. The developers are forced to be defensive in response to rising interest rates, falling Rupee and transmission capacity constraints. The DISCOMs want cheap power. And module manufacturing in India remains a tough proposition as highlighted again by the news of JSW reversing its decision to enter the business.
