Maharashtra state regulator, MERC, has recently rejected most of the winning bids in two renewable energy tenders as it viewed the winning tariffs as too high or unreasonable. The two tenders include a 350 MW solar-wind hybrid tender by Adani Electricity, Mumbai DISCOM, and a 1,400 MW agricultural solar tender floated by Maharashtra State Electricity Development Corporation (MSEDCL, the state-government owned DISCOM). Winning tariffs in the two tenders were INR 3.35/ kWh and INR 3.16-3.30/ kWh but MERC has approved only INR 3.24/ kWh and INR 3.15/ kWh respectively. Similarly, Bihar regulator has approved only INR 3.30/ kWh against winning bids of INR 3.58-3.60/ kWh in the Bihar Renewable Energy Development Agency’s (BREDA) 250 MW solar tender.
- Seeking regulatory approval after completing auction vitiates the core principle of competitive auctions;
- The authorities should instead seek regulatory tariff approval upfront and prescribe a clear ceiling tariff in the tender documents;
- The government needs to act urgently to restore investor confidence and transparency in the sector;
In the MSEDCL tender, only one bidder (Kosol, 10 MW, INR 3.16/ kWh) accepted the lower tariff. MSEDCL issued a revised 1,350 MW tender with a ceiling tariff of INR 3.15/ kWh but received only one bid for 5 MW (Kiran Energy, INR 3.14/ kWh).
Table: Winning bidders and tariffs in the three tenders
Source : BRIDGE TO INDIA research
Notes: In the BREDA tender, auction tariffs of INR 3.58-3.60/ kWh were subsequently revised down after a couple of rounds of negotiation between BREDA and the bidders.
It should be noted that previous bid cancellations (SECI 2,400 MW, Gujarat 700 MW, Uttar Pradesh 1,000 MW) were prompted by tendering authorities – mainly DISCOMs and government agencies – who felt the winning tariffs were too high to be acceptable.
Rejection of bids by regulators is a recent and disturbing phenomenon. The regulators are interpreting their mandate in the widest sense of ensuring that the bid tariffs are: i) consistent with market environment; and ii) in consumer interest. But seeking regulatory approval after an auction is inconsistent with the core principle of competitive auctions. Expecting developers to jump through multiple hurdles – auctions, followed by DISCOM approval and a subsequent regulatory approval – is unreasonable. Instead, the authorities should seek regulatory tariff approval upfront and prescribe a clear ceiling tariff in the tender documents.
Fluidity in the Indian renewable auctions is needlessly jeopardising investor sentiment. In an already challenging environment, the government cannot afford investors losing interest.
