SECI looking to invest into 2,000 MW of solar, releases EOI for EPC

30 April 2015 |

Solar Energy Corporation of India (SECI) has released an Expression of Interest (EOI) for Engineering, Procurement and Construction (EPC) for 2,000 MW of solar PV[1A]. The EOI envisages multiple projects of 250 MW or 500 MW each. EPC companies can form a consortium to bid for this opportunity.

  • This is the first time that SECI is assuming the role of project developer.  It is not clear why SECI is going down this route particularly when the government’s budgetary resources are limited
  • It is important for the industry to understand the future of SECI and whether this tender fits into a larger picture or it is just a piecemeal arrangement
  • The EPC contractors are required to provide a turnkey solution (including land). Given the considerable land requirements for projects of such size, this approach will severely limit competition and affect timescales

It has been several months since the government has released guidelines for an allocation of 3,000 MW by way of competitive bidding on tariff[1B] through the bundling route and another 2,000 MW through the viability gap funding (VGF)[2] route. However, the real action has been missing and the allocation process for either is yet to begin. From these guidelines, it seems that SECI would invest into this 2,000 MW and the opportunity would not go the renewable independent power producers and other private investors.

In view of the limited government funding for the sector, the question to ask here is that why would SECI want to invest into solar projects itself when private investors are more than willing to take up projects in a very competitive landscape.  The point to ponder here is about the future role of SECI. Does SECI want to be to ‘solar’ what NTPC is to ‘thermal’ in India? This is again puzzling, especially when NTPC, itself is in process of developing 1,000 MW of solar in Andhra Pradesh. If SECI wants to become a developer for this 2,000 MW, it would require an equity contribution of USD 450m.[3] At a time, when the government should be focusing on attracting private domestic and international capital for solar projects, this development is providing a different message. So, why does the government want to develop solar projects through a new entity? Perhaps, the only reason for the government to adopt this structure could be to channel the concessionary funding from multilateral agencies into a government entity for lowering the levelized cost of solar energy.

Coming to the process, the winning EPC contractor must arrange at least 1,125 acres of land for a 250 MW project and 2,250 acres for a 500 MW project. The timelines for completion of project is 30 months for 500 MW project and 24 months for 250 MW. Aggregating such large tracts of land typically requires 12-18 months and capital commitment of approximately USD 10m for 250 MW and USD 20m for 500 MW. This is a massive task given the troubles of land acquisition in India.[4] This move would restrict the competition and favor the few EPC players who have already aggregated large tracts of land in Rajasthan and Tamil Nadu.

A discussion meeting on this is to be held on 8th May 2015 to provide more clarity about the process.

[1A] Solar Energy Corporation of India, http://goo.gl/Fvh5WR

[1B] MNRE< “Draft Guidelines for Selection of 3000 MW Grid connected Solar PV Power Projects under Batch-II

Tranche-I State Specific Scheme”, http://goo.gl/8m9FBX

[2] MNRE, “Draft Guidelines for Implementation of Scheme for setting up of 2000 MW Grid-connected Solar PV Power Projects under JNNSM, Batch-III “State Specific VGF Scheme”- Regarding”, http://goo.gl/dWGhsB

[3] Assumption: Project cost of INR 5.5 cr/MW (USD 0.9/MW) and D/E ratio of 75:25

[4] Refer our blog, “Will land be the main hurdle for India’s solar dreams?”, http://goo.gl/M79ysf

Mudit Jain is Manager Consulting at BRIDGE TO INDIA

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