Small project sizes in Uttarakhand have increased average tariffs

Uttarakhand has opened the financial bid for a 30 MW tender which was floated in August’14. Despite the projects lacking scale advantage, Redwood projects has quoted a highly aggressive bid of INR 6.85/kWh for a 1 MW project. This bid is the lowest and is INR 0.71/kWh below the next bid. Overall, the median winning bid is INR 7.75/kWh, which is 12% higher than the median winning bids in Karnataka.[1]

The median winning bid of INR 7.75/kWh would yield equity IRR of over 14%
Over 80% of the projects will be located in Haridwar district
Over 50% of selected projects have a capacity of only 1 MW

In total, eleven bids were selected under this tender with cumulative capacity of 29.4 MW. The capacity of most of these projects is small. Among the selected bidders, only three projects have capacities of over 2 MW with only one project of more than 5 MW. Six bids (54% of total bids) have a capacity of only 1 MW. Major solar project developers such as Acme, Azure, Sun Edison, Welspun and Renew have not participated, presumably owing to the small size of the tender and projects.

Figure 1: Details of the winning bids

Uttarakhand, located in North of India, is hilly and has comparatively low irradiation. Only the Hardiwar district receives decent irradiation and has consequently attracted nine of eleven projects with a capacity of 23.5 MW (80%). Only the two projects of Uttarakhand Jal Vidyut Nigam (UJVN) will be installed in Dehradun.

Figure 2: Global horizontal irradiation map of India[2]

The lowest bid has been quoted by Redwood Projects at INR 6.85/kWh. Given that the lowest bid at the recently announced Karnataka tender (much larger size, better irradiation, lower land cost) was INR 6.71/kWh, this is highly aggressive. We doubt that it can be a profitable project. As per the industry sources, the land price in Uttarakhand is ca. INR 1-1.5 m/acre (in Karnataka it is ca. 400,000-500,000/acre). The next higher bid in Uttarakhand is INR 7.56/kWh and falls in the realistic range.

The median winning bid in Uttarakhand is INR 7.75/kWh. This is 12% higher than the median bid in Karnataka of INR 6.94/kWh.[3] Since the project sizes are small, we believe that the turnkey EPC price would be INR 63 m/MW[4]. Adding land, transmission infrastructure, financial cost during construction and other commissioning costs, the project cost will be ca. INR 72 m/MW. The operation and maintenance cost of small projects will also be higher than for large projects on a per MW basis. These projects will also likely be charged higher interest rates. At a debt cost of 13% and a 30:70 debt equity ratio, the median tariff of INR 7.75/kWh could thereby achieve a modest equity IRR of over 14%.

[2] NREL website, http://goo.gl/rijg4v

[1] [3] Refer our weekly update, Karnataka and Andhra Pradesh allocate 1 GW solar PV projects, http://goo.gl/GiIGhm

[4] The price of INR 63 m/MW has been calculated by considering 1.1 MW DC capacity and 1 MW AC capacity for project size of over 1 MW.

Mudit Jain is a Consultant at BRIDGE TO INDIA

[2] NREL website, http://goo.gl/rijg4v

[1] Refer our weekly update, Karnataka and Andhra Pradesh allocate 1 GW solar PV projects, http://goo.gl/GiIGhm

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