Loading...

Two Rupees makes no sense!


27 November 2020 | BRIDGE TO INDIA

Two Rupees makes no sense!

On 23 November 2020, SECI conducted an auction for a 1,070 MW vanilla solar tender where a new tariff low of INR 2.00 (USD cents 2.7)/ kWh was discovered. The low tariff was bid by Saudi Arabia’s Aljomiah (200 MW), a new market entrant, and Sembcorp (400 MW). NTPC was the other successful bidder, winning 470 MW capacity, with a tariff of INR 2.01/ kWh. The tender was oversubscribed heavily with bids totalling 4,350 MW submitted by Sprng, SJVN, Solar Arise, Vector Green, Tata Power, Juniper, Axis Energy, Ayana, Jakson, Amp Energy and O2 besides the three successful bidders.

  • Bidding interest for vanilla solar projects is very high as many small-mid size developers who have recently raised money are not keen on complex hybrid schemes;
  • Tariffs have fallen sharply only because of anxiety of the winning bidders to scale up;
  • The low tariffs will distort expectations of other DISCOMs and increase risk of cancellation or renegotiation of projects with tariffs higher than INR 2.50/ kWh;

As seen in the last two SECI solar auctions, bid intensity has suddenly shot up over the last few months. A look at the names of participating bidders shows that the tender received interest mainly from small-mid size developers (other than the exception of Tata Power and NTPC). Most of these developers have either recently raised money and/ or are in advanced stages of completing construction of their pipeline projects and hence, are keen to win more capacity. The developer interest was also particularly strong in this tender because of firmed up offtake (from Rajasthan) and straight forward execution for vanilla solar projects in Rajasthan. The developers are concerned both about weak power demand – SECI has nearly 18,000 MW of allocated projects without back-to-back demand from DISCOMs – and execution challenges associated with complex hybrid schemes.

Solar power tariff has fallen by 15% in five months. There is no good reason for such a sharp fall other than anxiety of the winning bidders to scale up. Projects under this tender will be connected to state grid with risk of higher downtime and curtailment in comparison to projects connected to the national grid. Module prices have been volatile, firming up over last four months, and betting on significant fall within the execution timeline is dangerous. The only mitigation in comparison to other projects being developed in Rajasthan is that power would be consumed within the state; the state development fund charge of INR 200,000/ MW per annum – equivalent to about INR 0.14/ kWh in tariff terms – will therefore not be applicable.

Our financial calculations show project level equity IRR of sub-10%, deep water territory. The following chart shows interesting bid price differential for different developers. We believe that the prudent tariff for the tender was in the INR 2.25-2.40 range.

Figure: Bid capacities and tariffs

Source: BRIDGE TO INDIA research

The implications of the unrealistically low tariff are not palatable both for the winners in this tender and for winners of other recent tenders. It distorts expectations of DISCOMs and increases risk of cancellation or renegotiation of projects with tariffs higher than INR 2.50/ kWh.


Recent reports

India Solar Compass | Q1 2024

India Solar Compass | Q1 2024

This report provides a detailed update of all key sector developments and trends in the quarter – capacity addition, leading players, tenders and policy announcements, equipment prices, financial deals and other market developments. It also provides market outlook for the next two quarters.

India PV Module Intelligence Brief | Q1 2024

India PV Module Intelligence Brief | Q1 2024

This report encapsulates quarterly trends in module demand and supply, import and domestic production volumes, supplier market share, break-up by technology and rating, global market scenario, pricing across the value chain, key policy developments and market outlook.

India Corporate Renewable Brief | Q1 2024

India Corporate Renewable Brief | Q1 2024

This report provides an update on key trends and developments in the corporate renewable market including capacity addition, key players, policy & regulatory issuance, financing, PPA tariffs and other market trends.

Corporate renewable market -alternative procurement options

Corporate renewable market -alternative procurement options

Corporate consumers seeking to increase share of renewable power in their consumption mix have the option of using multiple short-term procurement routes like green power exchange, renewable energy certificates (RECs), I-RECs and green tariffs.

India Solar Rooftop Map | December 2023

India Solar Rooftop Map | December 2023

India Solar Rooftop Map is an info-graphic report providing a snapshot of rooftop solar market in India – capacity addition across states and consumer segments, market share of leading players and other key trends. Total rooftop solar capacity is estimated to have reached 14,484 MW by end of 2023. Total new installations in 2023 are estimated at 2,856 MW, up only 8% over previous year.

India Solar Map | December 2023

India Solar Map | December 2023

India Solar Map 2023 is an info-graphic report covering growth of utility scale solar sector – national and state-wise commissioned and pipeline capacity, leading market players and portfolio details of top 16 project developers. Capacity addition in 2023 fell 51% YOY to 5,924 MW taking total utility scale solar capacity to 59,840 MW. Total project pipeline stands at a record 74,161 MW.

To top