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Solar tender and auction slow down despite installation speeding up
While solar installations in India have picked up speed, tender and auction activity have been slowing down over the last few quarters. The slowdown in activity has been disconcerting to developers and manufacturers that have been positioning for much higher levels of activity based on India’s solar installation goal of 100 GW by 2022.
Mercom India Solar Project Tracker shows about 1.9 GW was tendered in the first quarter of 2017 (1 GW of this was a retendered) compared to 3.4 GW in Q4 last year. There were 1.3 GW projects auctioned in Q1 2017 compared to 255 MW in Q4 2016.
It may be noted, India needs to install 18 GW of solar per year through 2022 to reach the 100 GW installation target set by the Centre.
The pace of tenders and auctions must pick up quickly if the government wants to meet its solar installation goals and show the investment community and the industry that it is serious. Companies who have invested hundreds of millions in expanding to meet the demand and build projects are anxiously waiting for activity to pick up, say experts.
Some of the reasons for the decline in tender and auction activity include the poor financial condition of distribution companies (DISCOM), transmission issues, weaker power demand and increases in a captive generation by commercial and industrial companies.
DISCOMs that are continuing to struggle financially are not taking on a new generation that is more expensive than coal, which is leading to curtailment of solar and wind projects as well as payment delays to developers.
In some states, weak power demand is contributing to the lack of urgency to speed up the pace of solar tenders and auctions. The increase in captive generation by industrial customers have compounded the situation since they are requiring less power generation from DISCOMs.
The World Trade Organisation (WTO) ruling against India’s domestic content requirement (DCR) has resulted in continuous cancellations and postponements of planned DCR tenders.
The recent record low bid of Rs.3.30 (~$0.494)/kWh at the REWA solar park auction is playing a big role in the slowdown of auction activity as government agencies and states are stalling to renegotiate PPAs that are more expensive than the bids received at REWA.
For DISCOMs, coal is still the cheapest option available. According to Mercom’s December Solar Quarterly Report, DISCOMs have resorted to sporadic curtailment from some solar projects in Rajasthan and Tamil Nadu because cheaper power is available on the power exchanges. Even when there is demand, several states have complained that the DISCOMs are resorting to power cuts instead of buying power on the exchanges to save on costs.
The report added, power purchase agreements for 1.1 GW of solar in Jharkhand are yet to be signed because the state DISCOM is not accepting the quoted tariffs. Tariffs quoted in the state ranged from a high of Rs.5.59 (~$0.0824)/kWh to a low of Rs.5.08 (~$0.0749)/kWh.
The state had tendered 1.2 GW of solar since December of 2015 in an effort to achieve its 2,650 MW solar target by 2020, but there has been no activity since. In this case, the DISCOM was unwilling to sign the PPAs for tariffs above five rupees per kWh claiming it is not viable for the DISCOM.
It has been disappointing with the delay in tenders. After September 2016, tenders have slowed down for IPPs. It is less likely we will see new tenders after the REWA bid as each bid is now being expected to meet the REWA numbers, which is ridiculous. The Kadapa Solar Park tenders are postponed as Andhra Pradesh has pulled out because they now have surplus power and their cash flow situation is bad. DISCOMs are currently of the belief that solar tariffs are falling, so let us wait, with states claiming that they are power surplus and don’t need any kind of power, let alone solar, stated a large developer.
Raj Prabhu, CEO of Mercom Capital Group said that although this is the lowest tariff ever recorded in India, this auction has several special attributes which make it hard to directly compare with previous low bids. The size and location of the projects, payment guarantees, deemed generation benefit, longer construction timeline, the recent solar module price crash, and yearly tariff escalation for 15 years – all make the low bids unique.” Prabhu continued, “The fear is that media, government officials and analysts will hype up the low bids and other states will then start pressuring developers to match bids from the REWA auction tariffs, which has happened in the past.”
Mercom’s Solar Project Tracker, tendering activity has declined in Several states including Bihar, Jharkhand, Tamil Nadu, Rajasthan, and Maharashtra are the problem states. For instance, Tamil Nadu Generation and Distribution Corporation (TANGEDCO) had tendered a total of 1,000 MW of solar in two separate tenders but received a tepid response due to TANGEDCO’s reputation of curtailing power, as well as delaying payments.
Reluctance on the part of DISCOMs to buy from solar generating projects in the presence of cheap power from other sources is another challenge, said an official. The transmission system also needs to be developed in the state to allow optimum utilisation of solar projects. This is another reason tenders have slowed down in the state.
“We hope this is a short-term issue which, once resolved, tariffs will get down to realistic levels and there will be a big spurt in activity. However, if some of these pressing issues are not resolved quickly, growth will stall,” said Prabhu, CEO of Mercom Capital Group. “There needs to be a policy mechanism put in place to avoid the stop and start in tender activity every time there is an outlier in terms of a low bid. However, if states revise their tenders to include all of the positive aspects of the REWA tender, it could be a win-win for all”. Al Davis Jersey
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