India Proposes 15% Cut In Maximum Solar Power Tariff Bid

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India is planning to implement a major change in the way project developers would participate in future solar power tenders. The Ministry of New and Renewable Energy has proposed to reduce the maximum allowed tariff bid in at least the national-level solar power tenders.

According to media reports, the Ministry has issued a letter to Solar Energy Corporation of India (SECI) with a direction to reduce the maximum allowed tariff bid from Rs 2.93/kWh (¢4.08/kWh) to Rs 2.50/kWh (¢3.48/kWh). The proposed limit shall be exclusive of the financial impact of safeguard duty recently imposed on imported solar cells. With the inclusion of the safeguard duty, the maximum tariff bid allowed would be Rs 2.68/kWh (¢3.73/kWh).

The directive comes weeks after SECI cancelled allocation of 2.4 gigawatts of solar power capacity to several project developers in India’s largest-ever solar power tender. The lowest bid submitted in that tender was by Acme Solar at Rs 2.44/kWh (¢3.39/kWh) for 600 megawatts of capacity. The second-lowest bid was placed by Azure Power and Adani Green Energy at Rs 2.64/kWh (¢3.67/kWh), a hike of over 8%, while the highest bid was placed by SB Energy at Rs 2.71/kWh (¢3.77/kWh) for 1.1 gigawatt of capacity.

Only Acme Solar was awarded the right to develop projects while all other bids were rejected despite being well below the maximum threshold of Rs 2.93/kWh (¢4.08/kWh).

The most recent national-level solar power auction conducted by NTPC Limited saw tariffs in-line with the recommendations of the Ministry. NTPC allocated 1.2 gigawatts in the bid range of Rs 2.59-2.60/kWh (¢3.60-3.62/kWh). These bids were inclusive of safeguard duty impact.

According to Mercom India, which claims to have reviewed this letter, SECI has been advised to come out with tenders of 1.2 gigawatts in capacity. Project developers would be allowed to bid for the entire capacity of 1.2 gigawatts, while the lowest bid volume would be 50 megawatts. SECI had announced a third national-level solar power tender with capacity of 3 gigawatts. The fate of the cancelled capacity of the second tender, and that of the third tender, remain unknown.

While evidence exists that project developers may be willing to match the proposed tariff bid limits at the national-level tenders, the same called by for state-level tenders. Tenders issued by SECI and other central government companies like NTPC Limited attract large numbers of companies willing to quote competitive tariffs due to a greater sense of surety over payments. The converse is true for state-level tenders. While some developers do not participate in state tender at all, others quote substantially higher bids compared to those in the national-level tenders due to local conditions, like land costs, transmission infrastructure, and track record of state firms to make timely payments.

Mercom Capital CEO Raj Prabhu indicated that there could be delays in auctions of already announced tenders as stakeholders would review that positions.

“The downside will be that all other state and government agencies will want to set similar tariff levels no matter what the project economics are in that state and we have seen this happen over and over on the past years. The tender and auction activity typically comes to a halt after something like (this) is announced as agencies will now look to re-tender and re-auction projects”

The new directive could pave the way for a new record-low in tariff bids for solar power projects in India. The lowest tariff bid has been stuck at Rs 2.44/kWh (¢3.39/kWh) since May 2017. Only Acme Solar has managed to quote this price on three separate occasions, with no other developer willing to match it. This new development could change that.

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