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Solar power bids: the battle for low tariffs

LiveMint logoLiveMint 27-04-2017 Utpal Bhaskar

New Delhi: India’s solar power sector turned a corner on 10 February with record low winning bids of Rs3.30 per kilowatt-hour (kWh) for building a 750 megawatts (MW) plant at Rewa in Madhya Pradesh.

Expectedly, it offered a template, with France’s Solairedirect SA going on to win the rights to set up a 250MW of solar plant at Kadapa in Andhra Pradesh, and sell power to state run NTPC Ltd at the new record-low tariff of Rs3.15 per kWh in an auction this month.

The Rewa bid represents a watershed moment in India’s solar sector journey, as it helped shift the conversation from subsidy or viability gap funding being used, to bringing down tariffs.

Also, for the 750MW capacity on offer, Rewa Ultra Mega Power Ltd, a joint venture of Solar Energy Corp. of India Ltd and Madhya Pradesh Urja Vikas Nigam Ltd (MPUVNL), saw 20 bids totalling 7,500MW placed by developers such as Japan’s SoftBank, France’s Engie, Italy’s Enel, Canadian Solar and Singapore’s Sembcorp.

Mahindra Renewables Pvt. Ltd, Acme Solar Holdings Pvt. Ltd and Solenergi Power Pvt. Ltd bid Rs2.979 per kWh, Rs2.970 per kWh and Rs2.974 per kWh respectively to win India’s first energy contracts to build 250MW plants each.

Graphic by Paras Jain/Mint

So, what brought the tariffs down during the 33-hour-long auction from Rs10.95-12.76 per kWh in fiscal year 2011?

Apart from the lower cost of raising finances and prices of solar modules nosediving, the winners managed to keep tariffs low with the help of state-offered land, payment guarantee and grid connectivity.

According to Manu Srivastava, managing director of MPUVNL, the answer lies in “project structuring, preparedness and effective risk mitigation for project developers”.

The bids’ success has been attributed to a three-tiered payment security mechanism wherein the state government agreed to a state guarantee—meaning that in the event of the discoms being unable to make payments, the state will be obliged to make payment. Investors’ interest was also boosted by the fact that 97% of the land for the project had been acquired till the date of the auction.

Also, for the first time, a solar power project was designed to supply electricity to an interstate open access consumer—Delhi Metro Railway Corporation. This is important because even though the Electricity Act of 2003 allows open access, its implementation has been an uphill task.

The Rewa bid made the ministry of new and renewable energy take notice and send a communication to the states lauding the initiative.

The communication reviewed by Mint stressed upon key features such as “a sound payment security mechanism backed by state guarantee for timely payment to developers”, “provision of deemed generation beyond 50 hours of back down”, and “assured off-take of power”.

The so-called Madhya Pradesh model has already gained traction.

“At current rates, solar power generation cost is at par with that of thermal power generation. Solar power tariff has been declining on account of sharply declining prices of solar panels, better structuring of the project that reduces risk for project developers and better currency hedging deals that make financing available at competitive cost,” according to a 13 April NTPC statement.

The average rate of power generated by coal-fuelled projects of India’s largest power generation utility is Rs3.20 per unit.

Srivastava has more plans with the state identifying land at Neemuch, Shajapur, Agar, Chattarpur and Morena for setting up large solar projects.

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