The year of failed tenders

Share

Solar Energy Corporation of India’s (SECI) much-hyped 10 GW manufacturing-linked tender was postponed six times. It finally attracted one bidder.

Meanwhile, the India’s first wind-solar hybrid auction found just two bidders, with 360 MW of the 1.2 GW finding no takers at all; the Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA) cancelled its 1 GW auction in July; and Gujarat Urja Vikas Nigam Limited (GUVNL) scrapped its 500 MW auction held in March.

By September 2018, solar power agencies from both the central and state governments had scrapped bids for projects representing 9 GW of capacity – or half of the 18 GW bid out by these agencies up to August.

According to SECI data, in addition to 2.4 GW of the 3 GW Solar Tranche II capacity being annulled, 1.3 GW of an original 2.5 GW hybrid tender, and the 3 GW from Solar Tranche III, were cancelled.

Wind tenders suffered the same fate.

What went wrong?

Given India’s ambitious solar targets and a clear desire to install renewable capacity, what went wrong?

In addition to the fact that the country still relies on solr product imports of around 85% from China and Malaysia, the 25% safeguard duties were the biggest dampener on the 2018 Indian solar market.

Then there is the ambiguity surrounding the Goods & Services Tax (GST). Indeed, there is still no clarity on whether EPC contracts for solar power projects will be categorized under the 5% or 18% tax bracket. This has led to an unpredictable environment and made investors reluctant when it comes to bidding for projects.

Eyebrows were further raised when a tariff ceiling of Rs 2.50 ($0.036)/kWh without safeguard duty and Rs 2.68 ($0.038)/kWh if a safeguard duty is levied, was applied.

Industry watchers believe the tariff should be based on wind density or solar irradiance, and associated competition, rather than being driven by a one-rate-fits-all government policy.

Unrealistic

Unrealistic tariffs have also made it difficult for developers to find financing and equipment, while delays in clearances and hassles over land acquisition are adding to the industry’s woes.

The falling rupee has further squeezed margins in an industry heavily dependent on the import of equipment for solar power installations, as it is highly vulnerable to currency volatility.

Although the government has offered a power off-take commitment for two years, project developers are seeking a minimum five-year commitment so that there is a continuous flow of revenue.

And as the sector becomes less of a safe bet, funding from banks dries up.

Ailing

Calling large tenders “untenable and ill-conceived”, Pranav R Mehta, Chairman, National Solar Energy Federation of India and Chairman-elect of Global Solar Council, listed all that ails India’s solar tenders.

“Developers are not manufacturers and manufacturers do not want to double up as developers. The government’s notion of manufacturing-linked tenders are inherently flawed. It will never work,” he told pv magazine.

Contrary to the long-held view that cancelled tenders are a failure, Mehta believes that GUVNL made a “smart move” by scrapping the 500 MW on the pretext of the high tariff (Rs 2.98 ($0.046)/kWh). Upon re-submission, the tender was oversubscribed four times at a tariff of Rs 2.44 ($0.0338)/kWh.

“GUVNL knew it would get the low tariff it wanted, hence, the annulment proved a boon for the agency,” Mehta said.

A brighter view

Not everyone is disheartened by the failing tenders. “Completion of the wind/solar hybrid auction marks the first big step towards building a sustainable future for India. On the technology front, this tender marks an innovation in making renewable energy mainstream energy,” Anmol Jaggi, Founder, Gensol Engineering, told pv magazine.

Describing the winning tariff of Rs 2.67/unit as “highly competitive”, Jaggi added that such a tariff will definitely provide an impetus to large grid connected wind-solar PV hybrid systems, thereby ensuring efficient utilisation of available transmission infrastructure and land.

“India is currently dependent on 85% of imports of solar products from China. However, the safeguard duty (SGD) of 25% on imports of solar components from China is driving investors away from tenders announced by government bodies. Furthermore, the decision to pass the impact of SGD to consumers while setting a tariff ceiling is also making the investors channel their investments in a different direction rather than investing in solar auctions,” said Mohit Prasad, analyst, GlobalData, an international data and analytics company.

Looking ahead

Although the Ministry of New and Renewable Energy (MNRE) has recently mandated the addition of 1 GW solar tenders every month from November 2018 to February 2019, the industry is not entirely convinced.

According to Vinay Rustagi, Managing Director, Bridge to India, the solar industry is subject to high levels of volatility, because of irregularity in the way tenders are issued and auctions are completed.

“We expect volumes to be down very significantly in 2018-19, but there should be a pick up next year followed by another year of slowdown. This up-down movement is detrimental to the market as it doesn’t allow private players to plan ahead and also leads to irrational bidding behaviour,” he said in a statement.