India negates apprehensions about low solar power tariff sustainability

At a time when apprehensions are being raised about the sustainability of India’s solar power tariffs, the government and its executing agencies are of the view that “there is no cause for worry”.

A case in point being 28 bidders participating in the National Solar Mission (NSM) tender for 500 megawatt (MW) in Andhra Pradesh. While SunEdison Inc. emerged as the lowest bidder by quoting a tariff of Rs4.63 kilowatt per hour (kWh) in November 2015, bids placed were nearly 11 times the offered capacity at the auction called by state-owned NTPC Ltd. Though the lowest tariff for the Andhra Pradesh tender was Rs4.63 kWh, the weighted average tariff of all participating bidders was Rs5.03 kWh.

“Except in one tender, all bidders have matched the lowest price. This means that they are comfortable meeting this tariff. We have seen a similar range for bidders, giving us the confidence that the quoted tariffs are sustainable,” said a senior NTPC executive requesting anonymity.

The National Democratic Alliance government’s 100 gigawatt solar generation target by 2022 will require an investment of around Rs6 trillion with India’s largest power generation utility, NTPC, being tasked to meet a quarter of this target. While NTPC will award power purchase agreements for buying 15,000MW under the NSM, it plans to set up another 10,000MW on its own.

This comes at a time when utilities such as Hindustan Powerprojects Pvt. Ltd are averse to bid as they find the tariffs “too aggressive”.

P. Uma Shankar, India’s former power secretary, said that the difficulties faced by some companies who had bid aggressively is probably the reason why the viability of low tariffs is being talked about.

US-based renewable energy firm SunEdison Inc. has filed for bankruptcy protection. To be sure, SunEdison will not do a “distress sale”, Mint newspaper reported quoting SunEdison’s Asia-Pacific president Pashupathy Gopalan, who added that its India business remains unaffected.

A senior government official requesting anonymity said, “SunEdison officials have met us. They are confident of enough cash flow from their existing projects to build the projects in the company’s existing portfolio.”

The solar power tariffs have witnessed a steady decline in the past five years from a high of Rs17.91 kWh in 2011. In January 2016, Fortum Finnsurya Energy Pvt. Ltd, a Finland-headquartered utility, quoted a record low of Rs4.34 per unit to get the mandate to develop a 70MW solar plant under NTPC Ltd’s Bhadla Solar Park tender in Rajasthan.

“The sustainability of the low bids will depend upon a number of factors such as the cost of borrowing money, the cost of imports, besides others,” Uma Shankar said.

It currently costs between Rs4- 5 crore per MW to set up a solar power project. According to the government, around Rs71,201 crore has already been sanctioned to finance green projects.

Uma Shankar argued that the sustainability of the bids is company-specific and those who have access to cheap and long-term funds will be able to endure. He also cautioned against the experience with Indian entrepreneurs in other sectors which showed that entrepreneurs bid aggressively to secure projects, but are unable to sustain them.

R.N. Nayak, former chairman of Power Grid Corp. of India Ltd, added that low bids are sustainable as long as the parameters and timeline for the land acquisition process and the payment security are met.

“The prices are okay. In my opinion the prices will stay in the same range. I don’t see them rising above the Rs5 per unit mark for now,” he said.