VIEWS ON: LATEST BIDDING TRENDS

VIEWS ON: LATEST BIDDING TRENDS & TARIFF DISCOVERY

PRELUDE:

In order to achieve its renewable energy goals, India must increase its solar energy potential. Besides the policy commitments, the competitiveness of the cost of the tariffs of these renewal energies aids the adoption of the same. The Indian administration is taking up several measures to speed the process up. Moreover, the government also highlights that they are “ greening the economy. ” There have been a series of latest changes that took place with regards to the state ’ s solar energy sector, continue reading to get to know of the same.

Solar energy tariffs have witnessed a gradual decline over the years in India and globally. In the recent Solar E ₹ n 2 er / k gy Wh Cor . Th p e o t ra ar t i i f o f n b of I ase n d di b a id ( SEC ding I ) p auctio rocess n o wa n s Nove used mb to er sel 2 e 3 c , t 2 s 0 o 20 lar , Indi pow a e se r d t e a new velope r r e s cor for d l th o e w c sol ons ar tru p c o ti we on r tar of 1 i , ff 0 of 70 m re e c g e a n w t atts Guja ( r M at W a ) u of cti gr on i , d t - conn he sol e a c r ted so power lar tar P if V f c p o ro nt j i e n cts ued in to R f a a j l a l stha to a n n on ew a all “ build - ow - time low n o f ope ₹1. rat 99 e ” or ( BOO ) ₹2 per b k asis Wh. . In Mar the ket recession in the months leading up to two auctions, an influx of major capital into the market, declining cost of capital, competitive offers by PSUs, and positive expectations about the use of new technology and equipment prices all contributed to the low bids. Let us read what are the experts views on the latest bidding trends & tariff discovery

MANJESH NAYAK

C O O / D i r e c t o r , O o r j a n C l e a n t e c h P v t . L t d .

Historically, Solar tariff in India has been constantly on a declining trend. For reference, the Solar tariffs have dropped by over 70 % in the past 8 years. From the tariff levels of Rs 7.5 per unit in 2013 - 14, we have seen a low of Rs 1.99 per unit at the auction of 1070 MW by Solar Energy Corporation of India ( SECI ) conducted in November 2020. This deflationary trend in the solar tariff has been majorly driven by falling module prices and increased availability of low - cost funds. As reported by the International Renewable Energy Agency ( IRENA ) , the global average cost of Solar Photovoltaic ( PV ) has fallen by over 82 % in the 2010 - 2019 period and has continued to fall further. Considering the continued trend of falling module prices, better funding prospects, growing consumer awareness and increasing installed capacities, the solar tariff seems to continue on its downward trajectory in the long run. However, the trend is facing some roadblocks in the short to medium term.

The COVID induced pandemic and the lockdown has resulted in a slowdown in project executions as well as in fresh capacity additions. Further, the delays in signing of power purchase agreements ( PPAs ) and power sale agreements ( PSAs ) is a major downside risk for investors. As of March 2021, about 19 GW of renewable energy PSAs auctioned by SECI were yet to be signed by the State Discoms. This is mainly due to the Discom ’ s expectations of lower rates. The imposition of Basic Customs duty ( BCD ) on imported panels and further proposals to impose safeguard duties on imports coupled with the strained Indo - China geo - political relations is putting upward pressure on the PV costs. These factors are contributing to an upward pressure on the tariff. The recently concluded auctions have seen winning tariffs of up to Rs 2.58 per unit. Though there is an upward push on the tariff, the industry does expect this to be below Rs 3 per unit and remain cost competitive.

Overall, various positive factors at home like competitive tariff, pro - solar and pro - consumer policies, large to ultra large solar project auctions and interests, increasing consumer awareness and falling PV costs are leading to increased interest of foreign investors in the Indian Solar market. This in turn has helped project developers gain access to low - cost funds which will push the tariff lower and make it further competitive. On the contrary, in the near term, factors such as implementation of BCD, delay in signing of PPAs and PSAs, geo - political condition and COVID induced pandemic has created an inflationary trend. While the market will settle between these factors in the long run, for a sustainable and competitive tariff discovery, the focus has to remain on quality of installation, the plant efficiency and longevity of the project. Similarly, from the macro economic point of view, policy certainty, addressing Discom ’ s financial and technical woes, incentivising domestic manufacturing of solar cells and modules, fast tracking land acquisition and allocation are factors which would enable developers to carry out proper risk assessment and financial modelling to quote a competitive tariff.

VIBHUTI GARG

E n e r g y E c o n o m i s t , I n s t i t u t e f o r E n e r g y E c o n o m i c s a n d F i n a n c i a l A n a l y s i s ( I E E F A )

Solar tariffs are deflationary, with 2020 seeing a new record low in India. Prices have fallen by 75 % in 7 years. From 2019 to the first quarter of 2020, most of the newly auctioned solar projects saw tariffs in the range of Rs2.5 2.87 / kilowatt hour ( kWh ) . Then in February 2020, the Ministry of New and Renewable Energy ( MNRE ) removed ceiling tariffs for all new solar and wind tenders to hasten tender activity and capacity allocation. From Quarter 2 of 2020, prices were in the range of Rs.1.99 - 2.97 / kWh, thereby hitting the new record low tariff in the bids.

The reasons for such low tariffs were access to low cost financing ( cheaper interest rates ) by international developers based out of Saudi Arabia ( Aljomaih Energy and Water Co. ) and Singapore ( Sembcorp ) as well as government entities like NTPC which can secure debt at a rate of 7 - 7.5 % . Since they can source funds at lower rates their return on equity expectation is also lower. Also, these tenders are likely to be exempted from the Safeguard Duty ( SGD ) and Basic Custom Duty ( BCD ) . Another key factor was the power purchase assurance for the developers as the power sale agreement ( PSA ) between the intermediary procurer Solar Energy Corporation of India ( SECI ) and the buying entity, Rajasthan Discom, Rajasthan Urja Vikas Nigam Ltd. ( RUVNL ) . The other tender was issued by Gujarat Discom, Gujarat Urja Vikas Nigam Ltd. ( GUVNL ) . 2021, however, witnessed an upward solar tariff trend. In January and February 2021, the lowest tariffs discovered were Rs2.22 / kWh and Rs2.25 / kWh in the bid auctions by Torrent Power Ltd. ( TPL ) and NTPC Ltd. The tariff increases could be attributed to lack of participation by international developers like Aljomaih Energy and Water Co and Sembcorp etc. Moreover, module prices increased from USD0.20 / Wp in July 2020 to USD0.22 - 0.23 / Wp in January 2021, causing an increase in solar prices. Further, module suppliers are now selling modules at FOB ( free on Board ) prices instead of CIF ( cost, insurance, and freight ) prices, impacting the solar prices in India. In March 2021, the Government imposed 40 basic customs duty ( BCD ) on solar modules and 25 % on solar cells from 1 April 2022 in a move to promote domestic manufacturing. The imposition of BCD is likely to increase solar tariffs by ~ 25 % . GUVNL 500MW Gujarat, the first solar auction result after the BCD announcement, witnessed a lowest tariff of Rs2.22 / kWh, a 21 paisa ( 12 % ) increase per kWh from the previous GUVNL tender with the same conditions. While lower prices are favourable for renewable energy growth, there are risks with aggressive tariffs and developers should factor these risks properly into their bids. With improved module technology, generation will be higher and access to low cost financing will be another factor pulling solar prices down. However, a rise in module costs because of various global demand supply factors, floating interest rates that change in line with RBI guidelines etc. can push prices upwards.

NITESH NATH

H e a d - P r o j e c t s , H e r o F u t u r e E n e r g i e s

Going back to the prime point in bidding process during uncertain times

Recent solar auctions witnessed higher tariffs compared to the historic low discovered during SECI bid of 1070 MW in Rajasthan and GUVNL auction of 500 MW auction earlier this year. The upward trend in tariff is an indication of cautious approach of developers owing to increasing module prices which are presently USD 24 cents / Wp and not showing any signs of softening in near future. Though India ’ s cumulative solar installations hit the 40 GW milestone in February 2021, according to Mercom India research, without government intervention, the latest turn of events could cause the industry to be pushed back by a decade.

The pandemic has already demonstrated the ripple effects that disruptions in one part of the supply chain can have on supply of components and project completion. In the light of covid 19, most module suppliers have been offering modules at FOB prices instead of CIF prices, to take care of their increasing cost of shipping and logistics. Rising prices of steel, aluminium and copper have added up to this situation.

This sector is also plagued by the government s decision to

impose a basic customs duty BCD of 25

on imported solar photovoltaic cells and 40 % on imported solar modules from April 1, 2022, leading to an imbalance in the supply chain ecosystem during these nine months of no duty period. Consequently, solar tariffs are going to remain high in FY 2021 22 unless some developers take on the aggressive bidding route. The pieces of the puzzle in historic low tariffs fall into place mostly with foreign players in Indian solar horizon with low cost of capital and predictions around southward movement of module prices.

Higher tariffs also pose a challenge for offtake of green power, as there is a gap in DISCOM ’ s tariff expectations and willingness of project developers to match those expectations. When our nation is committed towards a greener and cleaner transition, looking into affordability challenges and price sensitivity among state discoms can be a good start. Since India has a policy - driven model, in such challenging times, the government can encourage market - driven reforms in energy pricing and distribution to bridge such gaps.

To make solar projects viable as well as attractive for the global investors community, IPPs are embracing newer module technology and exploring integration of greener technologies. Since project completion timelines are a crucial cog, if the government prioritizes reforms around transmission and regulatory risks or land availability, developers can absorb 5 10 % annual decline of solar tariffs over the coming decade and still be competitive among incumbent fossil fuel alternatives.

India is targeting about 450 Gigawatt GW

( ) of installed renewable energy capacity by 2030 and, of that, over 60

is expected from solar. The industry ’ s major ask at this point is outlining clear roadmaps and details on policy measures to spur investment in renewables.