Price Surprise

JNNSM Batch II bidding yields unexpectedly low tariffs

In December 2011, second round of bids under JNNSM Phase I sawsolar tariffs sliding down to Rs 7.49 per unit. This story captures the solar bid results and the future outlook.

Grid parity for solar power in India may not be too far off given the results of the bidding for solar photovoltaic (PV) projects under the second round of Phase I of the Jawaharlal Nehru National Solar Mission (JNNSM). The bidding yielded unexpectedly low tariff, with the lowest bid being Rs 7.49 per unit.

NTPC Vidyut Vyapar Nigam, the nodal agency for implementing the first phase of the JNNSM, received 154 applications for 1,915 MW of PV projects against a requirement of 350 MW. Among the winners, Solairedirect emerged as the lowest bidder at Rs 7.49 per unit, while Green Infra was the highest bidder at Rs 9.39 per kWh. Some of the other bidders included Welspun, which succeeded in getting the highest aggregate capacity of projects at 50 MW. It had bid for three projects (one of 20 MW and the other two of 15 MW each) at bid prices of Rs 7.97 per unit, and Rs 8.05 per unit and Rs 8.14 per unit respectively. The other successful bidders included companies like SunEdison at Rs 9.28 per unit, Mahindra Solar One at Rs 9.34 per unit, Sai Sudhir at Rs 8.22 per unit, VS Lignite at Rs 8.54 per unit and SunBorne Energy at Rs 8.99 per unit.

The aggressive bids, with an average price of around Rs 8.70 per unit, were the main highlight of the round II bidding. “Astonishingly competitive pricing in the latest auction,” read a twitter feed from Anand Mahindra, managing director of the Mahindra Group, whose solar unit won two of the 27 contracts awarded for solar plants. Sanjay Chakrabarti, leader, cleantech, Ernst & Young India says, “Aggressive bidding was expected, but not many had anticipated the price drop to be this big.”

Some of the reasons for the aggressive bids are the steep fall in module prices, the rapid advances in solar technology, and the falling demand in the German and other European markets, leading to a massive reduction in solar power costs. PV module prices are currently at an all-time low of 90 cents per watt. Another notable feature was the presence of some established international firms among the successful bidders. They included Solairedirect, the lowest bidder, which is the largest solar power firm in France, and Sun Edison, a global leader in solar power with over two decades of experience.“International players, who see India as a huge upcoming market for solar power, found the relatively large sizes of projects attractive,” says Chakrabarti.

Of the total 27 projects, eight have a capacity of 20 MW each, five of 15 MW each, nine of 10 MW each and five of 5 MW each. Clearly, the increase in project size in this round compared to the first round in 2010, which allowed only projects up to 5 MW, provided a large platform for established players. While Welspun Solar won the highest permissible capacity, the others who won multiple projects include Azure Power and Green Infra with 35 MW each, Mahindra Solar One with 30 MW and Jackson Power with 20 MW. Over 84 per cent (295 MW) of the allocated capacity is to be implemented in Rajasthan. Two projects totalling 25 MW will be implemented in Maharashtra, a 20 MW project will be located in Andhra Pradesh and a 10 MW project in Tamil Nadu.

Both rounds of JNNSM bidding have contributed to the sector’s learning process. In the first round, the lowest bid of Rs 10.59 per kWh led to serious debate on whether the developers were being over-ambitious and risking the financial viability of the project. With all except two selected projects under the first round achieving financial closure within the stipulated period, the debate died down. This time, the question being discussed is whether investors would be optimistic about funding projects with low feed-in tariffs approved in round two.

While the reverse bidding mechanism has proved successful in terms of bringing solar energy closer to grid parity, it is a huge challenge for these projects to achieve financial closure and prove their viability. Net, net, the past two years have been a learning phase for both solar developers and investors. Given that the financial community in India has become familiar with the technology and its risks, the learning curve this time around will not be so steep. Further, the credentials of the bidders will make a huge difference to the financing. However, the success of the JNNSM will ultimately depend on delivering the projects on time and ensuring that their performance meets the promise for the next two decades.

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