New Lows

Aggressive bidding and fewer projects send tariffs tumbling

Plunging solar and wind power tariffs made the headlines in the renewable energy space during 2017. Aggressive bidding, driven by increasing competition and a drying up of the project pipeline, especially in the case of wind power, has led to a significant decline in tariffs over the past 11 months. Renewable Watch takes a look at the key tariff trends in the solar and wind segments…

Solar tariffs

The year began with the solar power segment witnessing a record low levellised tariff of Rs 3.30 per kWh in the auction conducted for 750 MW of capacity at the Rewa Solar Park in Madhya Pradesh. Mahindra Renewables, Acme Solar Holdings and Solenergi Power bid record low tariffs of Rs 2.979 per kWh, Rs 2.97 per kWh and Rs 2.974 per kWh respectively for 250 MW of capacity each. Under the awarded contracts, there will be a tariff escalation of Re 0.05 per annum over 15 years. Prior to this, the lowest tariff discovered for a solar power project in India was Rs 4.34 per unit. Rewa Ultra Mega Solar Limited, a joint venture between the Solar Energy Corporation of India (SECI) and Madhya Pradesh Urja Vikas Nigam, had invited bids for the 750 MW park in Rewa district of Madhya Pradesh. A total of 20 national and international players submitted their bids for developing solar plants. Spread over 1,500 hectares of land in Gurh, the park will be developed in three tranches of 250 MW each. Of the 20 developers, four submitted bids for developing the entire project. These were SBG Clean Tech, Enel Green Power, ReNew Power and Rosepetal. Meanwhile, two others submitted proposals for developing 500 MW and the remaining 14 submitted proposals for developing one unit of 250 MW.

In May 2017, solar tariffs recorded a new low of Rs 2.44 per kWh, quoted by ACME Solar for developing 200 MW of capacity at the Bhadla Solar Park Phase III. SBG Cleantech won the remaining 300 MW at a bid price of Rs 2.45 per kWh. Overall, 10 companies quoted a tariff of less than Rs 3 per kWh. ACME’s bid was almost 6.9 per cent lower than the previous low tariff quoted in the 250 MW Bhadla Solar Park Phase IV auction, conducted two days prior to the Phase III auction. At the time, South Africa-based Phelan Energy and India-based Avaada Power had quoted the lowest winning bid of Rs 2.62 per kWh for 50 MW and 100 MW respectively. The second lowest bid of Rs 2.63 was quoted by SBG Cleantech for the remaining capacity.

Overall, the tariff for solar projects developed under the non-domestic content requirement (DCR) category fell 44 per cent from Rs 4.34 per kWh to Rs 2.44 per kWh over the past year. During the same period, Chinese module prices fell 23 per cent while Indian module prices declined by 17 per cent. Meanwhile, the tariff for solar projects developed under the DCR category declined by 35 per cent as aggressive bidding trend continued. In October 2017, the 250 MW auction conducted by NTPC under the DCR category saw Azure Power quoting a tariff of Rs 3.14 per kWh for a 250 MW solar project. Other bidders to quote below Rs 4 per kWh in the same auction were ReNew Power (Rs 3.15 per kWh for 150 MW) and Waaree Energies (Rs 3.95 per kWh for 25 MW). The other participants were Mahoba Solar (Uttar Pradesh), a subsidiary of Adani, which quoted a tariff of Rs 4.44 per kWh to develop 250 MW of capacity, and Canadian Solar Energy Holding, which quoted Rs 4.95 per kWh for 100 MW. Azure Power’s winning tariff of Rs 3.14 per kWh was 35 per cent lower than the previous low DCR tariff of Rs 4.84 per kWh quoted by Tata Power in NTPC’s Phase II Batch II auction.

However, of late, there has been a significant lull in the announcement of utility-scale solar tenders by SECI. This year it has announced only one tender, for 750 MW of capacity under the Bhadla Solar Park, in comparison to around 5 GW of new tenders in 2016. There have been expectations of new tenders in Odisha, Chhattisgarh, Delhi, Karnataka, Andhra Pradesh and Bihar, but none of these have materialised until now. Furthermore, SECI has again extended bid submission timelines for the ongoing Bhadla III (250 MW) and Bhadla IV (500 MW) tenders. These projects were supposed to be allocated to developers in the third quarter of 2017. Meanwhile, NTPC has not made any progress on the new guidelines for the development of solar projects.

Such tendering delays may push developers to bid even more aggressively going forward. Many of them have raised funding, but have been left high and dry due to the vacuum created in the project development landscape. The pent-up demand may therefore push auction tariffs further down.

The only factor that may prevent them from being too aggressive is the expected increase in module costs. Recently, Acme, which won 200 MW at a tariff of Rs 2.44 per kWh in the auction, has expressed regret on going forward with the tariff as Chinese module suppliers have been increasing their prices over the past three months, thus lowering return expectations. Other costs have also gone up on account of the goods and services tax implementation.

If costs continue to increase, solar tariffs may also go up. However, the discoms may walk away due to the rising tariffs, creating even more problems for the segment.

Wind tariffs

India’s wind power tariff fell to a record low of Rs 2.64 per kWh in the second wind power auction conducted by SECI for 1 GW of wind power projects in September 2017. A 24 per cent decline was recorded from the winning tariff of Rs 3.46 per kWh discovered in the first wind auction conducted by SECI in February 2017. The new tariff led to a major debate in the industry about the viability of such bids.

In the second 1 GW wind auction, ReNew Power quoted the L1 tariff of Rs 2.64 per kWh to win a contract for 250 MW of wind capacity; Orange Sironj Wind Power quoted Rs 2.64 per kWh to develop 200 MW of wind capacity; and Inox Wind, Green Infra Wind Energy and Adani quoted Rs 2.65 per kWh to develop 250 MW each. Inox Wind and Green Infra were awarded 250 MW each while Adani was awarded 50 MW. Overall, nine developers quoted tariffs below Rs 3 per kWh. The other bidders include BLP Energy, Sprng Energy, Hero Wind Energy and ReGen Powertech. They quoted tariffs between Rs 2.72 per kWh and Rs 2.80 per kWh. Only time will tell if these projects turn out to be viable.

The main reasons for the drastic decline are increased competition and the lack of adequate projects in the segment, which have led to a shift from the feed-in tariff (FiT) regime to competitive bidding-based allocation. With the transition from the FiT regime, the release of new tenders by the states has slowed down. This is pushing developers as well as turbine manufacturers to be more aggressive.

It must be noted that with SECI’s second round of wind project auction, the tariff is now just 8 per cent less than the lowest solar tariff of Rs 2.44 per kWh. Both wind and solar tariffs are now below the average thermal power tariff.

At the state level, most states have stopped signing new power purchase agreements (PPAs) at FiT rates. Some are also revising their FiTs based on the new tariffs determined through auction. For example, the Karnataka Electricity Regulatory Commission (KERC) passed an order on September 4, 2017 setting a fresh FiT of Rs 3.74 per kWh for wind power, which is considerably lower than the tariff of Rs 4.50 per kWh set in October 2015. This has been in response to the wind auctions held in Tamil Nadu, which saw the winning tariff plunge to Rs 3.42 per kWh. The order, however, put into jeopardy 599 MW of wind projects that already had PPAs signed with various discoms in Karnataka at the old rate of Rs 4.50 per kWh and were awaiting ratification by KERC. Around 273 MW had already been commissioned and power was being supplied to the state discoms at Rs 4.50 per kWh. Following the new order, these PPAs have now been renegotiated and the tariff has been set at Rs 3.74 per kWh. The developers had no choice but to accept the new tariff. Meanwhile, 326 MW of capacity is still under construction.


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