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Foreign firms bring down solar bids in India

Foreign firms are pushing down solar tariffs in India, with the lowest bid in the last auction at Rs 4.34/kWh. While the low prices have evoked mixed reactions as to the sustainability of such aggressive bids, what is interesting is that all the foreign firms are serious players in the segment. Past auctions have seen low bids only by unknown names or not-so-serious players.

An analysis by Bloomberg New Energy Finance of the seven Centre and state auctions as of last Thursday shows that in five out of the seven, a foreign company emerged as the lowest bidder. (See table).

Bharat Agrawal, analyst at Bloomberg New Energy Finance, said, “There was much higher competition and participation from the foreign companies in the solar mission auctions, where NTPC was entering into the power purchase agreements. In fact, there were total three of such auctions by NTPC and each one of them saw a foreign company as the lowest bidder. Also, in two of them the entire capacity of the auction was won by the lowest bidding foreign company.” Mr Agrawal pointed out that another important highlight of the auctions was that all of the successful bids were significantly below Rs 5/kWh. “None of the state auctions so far has seen bid prices falling below Rs 5/kWh.”

Vinay Rustagi, managing director, Bridge to Solar, a consultancy firm, said, “The recent most aggressive bids have seen participation from leading international players, including Fortum, Softbank, SunEdison and GdF. These are very credible and well-capitalised players. Hence, we see little risk attached with these bids specifically.”

The Narendra Modi-led BJP government has set an ambitious target: 100 gigawatts of solar capacity. India has committed at the Paris climate conference to raise the share of non-fossil fuel power capacity to 40 per cent of the country’s power mix by 2030 (from the current 30 per cent). The government is also working to provide power to all by 2019.

Mr Rustagi added, “Foreign firms are attracted to the Indian solar market despite severe competition and operating challenges because of the huge growth potential. We expect the Indian solar market to be one of the top three markets worldwide from next year. International developers have the advantage of deeper pockets and lower cost of capital. They also have very strong technical and procurement capability. Hence, they will always be among the most aggressive bidders, particularly for projects tendered by the Central government entities as these projects have the best off-take and policy risk profile.”

Solar tariffs have come down sharply in the past two years, led by a sharp decline in capital costs — 60 per cent over the past four years — decline in cost of debt, or assumption of lower cost of debt post commissioning, according to Kotak Institutional Equities. In a recent research note, the brokerage said, “Our analysis suggests upper single-digit to lower double-digit equity internal rate of returns, at best, for bids at Rs 4.63 per unit; companies have given mixed views on the viability of the recent bids. Aggressive bidding and its aftermath (low or no equity returns) could create risk aversion among investors (both equity and debt) and impact the sector’s growth plans.”

Fortum Finnsurya, a unit of Finland’s state-controlled Fortum Oyj, bid for the Rs 4.34/kWh for 70 MW in Rajasthan. Indian firms Acme Solar had bid at Rs. 4.40/kWh, Hero Solar at Rs 4.44/kWh, and Reliance CleanGen had bid at Rs 4.48/kWh in the same project.

Fortum said it can talk about details only after power purchase agreements are signed.

SunEdison’s president and CEO Ahmad R Chatila told The Hindu in a recent interview that people should not be surprised with the lower bids. “Everything we do is based on calculations, not gut feeling or risk. SunEdison has completed 1,600 projects with no stranded projects in a decade. Today, a watt is less than 50 cents. Therefore, it is sustainable, based on our own math. People were surprised at our bid, but they shouldn’t be. Many of these companies will do better than us. As shocking as the Rs 4.63 price point: one day we will look back at it and laugh.”

Mr Rustagi said that whenever prices go down sharply, the government should examine the true underlying reasons and the capability of bidders to actually implement projects. “We believe the government should put stronger safeguards in place to this effect.”

He said Indian players, with stronger on-the-ground presence and better ability to manage local off-take and land acquisition issues, will need to focus on their strengths. “We believe that the Indian developers will continue to play an active role in the sector, particularly in state government tenders and private PPA projects.”

“In five out of the seven auctions, a foreign company

has emerged as

the lowest bidder”

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Printable version | Dec 3, 2021 10:39:26 PM |

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