Mumbai Capital

Record low solar bid not an outlier, says Fortum India chief

Finnish utility Fortum’s record low solar bid of Rs 4.34 per kilowatt-hour, which raised concerns, wasn’t an “outlier” and was based on serious calculations, Sanjay Aggarwal, managing director of the firm’s India arm, said.

The firm, which is betting big on India with proposed investments of 200-400 million euros (Rs 1,500-3,000 crore), also does not see any negative impact on the renewable energy sector from SunEdison’s bankruptcy.

In January, Fortum won the right to develop 70 megawatt (MW) of capacity by bidding at Rs 4.34 per KWh at an auction in Rajasthan, beating the previous low of Rs 4.63 per KWh set by SunEdison in November for a 400-MW plant in Telangana. The firm has signed the power purchase agreement with Rajasthan and the plant is expected to be commissioned by the first quarter of next year.

The aggressive bidding had raised concerns over sustainability of the projects and returns. “Tariff is a calculated process. It’s our belief system. It is not based on fancy or whims,” Aggarwal said in an interview.

The final number is an outcome of a process of data gathering, technical evaluation, site visits, discussion with stakeholders, running it across various functions and passing several gate checks and balances, he said.

Fortum has analysed the results of the previous 12 tenders both under state and central programmes. After adjusting for solar radiation, solar park charges, domestic content requirement and open categories, five out 12 times, the tariff has been lower than Rs 4.34 with the lower tariff normalised at Rs 4.04 a unit, he said.

Banks are not confident in lending for project bids aggressively, fearing high risks and low returns. “They are reluctant to lend to projects bids below Rs 5 per KWh. Prices need to correct,” Ashish Agarwal, Director-Infrastructure at investment bank Equirus Capital, said.

However, Fortum’s Aggarwal believes discussions need to move beyond tariffs. “We are having too many discussions around tariffs, whereas we should be discussing what goes behind tariff determination,” he said, adding that within the solar landscape, solar radiation and solar park charges vary from place to place.

He also pointed out that between the Andhra Pradesh and Rajasthan solar parks, the former has 34 per cent higher solar park charges as compared to Rajasthan, and in terms of radiation levels, there is a 5-6 per cent differential. “This tariff is meant for a specific plant, and may not be applicable all over the country.”

Fortum’s bullishness is buoyed by Prime Minister Narendra Modi’s renewable energy aim to reach 100 gigawatt of solar capacity and 60 gigawatt of wind power by the end of 2022. However, SunEdison’s insolvency has cast a doubt over such targets.

Mr Aggarwal dismissed such concerns and pointed out that there are several international companies entering the country, and market sentiment is not related to the performance of a single entity.

“It is quite unfortunate that we tend to create a pessimistic scenario of India’s renewable potential just because of one company’s performance. Investors understand the real issues involved,” he said.

Tariff is a calculated process. It’s our

belief system. It

is not based on

fancy or whims

Sanjay AggarwalMD, Fortum India

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Printable version | Nov 26, 2020 1:21:10 PM |

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