Frequent bid cancellations, the falling Indian rupee and lack of clarity on safeguard duty implications are making bidders cautious about competitive tariffs in renewable energy projects, research agency India Ratings (Ind-Ra) said on Thursday.
These factors could lead to the ministry of new and renewable energy (MNRE) miss the renewable energy auction target of 30 giga-watt (GW) set for FY19, the agency said, adding that “even a one rupee depreciation in the `/$ exchange rate necessitates operators to increase tariffs by Rs 0.02/unit to maintain profitability”.
In the first five months of FY19, 3.9 GW of solar bids have been cancelled by various agencies die to higher prices discovered in the auctions. However, reauctions in two instances have discovered prices lower than the initial biddings, providing some vindication to the cancellations.
Uttar Pradesh recently conducted bids for 500 MW of solar, after cancelling the auctions for 1000 MW, when the lowest tariff of Rs 3.48 per unit was discovered. The latest bids fetched a lowest tariff of Rs 3.17 per unit.
Gujarat had cancelled the first bidding process for 500 MW solar capacity held in March, when the lowest tariff discovered was Rs 2.98 per unit. The reauction fetched the magic figure of Rs 2.44 a unit, matching the record low rate first found in May 2017 for Rajasthan’s Bhadla project. However, sources said Azure Power, which had won 100 MW in the latest Gujarat auction by quoting `2.45 a unit, has requested the state to withdraw its bids. “Frequent scrapping of auctions decelerates capacity additions and weakens investor confidence on the sector,” Ind-Ra said.
The Solar Energy Corporation of India (SECI) had cancelled 2,400 MW bids from the 3,000 MW solar auction held on July 13. Only Acme Solar’s 600 MW bid was not scrapped as it had quoted the lowest tariff of `2.44 per unit.
As recently reported by FE, power minister RK Singh has pointed out that states are reluctant to buy unreliable solar power even if tariffs are much lower than thermal electricity. States effectively end up paying a much higher price for every unit of solar electricity due to the mandatory payment of fixed charges to thermal power plants, even if they don’t offtake any electricity from the latter.
If the states don’t agree to procure solar power, SECI may end up paying `40 crore per year for every 100 MW of untied solar capacity, the minister had pointed out.