After a tedious bidding process that lasted for more than 32 hours, contracts to build and operate the upcoming 750 MW Rewa ultra mega solar park in Madhya Pradesh were awarded to Mahindra Renewables, Acme Solar Holdings and Solenergi Power on Friday. The companies won the contract for the final levelised tariff of Rs 3.309, Rs 3.30 and Rs 3.304 — the lowest for any solar park in the country till date. They surpassed the erstwhile lowest tariff bid of Rs 4.34/ kWh for a 70 MW unit of NTPC’s Bhadla solar park in Rajasthan.
According to sources familiar with the project development, the solar park should be complete by April, 2018 and should incur investments around Rs 4000-5000 crore. Mahindra, Acme and Solenergi started the bidding at Rs 4.09, Rs 3.87, Rs 3.62 respectively. These does not include the 33 paisa which is added in the final levelised tariff.
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Twenty companies participated in the reverse auction which began at 10 AM on Thursday. Out of them, Rome-based Enel, SBG Cleantech (a joint venture between Softbank, Foxconn and Bharti Airtel), ReNew Solar Power Pvt Ltd and Adani Power had bid for the complete 750 MW project. Mahindra Renewables, Hero Solar Energy, Solenergi Power were bidding for 500 MW.
The three units, each of 250 MW, of the solar park is developed by the Rewa Ultra Mega Solar Ltd, a 50-50 joint venture between the Solar Energy Corporation of India Ltd (SECI) and Madhya Pradesh Urja Vikas Nigam Ltd. The joint ventrure is also expected to other solar parks of combined capacity of 2GW across Madhya Pradesh.
The Rewa solar project, built on a 3,390 acre of land, is insulated against the most critical risks traditionally encountered by power generation projects – offtake and grid availability. Delhi Metro Rail Corporation and Madhya Pradesh Power Management Company will buy all the power generated from park. The state government, along with a payment guarantee, will also pay a compensation if sufficient grid is not available for transmission of power from the project.
The project comes at a time when solar components are getting less expensive. In the 2017 Union Budget, solar tempered glass, used in solar equipment, was made duty free. Additionally, it slashed the countervailing duty on raw materials used in solar equipment to 6% from the earlier 12.5%. Additionally, solar module prices have drastically fallen in the past year. In the European spot market, crystalline modules in southeast Asia was priced at around Rs 29.19 per watt power in December 2016, about 15% lower than what it cost in January, 2016.
According to Kameswara Rao, partner at PricewaterhouseCoopers, cost-effective infrastructure, coupled with robust safeguards against grid interruptions and payment delays sets a great benchmark for the industry. The developments should facilitate the government to reach its target of generating 175 GW of power through renewable energy by 2030. At the end of December 2016, solar power comprised more than 9 GW to the total installed generation capacity of 310 GW.
However, such low tariffs (with lower margins) raise a question about the sustainability. Although capital cost for solar projects have been consistently been falling, any small rise in the manufacturing costs puts the builder at risk. It is not sure if the stipulated yearly tariff hike of 5 paise for the first 15 years would be able to balance any unforeseen rise in capital costs. Nevertheless, since capital in such projects is invested upfront in a short period of time, and operating costs form a small component, risk factors might be downplayed, experts say. Project implementation has not suffered in the past, even where the parent companies have faced financial distress.
According a new report by Lloyd’s Register, a global research foundation, low carbon technologies are now cost competitive with fossil fuels as innovation is gathering pace across the sector. The January average market clearing price at the Indian Energy Exchange was Rs 2.50 per unit. This is 8% higher than what it was in December 2016, and not even a rupee lower the the lowest solar tariff bid at Rewa.
By Anupam Chatterjee