The latest round of reverse bidding for solar power projects — held in Karnataka — has discovered tariffs 10% higher than the lowest level in January, indicating that the cost of this renewable energy might not go down further. The bidding was conducted under the National Solar Mission (NSM) by state-run NTPC, which will procure the solar energy and bundle it with its thermal power to reduce costs for its consumers.
Among the six winners of projects in the solar park in Karnataka’s Tumkur district — with a total capacity of 500 MW — on Wednesday, Yarrow Infrastructure, a unit of RattanIndia Solar, quoted the lowest tariff of R4.78 a unit for a 50 MW piece. This is against the lowest rate of Rs 4.35 per unit discovered in January when Finland’s Fortum Finnsurya won a 70 MW project at Rs 4.35 a unit in Rajasthan.
Industry sources FE spoke to said the comparatively higher tariff found in the latest round of bidding was a reflection of lenders’ reluctance to finance projects with sub-Rs 5 per unit tariff as the margin for such projects would likely be very thin. “Any tariff below Rs 5 per unit is risky and the viability of such projects depended on a host of volatile variables like PLF (plant load factor) and exchange rates. This risk could be offset somewhat by cheaper access to finance and longer-tenured debt,” Icra said on Wednesday. It also added that such projects were projected to have a low return of about 10% while returns on equity was still lower at single digits.
The other companies that grabbed the Tumkur solar parks capacity on offer included Parampujya Solar energy, a subsidiary of the Adani Group, Fortum, ACME Solar and Tata Power Renewable Energy. These companies won 100 MW each, all at Rs 4.79 a unit. Renew Solar managed to bag the remaining 50 MW on the block at Rs 4.80 per unit. The Karnataka round of NSM bids were also characterised by an improved showing from domestic solar developers, who had been overshadowed in the last two rounds by foreign companies including Fortum, SunEdison and SoftBank-Bharti joint venture SBG Cleantech.
“Despite similar solar radiation between the solar parks in Andhra Pradesh and Karnataka, only 75 kilometres apart and the having the same counter-party (NTPC), the lowest bid for Karnataka projects was 16 paise per unit or 3.5% higher than what was discovered for the projects in Andhra Pradesh,” Prashant Panda, president (solar), ACME Group, told FE.
In what is another indication of an upward trend for tariffs, Karnataka had received lower bids for its state-sponsored projects last month compared with Wednesday’s NSM bids. In the bidding for about 800 MW of capacity, the developers put in winning bids with tariffs between Rs 4.69 and Rs 5.85 per unit for distributed solar capacity of 20 MW for each project. While the average tariff is higher compared with the NSM bids, the lowest bid was not breached in the latest round. However, this is an anomaly as developers tend to bid higher for state-sponsored projects primarily on account of a weaker counter-party compared to NTPC, analysts said.
On either side of 2016, solar power for NSM projects saw a rapid decline with US-based SunEdison and SBG Cleantech winning a combined capacity of 850 MW at a tariff of Rs 4.63 per unit in Andhra Pradesh in November last year. This was followed by Fortum that won 70 MW in Rajasthan for a record low tariff of Rs 4.34 per unit. However, while the latest round of bidding failed to get solar tariffs any lower, it was also marked by the notable presence of domestic solar player as opposed to foreign companies setting the tone in the earlier NSM bids.
