In the 250 MW Bhadla Solar Park auction, Azure Power won the bid to develop 200 MWs by quoting the lowest tariff of ₹2.48 (~$0.0388)/kWh. ReNew Power won the remaining 50 MWs with a bid of ₹2.49/kWh. The winning bid is only 1.6 percent higher than the lowest ever solar tariff in India of ₹2.44 (~$0.0370)/kWh quoted in Bhadla Phase-III Solar Park auction in May 2017.

Azure has been bidding low to win projects and this is its second below ₹3/kWh. In September, Azure won 260 MW in the GUVNL auction with a bid of ₹2.67 (~$0.0417)/kWh. In October, Azure won 250 MW DCR auction by bidding ₹3.14/kWh. As a public company, pressure to build a pipeline and show wins could be playing a factor in these aggressive bids.

The low bids in this and the other recent Bhadla auctions demonstrate that even in the face of uncertainties like the anti-dumping investigation, high module price trends,  PPA issues, regulatory hurdles and delays, solar module customs duties, and others, competition to win projects remains as fierce as ever.

In the past two days, a total of 750 MWs have been tendered through the Bhadla Phase-III and Phase-IV Solar Park auctions.

Azure’s tariff is 0.4 percent higher than the lowest (L1) tariff of ₹2.47 (~$0.0386)/kWh quoted by Hero Future Energies in the 500 MW Bhadla auction that concluded on December 22, 2017.

The tariffs quoted in the bidding ranged from ₹3.24 (~$0.0506) to ₹2.48 (~$0.0388)/kWh, a difference of 31 percent.

In all, a total of eight companies participated in the reverse bidding, collectively submitting quotes for a total capacity of 1,350 MW, which is more than 500 percent of the actual tendered capacity.

The 250 MW up for grabs in this auction was part of the larger 750 MW package of capacity being tendered for the Bhadla Solar Park in Rajasthan by the Solar Energy Corporation of India (SECI). SECI announced the tender in June 2017 following the extension of the Inter-State Transmission (ISTS) waiver.

The winners of the first 500 MW were Hero Future Energies and SoftBank, which won the right to develop 300 MW and 200 MW respectively.

Now, each of the companies that won a portion of the 750 MW must complete their projects on or before December 31, 2019 to claim the ISTS waiver. The power generated from the projects will be used to fulfill demand in Uttar Pradesh.

The industry is sure to overanalyze these latest low bids. A simpler explanation could be that developers are bidding based on sheer hope. We recently asked the winner of a large auction as to why their bid was so low and the answer was “we hope that we are right in our assumptions.”

All of the uncertainties, market trends, and government issues are well known. After bidding at these levels, developers can’t blame anyone but themselves if things go wrong.

In private, developers complain that project costs have gone up, they then turn around and keep bidding at the same low levels. If the ₹2.44 (~$0.0381)/kWh tariff is so low that it is not viable, and the project cannot be financed, you have to ask what changed in order for the new low tariff to come in at ₹2.47 (~$0.0386)/kWh – except that you get some more time to procure components.

Developers would be wise to give themselves some room to maneuver and respond to the unforeseen events that seem to pop up every other month in the solar industry. Just six months ago, developers were telling Mercom that module prices would be about ~$0.27 (~₹17)/w and bids were made based on that assumption, but now – 6 months later – actual module prices are 30 percent higher in the $0.35-0.36 (~₹22-23)/w, a significant miscalculation in module price assumptions.

But the trends can reverse quickly in this industry and the winners may end up looking really good if everything works out.

If auctions continue at a brisk pace and the government keeps its promise to auction 17 GW by March 2018, then bids may start becoming more realistic as developers build healthy project pipelines and desperation bidding starts to abate.

But until developers can start recycling capital by selling completed projects and reinvesting it into a new pipeline, few of them will be able take on the level of debt needed to build and own multi-gigawatt portfolios. Once established developers have finally won as many projects as they can handle, they may step back and start focusing on development rather than bidding irrationally low in an attempt to win at any cost. This, in turn, would make room for others and could be very positive for the industry.

We are also beginning to see solar companies attempt to tap into public market financing to fund operations and projects using initial public offerings (IPOs). ACME won permission to go public earlier in December and, if it’s successful, it will be the first pure play solar developer to do so on an Indian stock exchange.

If ACME has a successful IPO, it could open up a new avenue where the sector would no longer have to rely completely on private equity and banks for capital.

Image credit: Azure Power