While the global pandemic continues to affect the solar industry around the world, India announced 14 GW of solar tenders. Despite the pandemic, about 3.5 GW of solar projects were auctioned in the first quarter (Q1) of 2020.
The 14 GW of solar tenders announced by the government could lead to opportunities worth approximately ₹550 billion (~$7 billion). These findings were revealed in the Mercom India Research’s recent report – Q1 2020 India Solar Market Update.
Tenders in Q1 2020
The 14 GW of tenders announced by various agencies in Q1 2020 accounted for a dip of only 3% compared to14.2 GW of tenders announced in the same period last year. In a quarter-over-quarter (QoQ) comparison, the tender activity in Q1 2020 increased by about 65% compared to 4.6 GW in Q4 2019.
Solar Energy Corporation of India (SECI) accounted for 69% of the tenders announced in Q1 2020. Rewa Ultra Mega Solar Limited (RUMSL) represented 11% of tenders in the quarter, followed by 9% from NTPC Limited and Gujarat Urja Vikas Nigam Limited (GUVNL). All other government agencies accounted for the remaining 2% of the tender activity.
SECI tendered nearly 9.5 GW of large-scale solar projects, compared to 400 MW in Q4 2019.
The largest tender in the quarter was announced by SECI to procure 5 GW of power on a round-the-clock (RTC) basis from renewable energy sources complemented with thermal power projects on a build-own-operate (BOO) model.
Mercom’s report provides a detailed list of tenders and auctions and an analysis of the policies affecting the activity.
A positive development during the quarter was the Ministry of New and Renewable Energy (MNRE) considering alternative arrangements for earnest money deposits (EMDs) and performance bank guarantees (PBGs) submitted by developers to SECI and the NTPC for solar, wind, and hybrid power projects. This was in response to requests by developers to ease liquidity in the sector. The MNRE has proposed two alternatives to the prevailing EMD practice. The first alternative is giving a letter of comfort from the Indian Renewable Energy Development Agency (IREDA) or a similar agency. The second alternative is providing EMD in the form of a corporate guarantee.
Mercom had addressed the issue of the stranded EMDs, and PBGs adding to the liquidity problems for developers. The cost of participating in large-scale solar tenders had reduced the developers’ ability to bid for other projects actively. These costs, coupled with delays and extensions of tenders, have tied up millions in the form of bank guarantees. This alternative plan proposed by the MNRE should provide a huge relief to the industry and result in greater participation by developers.
Auctions in Q1 2020
In Q1 2020, over 3.5 GW of solar PV projects were auctioned. The auction activity declined by 51% compared to 6.9 GW auctioned in Q4 2019. However, the auction activity increased by 1.2% compared to 3.5 GW auctioned in the same quarter of the previous year.
In this quarter, even though SECI had announced an expansion of project capacity under the greenshoe option for its manufacturing tender, the letter of award is yet to be released.
Another encouraging development for large-scale project development in the country was the announcement to remove tariff caps in all solar tenders issued by the government agencies. The MNRE in March communicated that the upper ceiling tariffs would no longer be prescribed in future bids for both solar and wind projects. Most developers regarded this announcement as a win-win development, both for the industry and the government.
Mercom had been consistently raising the concern over tariff caps that pose a challenge to developers. The solar market in India has been extremely competitive, with reverse auctions successfully driving the tariffs lower. Mandating tariff caps meant that the developers could only bid lower than the set tariff, making a healthy return on investment an arduous task for developers. Meanwhile, auctions were also getting postponed as tariff caps were adjusted multiple times until it was viable enough for developers to bid. Project commissioning deadlines were also pushed forward, making it tough to reach the 100 GW target by the deadline of 2022. With the tariff caps being removed, we expect greater auction participation and accelerated activity towards meeting the government’s ambitious target for solar.
The steady announcements of tenders and online auction activity, even during the pandemic, have kept the solar industry in India on its toes. Our upcoming webinar, ‘India Solar Market Overview and Outlook’ on June 5, 2020, at 11 am (IST) will discuss the opportunities and the business prospects in the sector with robust data and analysis.
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