Stakeholders in the solar industry believe that tariffs in upcoming solar auctions are likely to settle around ₹2.50 (~$0.034)/kWh, given the spike in module and commodity prices. Developers are bracing themselves for life in the post-safeguard duty era until the basic customs duty (BCD) kicks in April 2022.

The recent auctions held by the Maharashtra State Electricity Distribution Company Limited (MSEDCL) and the Rewa Ultra Mega Solar Limited (RUMSL) have surprised many, as the tariffs have gone below ₹2.50 (~$0.034)/kWh.

ACME Solar Holdings and ReNew Solar Power were declared winners in MSEDCL’s auction for 500 MW of solar projects (Phase-VI).

ACME Solar Holdings won a capacity of 300 MW quoting ₹2.42 (~$0.032)/kWh. ReNew Solar Power won 200 MW quoting ₹2.43 (~$0.033)/kWh.

An MSEDCL official commented, “The main reasons for such a big response to the solar tender were the absence of ceiling tariff this time around, which was ₹2.90 (~$0.039)/kWh earlier, lower earnest money deposit (EMD) of ₹400,000 (~$5,391)/MW, which was ₹500,000 (~$6,739)/MW for Phase-V tender, and lower performance bank guarantee of ₹800,000 (~$10,783)/MW, which was ₹1.4 million (~$18,870)/MW earlier.”

Hybrid power-not an attractive proposition as solar

Tata Power and Azure Power were declared winners in the MSEDCL auction for 500 MW of grid-connected interstate and intrastate wind-solar hybrid projects. Tata Power won a capacity of 300 MW and Azure Power 200 MW, both quoting ₹2.62 (~$0.035)/kWh.

Commenting on the response to the hybrid tender as compared to the solar tender, an MSEDCL official had said, “Being a hybrid tender, MSEDCL had the clause of certified wind turbine procurement from the revised list of models and manufacturers. Solar modules had to be sourced from the approved list of models and manufacturers (ALMM). Therefore, only a few big players were eligible to bid for this capacity in compliance with both the clauses. Also, due to lower EMD and performance bank guarantee, more bidders were attracted to the solar tender rather than the hybrid one.”

Tariffs continue to fall below the ₹2.50/kWh mark despite constraints

While the tariffs have been hovering around the ₹2.50 (~$0.034)/kWh mark for some time, the 500 MW solar auction saw the tariff drop to ₹2.42 (~$0.032)/kWh mark. Recently, the Neemuch solar auction surprisingly saw the tariff fall further to ₹2.14 (~$0.029)/kWh.

Speaking to Mercom on the lowest tariff of ₹2.42 (~$0.032)/kWh discovered in the MSEDCL’s 500 MW solar auction, a top executive from one of the winning bidders noted, “The tariff in the 500 MW solar auction indeed dropped below the ₹2.50 (~$0.034)/kWh mark, and it was a surprise to many because of the increase in module and commodity prices. The tariffs are expected to go down further, and as things stand, the Neemuch 500 MW solar auction saw the tariff drop to ₹2.14 (~$0.029)/kWh. It is tough to explain this trend as bidders are bidding aggressively, and the tariffs are going down, which is in total contrast to the forces driving the market and the ALMM taking effect.”

“The main reason for the success of MSEDCL’s 500 MW solar tender was the provision of guaranteed offtake of power. In this case, the offtaker is known, which is not the case with other tenders floated by the Solar Energy Corporation of India and NTPC. I think it was the main reason behind such a strong response from bidders, which led to the tender being oversubscribed. The auction also witnessed aggressive bidding leading to the lowest tariff of ₹2.42 (~$0.032)/kWh,” he added.

Tariffs may not fall any further, bar exceptions

Recently, Mercom discussed the challenges developers were facing while quoting tariffs less than ₹2.50 (~$0.034)/kWh for solar projects.

With the ALMM in place and no foreign manufacturer on the list so far, developers find it financially unviable to quote less than ₹2.50 (~$0.034)/kWh. But with aggressive bidding, as demonstrated in the MSEDCL and RUMSL auctions, tariffs have dropped below the ₹2.50 (~$0.034)/kWh mark again. But many believe that tariffs will not fall any further because of the ALMM situation, which will create a demand-supply gap in the market and push the tariffs up.

On the downward trend in tariffs in the recent auctions, a top developer said, “The deployment pressure is one of the main reasons driving such aggressive bidding in the auctions. While the tariffs have gone down in the recent auctions held by MSEDCL and RUMSL, it will not fall further. But things may be different in Rajasthan, where it might dip further because of state-specific reasons. With the ALMM in place, the developers may import cells and assemble them here, which might lead to aggressive bidding in auctions in the near future, but generally, the tariff is not going to drop any further.”

The lowest tariff of ₹1.99 (~$0.027)/kWh was discovered in the GUVNL’s 500 MW solar auction last December. Such a low tariff may seem far-fetched in the current scenario, but anything could happen if developers remain aggressive and desperate as SECI is not bidding out new projects at the required pace for the developers to sustain their operations.

With the BCD of 40% on imported solar modules and 25% on cells coming into force in April 2022, many believe that the era of low-cost solar imports is over, and that would lead to higher tariffs in the near future. But for now, the tariffs seem to be oscillating in the ₹2 (~$0.027)/kWh to ₹2.50 (~$0.034)/kWh range.