MNRE’s Move to Remove Tariff Caps for Solar & Wind Tenders Boosts Market Sentiment

The Ministry of New and Renewable Energy (MNRE) had recently communicated that the upper ceiling tariffs would no longer be prescribed in future bids for solar and wind projects. Many developers feel that the announcement is a win-win, both for the industry and government.

Vinay Kumar P, chief executive officer (CEO) of Varp Power, said, “Removing the ceiling tariffs in the wind and solar bids is a great decision from the MNRE. It would move tariff discovery to a pure market-driven mode without artificial caps.”

He also pointed out that it may not make much of a difference to the actual tariffs being discovered in solar reverse auctions that have already touched the ₹2.50 (~$0.03)/ kWh level in the latest bidding.

“For wind though this may be mean higher tariffs. Future bids would bear out the wisdom of this decision of the MNRE. The ministry needs to be applauded for taking this step and meeting a long-standing requirement of the industry,” he added.


The MNRE has directed Solar Energy Corporation of India (SECI), National Thermal Power Corporation (NTPC), state distribution companies (DISCOMs), and other implementing agencies to procure renewable energy power either through a single renewable source or various combinations of renewable sources with or without storage as per their procurement policies, as reported previously by Mercom.

Jakson Group’s Vice-Chairman Sundeep Gupta said, “Removal of tariff cap is indeed a positive step. It will allow market forces to reach appropriate price points and also allow higher participation in the bidding process. Overall, I feel this is a win-win situation, both for the industry and the government, and it will help the country get closer to its 100 GW targets of 2022.”

The solar market in India has become extremely competitive. Reverse auctions have driven tariffs lower, which has made the developers reluctant to bid at the levels prescribed by state agencies instead of a market-based auction where the lowest bid wins.

According to Puneet Goyal, the co-founder, and director of SunAlpha Energy, “All bidders should be allowed to bid as per the market condition and the upper ceiling in tariffs should not be put since the government cannot control the tariff quoted in the open market.”

Further, he said that more players are now entering the market which is building confidence in the market.

“More investors and power consumers are realizing that solar power is a very dependable power as compared to the other forms of power. So, yes, aggression is increasing every year,” Goyal added.

Looking at the trend, tariff caps were increased anywhere from 3% to 14% to attract participation from the developers who were reluctant to participate because of low tariff caps.

“A minor increase in tariff, if witnessed, would provide a certain relief for developers who were in tremendous pressure as receivables from distribution companies (DISCOMs) dried out in the previous few months. Overall, a small increase in tariffs would not harm DISCOMs. At the same time, it will provide relief to developers, which is a win-win situation for both,” said Chintan Walia, president of Maharashtra Solar Association.

Some developers also believe that this move proves that the government understands that a reasonable tariff regime is required to achieve the target of 175 GW of renewable energy by 2022 in a sustainable and timely manner.

“Project tariffs are determined by various parameters such as bid timing, technology, off-takers, and project location. Also, it was a bit irrational to keep a tariff cap without a floor price. Removal of tariff caps would open up the sector by promoting healthy competition among developers and leading to the creation of high-quality assets,” said Pinaki Bhattacharyya, managing director of Amp Energy India.

Tariff caps were slowing down auction activity in the sector. Developers have denied bidding at the tariff levels specified by state agencies instead of a market-based auction, where the lowest bid wins. This has been the reason for most tender deadlines being extended or retendered after raising the upper tariff ceiling. This trend of tender extensions and retenders has also led to a delay in auction activity.

“Removing tariff caps could be one of the most important actions the government has taken to revive auction activity in the solar sector. The next major action is to solve the payment delay issues, which will reduce the risk profile of the India solar sector and possibly bring in much needed foreign investment,” said Raj Prabhu, CEO of Mercom Capital Group.

 

Image credit: Empire Renewable Energy