Renewables Tender Trajectory Key to Mitigating Project Risks

Tenders issued irregularly provide little time for developers to prepare

thumbnail

Stakeholders in India’s renewables sector have called for a pre-determined calendar for tenders so that the resultant certainty can help companies plan their finances and manage supply chain constraints more efficiently.

Businesses generally thrive in a policy and regulatory environment that fosters certainty, but the renewables sector has had to contend with central and state governments and their myriad departments and agencies issuing tenders randomly.

Amit Jain, Managing Director at ENGIE India, said that as the country targets a capacity addition of 500 GW of renewable capacity by 2030, the availability of a scheduled tender trajectory is essential.

“The government, in order to facilitate further investment from foreign firms, could consider sharing a bidding trajectory that will help the foreign firms to effectively plan and contribute to accomplishing the ambitious renewable target of 500 GW target by 2030. It would be good to have a trajectory for tendering for the next few years. That would also help us plan better and be a part of the whole growth story,” he added.

Tender announcements during the third quarter of 2022 were up 144% year-over-year compared to the same period last year, while the corresponding auctions were down by 58%.

Solar tenders trend graphical presentation

The chart above shows the inconsistency in the volumes tendered through quarters from 2020 to date.

The tendered capacity is hard to predict without an official trajectory.

Tender uncertainty leads to higher project costs

Unplanned tenders give very little room for project developers to effectively plan the required finances and secure supplies of modules and other components at competitive prices.

While the government has taken similar steps for offshore wind project tenders, with the Ministry of Power announcing that bids for such projects will be issued in blocks of 4 GW every year for three years, other renewable energy sources still lack such certainty.

Stakeholders said that the state regulators could develop a mechanism for releasing a tender schedule in advance. The renewable power purchase obligations for individual states are decided much earlier, giving them enough time to plan their procurement and corresponding tenders for them. The regulators can hold the power distribution companies accountable for not adhering to the schedule.

A senior regulatory executive at a multinational renewable energy corporation said, “The agencies come up with tenders with a concise timeline, and they keep on extending it. Eventually, a developer works with rolling and extendable bids. There is a need for a structured tendering schedule, with a bidding timeline of four to six months, giving developers sufficient time to work on the financials to avoid going back and forth.”

A visible tender list will iron out grid connectivity issues

A Mumbai-based renewable energy developer said, “The gestation period of the projects is normally 12 to 18 months, whereas setting up substations and associated evacuation systems take much longer. States like Maharashtra and Gujarat don’t even provide a time extension for the projects in cases where the connectivity and access are not operationalized within the scheduled time.”

Further, with the policy of mandatory module procurement from the Approved List of Models and Manufacturers (ALMM), the visibility and certainty of upcoming tenders become even more crucial so that developers can tie up module supplies in time.

The success of tenders is highly dependent on the design of the tender, the number, and the nature of the participating bidders. A lack of participation can lead to expensive offers, and large-scale projects risk not receiving any offers.

India’s installed renewable energy capacity, including large hydro projects, stands at 163.7 GW as of the third quarter of 2022, a long way off the 450 GW target the country has set to achieve by 2030. Introducing a tender trajectory would provide a much-needed boost to the installation numbers in the coming years.

“Regulatory agencies should be required to release and abide by tender and auction timetables that tie in with the RPO of each state for a more streamlined, predictable procurement system. India needs to install more than 27 GW of solar per year to meet its 2030 goal, which will be hard to do with the current process of unpredictable tenders. Making this change will add long-term visibility to the markets and help attract more international capital that India sorely needs,” said Raj Prabhu, CEO of Mercom Capital Group.

RELATED POSTS