Was Setting Upper Tariff Cap a Deterrent for NTPC’s 1.2 GW Solar Tender_

Tariff caps are often not acceptable to developers planning on executing solar projects in India. The National Thermal Power Corporation Limited (NTPC), has had to extend again the bid-submission deadline for 1.2 GW of the inter-state transmission system (ISTS)-connected  solar projects in western India.

The new bid-submission deadline is August 19, 2019.

These solar PV projects are to be developed near NTPC’s switchyards in western India. When contacted, an NTPC official said, “Yes, we have extended the bid-submission deadline once again.” The official, however, did not give any reason for the extension.

It is the third time that this tender has been extended by NTPC which had tendered the projects in November 2018 with an initial bid submission deadline set for December 19, 2018. Later, the deadline was extended to January 3, 2019.

In June 2019, NTPC again extended the bid submission deadline to July 1, 2019. Towards the end of June 2019, it introduced an upper tariff ceiling for this tender through an amendment. An upper tariff ceiling of ₹2.78 (~$0.039)/kWh was set for this tender.

When contacted, a top official at one of the renewable energy conglomerates said, “The upper tariff ceiling is a deterrent.” Before this tender, NTPC seldom fixed upper tariff ceilings as is usually seen in Solar Energy Corporation of India (SECI) tenders. As a result, NTPC tenders managed to generate good participation from the developers who quoted competitive bids.

However, with the upper tariff ceiling set for this tender, things appear to be changing as far as garnering interest from the developers is concerned.

Mercom recently reported that NTPC again extended the bid submission deadline for 1,000 MW of solar projects under the Central Public Sector Undertaking (CPSU) Program Phase II, Tranche-1. The new date for submission of the bid is August 16, 2019.

In June 2019, Mercom had reported that reverse auctions have driven down tariffs, and developers are fighting for every penny to make a decent return on their investment. In this harsh environment, tariff caps have added a new challenge for them. A tariff cap is set by the auctioning agency and acts as an upper limit when bidding for a project. So, a developer can only bid lower than the set tariff, which becomes a challenge if the tariff cap is deemed too high for a project developer to make a healthy return on investment.

Image credit: Council on Foreign Relations