Solar Developers Finding it Difficult to Bid Below ₹2.50kWh As ALMM Takes Effect

Solar developers are finding it challenging to execute solar projects with a tariff lower than ₹2.50 (~$0.034)/kWh with the Approved List of Models and Manufacturers (ALMM) restrictions.

According to the developers, the prices of domestic modules – procured from manufacturers enlisted in ALMM – are 20% higher than Chinese modules, which has increased the overall cost of solar projects.

In October 2018, the Ministry of New and Renewable Energy (MNREintroduced a rule requiring solar cell and module manufacturers to register under ALMM to supply to the projects tendered by the government agencies.

On March 10, 2021, the ministry released the first list of module manufacturers registered under ALMM. For tenders issued after April 10, 2021, it was mandated that bidders must procure modules only from the list of module manufacturers enlisted under ALMM.

Currently, there are no foreign solar manufacturers on the ALMM list. Many foreign manufacturers have paid the inspection fee, but the government inspection teams have not made any factory visits abroad due to the Covid-19 pandemic.

Since then, developers have been expressing concerns about the supply, quality, and impact on the cost of the projects.

Majority of the bids are over ₹2.50 (~$0.034)/kWh

In auctions of solar projects since ALMM has been applicable, the majority of the bidders (more than 70%)  have quoted tariffs over the ₹2.50 (~$0.034)/kWh threshold. Only a few winning bidders with access to either foreign funds or low-cost debt have quoted aggressively.

In the recently concluded Maharashtra State Electricity Distribution Company Limited’s 500 MW solar auction, only three bidders quoted tariffs below ₹2.50 (~$0.034)/kWh. Of this, ACME Solar Holdings and ReNew Solar Power won 300 MW quoting ₹2.42 (~$0.032)/kWh and 200 MW quoting ₹2.43 (~$0.033)/kWh, respectively. In contrast, eight bidders quoted between ₹2.51 (0.0337)/kWh and ₹2.95 (~$0.0396)/kWh in the auction.

Similarly, only three bidders out of 13 quoted the tariff below ₹2.50 (~$0.034)/kWh in the Rewa Ultra Mega Solar Limited’s (RUMSL) 550 MW solar auction. Of this, Avaada Energy won a capacity of 200 MW, quoting ₹2.459 (~$0.033)/kWh, and O2 Power won a capacity of 350 MW, quoting ₹2.444 (~$0.032)/kWh. While ten bidders quoted a price over ₹2.50 (~$0.034)/kWh, and the highest bid was ₹3.64 (~$0.049)/kWh.

In RUMSL’s auction for 450 MW of solar projects at the Shajapur Solar Park in Madhya Pradesh, NTPC Renewables won a capacity of 105 MW quoting ₹2.35 (~$0.0316)/kWh, and also a capacity of 220 MW quoting ₹2.33 (~$0.0313)/kW. While Talettutayi Solar Projects Nine (SolarArise) won a capacity of 125 MW quoting ₹2.339 (~$0.0314)/kWh. In this auction, only four bidders quoted a tariff below ₹2.50 (~$0.034)/kWh, while nine bidders quoted a price over ₹2.50 (~$0.034)/kWh. The highest bid was ₹3.45 (~$0.046)/kWh.

Majority of the Bids are Over Rs. 2.50 ($0.034) per kWh in the Auctions after the Announcement of ALMM

Domestic modules are comparatively expensive

A senior executive of a Pune-based solar energy company commented on the auction and said that solar projects at such low tariffs seem to be financially unviable. Due to the ALMM order, developers are forced to procure modules from the domestic market that are around 25% more expensive compared to imports, increasing the overall cost of solar projects. “We also don’t know if international companies would be enlisted or not under ALMM, and even if these companies were enlisted, the basic customs duty (BCD) of 40% would be enforced on these imported modules from April 2022.”

“In recent auctions, state-owned companies like NTPC and SJVN and few private developers bid aggressively because they have lower return expectations compared to the majority of the private developers,” he added.

According to Mercom’s Q1 2021 India Solar Market Update, the cost of domestic solar modules was 15-20% higher than modules procured from China in Q1 2021.

Echoing similar thoughts, a deputy general manager of a Bangalore-based solar energy company said that the costs of solar energy tariffs and projects would increase because of ALMM. For solar developers, it is financially unviable to execute projects at such a low tariff, as seen in the recent bids. The impact of ALMM would depend on the supply and demand of solar modules as domestic manufacturers do not have enough module manufacturing capacity currently.

However, Ajay Kumar, Senior Engineer at SJVN Limited, believes that solar projects are viable at a tariff below ₹2.50 (~$0.034)/kWh despite ALMM. “The company’s funding and credit rating play an important role in solar projects as companies like SJVN can arrange debt at 6-6.5% interest rates from the market. This can improve the financial viability of solar projects. To reduce the cost of projects despite an increase in module costs, solar developers are using modules with increased capacity that reduce land requirements, artificial intelligence, high-quality tracker, among others.”

“Solar developers can also optimize operation and maintenance (O&M) costs through short-term contracts and engaging smaller companies for O&M services,” he added.

Commenting on the auction results, another executive at a foreign investment-backed renewable energy platform said several solar developers quoted tariffs around ₹2.50 (~$0.034)/kWh, which suggests that solar projects are financially feasible at a similar tariff. “We secured solar capacity with a tariff below ₹₹2.50 (~$0.034)/kWh. However, we do not like to reveal the reason behind quoting that tariff as a part of our business strategy.”

Signing power sale agreements has been a formidable task for implementing agencies like the Solar Energy Corporation of India and other state agencies. Higher tariffs have mostly been the primary reason for cancellations of auctions and power purchase agreements in the past. Now with the ALMM restrictions, tariffs are bound to go up in the short term unless bids are won by a state-owned company or a prominent developer with access to cheaper foreign debt. For all others, it is becoming increasingly challenging to win large-scale solar auctions.

If the intention was to close the procurement window between the safeguard duty expiration and the BCD start date, the goal has been achieved at a cost.