There is a consensus among the stakeholders that the tariffs in the post safeguard duty era with the Approved List of Models and Manufacturers (ALMM) in effect will hover around the threshold value of ₹2.50 (~$0.034)/kWh in the future auctions under current market conditions. But the Rewa Ultra Mega Solar Limited’s (RUMSL) auction for 500 MW of solar projects at the Neemuch Solar Park has taken everyone by surprise.

Whether the tariff of ₹2.14 (~$0.029)/kWh discovered in the Neemuch solar auction is an exception to the rule or the rule itself for the upcoming auctions is not yet clear.

The lowest tariff of ₹2.14 (~$0.029)/kWh discovered in RUMSL’s 500 MW Neemuch Solar Park auction seemed an unviable proposition to many.

TP Saurya, a Tata Power subsidiary, and Aljomaih Energy and Water Company were declared winners in the auction. TP Saurya won a capacity of 170 MW quoting ₹2.14 (~$0.0288)/kWh and also a capacity of 160 MW quoting ₹2.149 (~$0.0289)/kWh. Aljomaih Energy and Water Company won 170 MW at a tariff of ₹2.15 (~$0.0289)/KWh.

The tender had received a strong response from the bidders and was oversubscribed by 7 GW.

Many believe that the tariffs will not fall any further, but at the same time, some believe that we will witness aggressive bidding in the upcoming auctions, and tariffs might even breach the ₹2 (~$0.027)/kWh mark.

The RUMSL’s tenders for 550 MW of solar projects at the Agar Solar Park, 450 MW of solar projects at the Shajapur Solar Park, and 500 MW of solar projects at the Neemuch Solar Park in Madhya Pradesh drew strong responses from the bidders.

In July, NTPC Renewables and Talettutayi Solar Projects Nine (SolarArise) were declared winners in RUMSL’s auction for 450 MW of solar projects at the Shajapur Solar Park. NTPC Renewables had won a capacity of 105 MW quoting ₹2.35 (~$0.0316)/kWh, and also a capacity of 220 MW quoting ₹2.33 (~$0.0313)/kWh. Talettutayi Solar Projects Nine (SolarArise) had won a capacity of 125 MW quoting ₹2.339 (~$0.0314)/kWh.

Earlier, Avaada Energy and O2 Power were declared winners in the RUMSL’s auction for 550 MW of solar projects at the Agar Solar Park. Avaada Energy had won a capacity of 200 MW, quoting ₹2.459 (~$0.033)/kWh, and O2 Power had won 350 MW, quoting ₹2.444 (~$0.032)/kW.

The tale of three tenders by RUMSL

The success of RUMSL’s tenders has come as a surprise to many. While the lowest tariffs discovered in the Agar and Shajapur solar auctions were ₹2.44 (~$0.033)/kWh and ₹2.33 (~$0.032)/kWh, respectively, the lowest tariff dropped further to ₹2.14 (~$0.029)/kWh in the Neemuch solar auction.

With the ALMM taking effect and the spike in module prices coupled with the increase in commodity prices and freight charges, tariffs were expected to be around the threshold mark of ₹2.50 (~$0.034)/kWh.

The drop in tariff in the Neemuch solar auction may be attributed to the good track record of the Madhya Pradesh government for such projects, along with the availability of land and guaranteed offtake of power. Also, being close to Rajasthan tipped the balance in its favor.

Not financially viable

Despite all these factors, the tariff of ₹2.14 (~$0.029)/kWh seems to be an exception to many who believe that such a low tariff is not financially feasible in the current scenario.

Many developers are importing cells and assembling them in India. This allows them to cut costs as the cost of buying modules from local manufacturers is higher than the cheap Chinese imports. The situation has been exacerbated by the fact that there are no Chinese module manufacturers in the ALMM list issued by the Ministry of New and Renewable Energy so far.

Commenting on the reasons that elicited such aggressive bidding from the bidders, Avaneesh Shukla from RUMSL said, “One of the main reasons for the drop in tariff was the project structuring, as was the case with projects at the Agar Solar Park and Shajapur Solar Park. In the case of Neemuch Solar Park, the transmission lines are 2.5 km in length, and Neemuch is much closer to Rajasthan, where the solar irradiation is much better as compared to Agar Solar Park and Shajapur Solar Park. Another important factor that resulted in the tariff of ₹2.14 (~$0.029)/kWh in the Neemuch auction is that the transmission lines being only 2.5 km in length, the transmission charges are less when compared to Shajapur and Agar, where we have transmission lines of 60 to 80 km.”

“Also, Madhya Pradesh has a good track record for such projects, and the ease of doing business in the state is also good. These were the reasons that pushed bidders to bid aggressively, and the tariff dropped down to ₹2.14 (~$0.029)/kWh. But I don’t think that the tariffs will fall any further,” Shukla added.

But things are not that bad for developers as they seem on the surface. Speaking to Mercom, one of the winning bidders said, “The tariffs may fall even further. It depends on several factors, including state-specific reasons. While it is true that the ALMM is in place, many factors can push the tariffs higher. But the most important point is the amount of funds the developers have at their disposal, and I think it is the main factor in driving the tariffs lower, as was witnessed in the Neemuch solar auction.”

Commenting on the current predicament of developers, Vinay Pabba, Founder and CEO of VARP Power, opined, “I believe that some of the winning bidders have priced in a duty-free import of modules before the end of this financial year to gain a price advantage. I presume that this is the reason for the steep drop in prices in the Neemuch auction. The ALMM list is dynamic, and I do not believe that the current state of the list will continue for long. Many foreign manufacturers have applied for inclusion in the ALMM list, and we should see some additions to the list soon. This should widen the choice of manufacturers and the price at which they supply cells and modules to Indian buyers. Good investable power purchase agreement (PPA) and project structuring backed by credit-worthy offtakers and mitigation of land and evacuation risks have all contributed to making RUMSL’s tenders a success.”

No clear pattern or rationale

With no safeguard duty in place and the imposition of the basic customs duty (BCD) nearly seven months away, things are looking a bit tricky for developers who are trying hard to strike a balance between the overall cost and financial viability of projects.

Speaking on the variation in tariffs in the recent auctions and no clear trend emerging for the upcoming auctions, Ajay Kumar, Senior Engineer with SJVN Limited, noted, “It is very hard to pinpoint why the tariffs in the Neemuch auction went so low. There are no specific reasons for the drop in the tariff. It has been a bit erratic in the last few auctions. Sometimes it has gone up and otherwise down. There’s no clear pattern or rationale behind it. Recently, in the Bihar Renewable Energy Development Agency’s auction, we won 200 MW capacity at ₹3.11 (~$0.042)/kWh. Some developers have been bidding aggressively as there are not many auctions taking place right now. Aljomaih is a classic example as it is trying to set footprints in the country. It’s happening as per the requirements of the developers.”

“Location of projects is also an important reason behind some of the auctions witnessing aggressive bidding. Projects in Rajasthan and Gujarat are drawing greater interest from the bidders and are being oversubscribed, which is not the case with projects in Bihar, Odisha, and other states. Due to greater participation in some projects, the tariffs have gone down. I’m very sure that tariffs will not fall any further. It will never breach the ₹2 (~$0.027)/kWh mark in the current scenario. It will settle around ₹2.50 (~$0.034)/kWh mark, and if we look at the average of the last few auctions, the average comes around that. The Neemuch solar auction is just an aberration,” Kumar added.

If the tariffs continue to go down further, it will only complicate matters for developers who are finding it hard to make their projects cost-effective and financially viable in the changing solar landscape and make it harder for them to prepare for contingencies in the future.

“Desperation will make companies do things that have no logical explanation. Not having projects to build has driven companies to that point. While some companies may have access to low-cost capital and scale, we are in uncertain times with severe price volatility, logistic issues, and import barriers. Yet, we are seeing bids go in the opposite direction and trend downwards. I think there is more ‘hope’ built into these bids than strategy,” said Raj Prabhu, CEO of Mercom Capital Group.