Chart of the Week: Solar tenders, auctions have slowed in India for 1Q17

Only 1.9GW of solar was tendered versus 3.4GW in 4Q16.

While solar installations in India have picked up speed, tender and auction activity have been slowing down over the last couple of quarters. According to the Mercom's India Solar Project Tracker, about 1.9 GW of solar was tendered in Q1 2017 (1 GW of this was a retender) compared to 3.4 GW in Q4 last year. 

There was 1.3 GW of solar projects auctioned in Q1 2017 compared to 255 MW in Q4 2016, according to an exclusive report by Mercom Capital group. The slowdown in activity has been disconcerting to developers and manufacturers that have been positioning for much higher levels of activity based on India’s solar installation goal of 100 GW by 2022.

India needs to install 18 GW of solar per year through 2022 to reach the 100 GW installation target set by the Modi government. The pace of tenders and auctions must pick up quickly if the government wants to meet its solar installation goals and show the investment community and the industry that it is serious.

Companies who have invested hundreds of millions to expand to meet the demand and build projects are anxiously waiting for activity to pick up.

Here's more from Mercom Capital Group: 

Some of the reasons for decline in tender and auction activity include poor financial condition of distribution companies (DISCOM), transmission issues, weaker power demand and increases in captive generation by commercial and industrial companies. DISCOMs that are continuing to struggle financially are not taking on new generation that is more expensive than coal, which is leading to curtailment of solar and wind projects as well as payment delays to developers.

In some states, weak power demand is removing the urgency to speed up the pace of solar tenders and auctions. Increases in captive generation by industrial customers have compounded the situation since they are requiring less power generation from DISCOMs.

The World Trade Organization (WTO) ruling against India’s domestic content requirement (DCR) has resulted in continuous cancellations and postponements of planned DCR tenders.

The recent record low bid of Rs.3.30 (~$0.494)/kWh at the REWA solar park auction is playing a big role in the slowdown of auction activity as government agencies and states are stalling to renegotiate PPAs that are more expensive than the bids received at REWA.

For DISCOMs, coal is still the cheapest option available. According to Mercom’s December Solar Quarterly Report, DISCOMs have resorted to sporadic curtailment from some solar projects in Rajasthan and Tamil Nadu because cheaper power is available on the power exchanges. Even when there is demand, several states have complained that the DISCOMs are resorting to power cuts instead of buying power on the exchanges to save on costs.

Mercom has previously reported that power purchase agreements for 1.1 GW of solar in Jharkhand are yet to be signed because the state DISCOM is not accepting the quoted tariffs. According to Mercom’s India Solar Project Tracker, tariffs quoted in the state ranged from a high of Rs.5.59 (~$0.0824)/kWh to a low of Rs.5.08 (~$0.0749)/kWh. The state had tendered 1.2 GW of solar since December of 2015 in an effort to achieve its 2,650 MW solar target by 2020, but there has been no activity since. In this case the DISCOM was unwilling to sign the PPAs for tariffs above five rupees per kWh claiming it is not viable for the DISCOM. The situation will get even more challenging after the recent REWA auction. Due to aggressive renewable energy targets in some states like Rajasthan and Tamil Nadu, solar grew even at high tariff levels only to leave the states struggling with finances a few years later and finding it difficult to take on new solar generation.

“It has been disappointing with the delay in tenders. After September 2016, tenders have slowed down for IPPs. It is less likely we will see new tenders after the REWA bid as each bid is now being expected to meet the REWA numbers, which is ridiculous. The Kadapa Solar Park tenders are postponed as Andhra Pradesh has pulled out because they now have surplus power and their cash flow situation is bad. DISCOMs are currently of the belief that solar tariffs are falling, so let us wait, with states claiming that they are power surplus and don’t need any kind of power, let alone solar, stated a large developer while in conversation with Mercom.

Raj Prabhu, CEO of Mercom Capital Group warned about this after the REWA auction in his statement: “Although this is the lowest tariff ever recorded in India, this auction has several special attributes which makes it hard to directly compare with previous low bids. The size and location of the projects, payment guarantees, deemed generation benefit, longer construction timeline, the recent solar module price crash, and yearly tariff escalation for 15 years - all make the low bids unique.” Prabhu continued, “The fear is that media, government officials and analysts will hype up the low bids and other states will then start pressuring developers to match bids from the REWA auction tariffs, which has happened in the past.”

Several other developers told Mercom that as of now Bihar, Jharkhand, Tamil Nadu, Rajasthan, and Maharashtra are the problem states. According to Mercom’s Solar Project Tracker, tendering activity has declined in these states with most of the old tenders being continually extended.