Low tariffs but a hot market

There has been increased activity in the Indian solar sector over the past quarter, with tenders and auctions beginning to occur more frequently along with some important policy announcements. Year-to-date (YTD) solar installations have reached 1,652 MW with cumulative solar installations totaling 4,816 MW. Mercom Capital expects 2015 calendar year installations to total approximately 2,150 MW – which is slightly below the previous estimate – and is forecasting 2016 installations to reach approximately 3,645 MW.
After several delays, the National Thermal Power Corporation (NTPC) has begun calling for tenders as part of the 3,000 MW Phase II Batch 2 JNNSM program. The first auction under this program was highly competitive, concluding recently with SunEdison coming out on top with a winning bid of INR 4.63/kWh ($0.071) for 500 MW, the lowest recorded bid in India so far.
There is, however, widespread concern throughout the industry as to the direction the market is headed: Most agree that bids at these levels are unsustainable. Industry participants are worried that if this continues, India might be headed in the same direction as infrastructure/road projects where a similar “lowest bid wins” concept has been a disaster, with many winning bids resulting in stalled or abandoned projects because they were financially unviable from the start.
In a fight for market share, bids are falling much faster than component prices and interest rates. In fact, solar module prices have held steady this year and inventories are tightening, which could lead to prices holding steady or even slightly increasing. Mercom Capital was surprised to find that many solar company executives who openly stated that tariff levels below INR 5/kWh ($0.077) were unworkable, have not taken their own advice, bidding below that mark. If this continues, it will set the industry back several years.
In Mercom’s view, the lowest bid does not equal a fall in project costs, as touted by the media and government officials. We have already seen some projects being abandoned as developers realize that they could not build a profitable project at the price they bid. There is significant pent up demand to build projects from a large number of developers that have invested millions to set up operations in India, but have not seen many projects to bid for. When projects do come up, competition at these auctions is intense. We have to watch this development closely as many banks will pull back lending for projects at these low tariff levels.
The Indian Solar Manufacturers Association has mentioned that their antidumping complaint against foreign manufacturers has been accepted. We believe that it is highly unlikely that the government will re-litigate this issue. At the current bid levels we are seeing in the auctions, any increase in component prices will effectively kill the market.
In a positive development, the Union Cabinet just gave its approval for a new program called ‘UDAY’ (Ujwal DISCOM Assurance Yojana), which is focused on the financial turnaround of power distribution companies. The government of India has recognized that unless the distribution companies are solvent and maintain good credit ratings, reaching renewable energy installation goals and providing a 24 hour power supply will be impossible. Therefore, the government is proposing that individual state governments take over 75% of DISCOM debt and a reduced interest rate for the remaining 25%. This is an improvementover the previous government’s unsuccessful turnaround plan in 2013. If successful, this could remove one of the toughest obstacles that has plagued the power sector in India for decades.
Between NTPC and the Solar Energy Corporation of India (SECI), there are about 5,500 MW of projects that are due to be auctioned off over the next few months and Mercom Capital hopes that some rationalization will kick into the bidding process. If not, it will continue to be a race to the bottom.

JNNSM – Phase II Batch 1

700 MW were scheduled to be completed by May 2015 under this batch. We have confirmed that 650 MW have been commissioned. The remaining 50 MW, including 20 MW in the DCR and 30 MW in the Open category, are yet to be commissioned.
According to our sources, a 10 MW project is likely to be cancelled and 30 MW of projects are expected to be commissioned by the end of November.

JNNSM – Phase II Batch 2

The Ministry for New and Renewable Energy (MNRE) has been calling for tenders for Batch 2 for 3,000 MW of PV projects, which will be implemented by NTPC through open competitive bidding. These projects will be developed in solar parks established by central and state agencies on land provided by state governments or identified by project developers in their respective states. So far, tenders amounting to 2,750 MW have been announced, and a reverse auction has been completed for the 500 MW Ghani Solar Park. SunEdison won the auction at a tariff of INR 4.63/kWh ($0.071). MNRE has been allocating these projects to various states that had shown interest or requested capacity allocation. The states of Haryana, Punjab and Jammu & Kashmir, which had earlier requested projects, have now backed out. MNRE has been allocating these projects to other states.
NTPC has been issuing tenders in the batches outlined in Table 1 above.

JNNSM – Phase II Batch 3 (SECI)

The SECI, the implementing agency setting up 2,000 MW of grid-connected solar PV power projects under JNNSM Phase II Batch 3 – “State Specific VGF Scheme” in solar parks, has called for tenders amounting to 1,190 MW.

Other announced programs

Ultra mega projects: According to the latest updates, 21 states have agreed to set up

27 solar parks with a combined capacity of 18,418 MW as part of MNRE’s plan to set up individual solar parks with capacities of 500 MW and above to fulfill the 20,000 MW capacity target within a five year span beginning in FY 2014-15.
JNNSM Phase II Batch 5: Under Batch 5, Central Public Sector Undertakings (CPSUs) and Government of India organizations’ self-use, third-party sale or merchant sale calls for the development of 1,000 MW of grid-connected solar PV power projects with mandatory DCR and VGF over a span of three years from FY 2014-15 to 2016-17.
MNRE approved projects under this scheme in Categories A, B and C based on their stages of development.
Category A: Projects approved and already under development: NTPC – 50 MW; and BHEL – 6.5 MW.
Category B: Projects to be approved in the next three months (70 MW): SECI – 5 MW; Vishakapatnam Port Trust (VPT) – 10 MW; NHPC – 50 MW, and Rashtriya Ispat Nigam Limited (RINL) – 5 MW.
Category C: Projects to be sanctioned that have yet to issue tenders (778 MW). The list of interested CPSUs under this category will be officially announced once the tenders are issued.
Projects by defense sector: Under this plan, more than 300 MW of grid-connected and off-grid solar PV power projects are proposed to be set up by Defense Establishments under the Ministry of Defense, with mandatory DCR and VGF in five years between 2014 and 2019. According to our sources, 160 MW has been approved by MNRE. The Ordinance Factory Board under the Ministry of Defence is developing 150 MW, and the Border Security Force is currently developing 10 MW.
Grid PV on canals: MNRE launched a program for the development of 100 MW of grid-connected solar PV power projects on canal banks and canal tops. Projects under this scheme are under development in eight different states (50 MW canal banks and 50 MW canal tops). Only a single 1 MW canal top project in Andhra Pradesh is expected to be commissioned by the end of 2015.

State program updates

Uttar Pradesh: Currently, three different batches of projects totaling more than 500 MW are in various stages of development in the state.
Uttar Pradesh signed PPAs for 130 MW of PV projects in December 2013, of which 40 MW have been canceled and 90 MW are currently in operation.
A Request for Proposal (RFP) to set up 300 MW of solar PV projects through reverse auction was announced in August 2014. PPAs were signed for 105 MW of projects in April 2015 with tariffs ranging from INR 8.93-9.27/kWh ($0.129-0.143). Projects below 20 MW in size are expected to be commissioned in 13 months; projects above 20 MW in 18 months.
Another RFP to set up 215 MW of solar PV projects was announced in June. The letter of intent (LoI) was announced in September; PPAs are expected to be signed this month. Projects below 20 MW are expected to be commissioned in 13 months; projects above 20 MW in 18 months.
Andhra Pradesh: About 750 MW of Solar projects are being developed under two different programs.
Developers were allowed to build solar projects in the state at a fixed tariff of INR 6.49/kWh ($0.099) under the first pro

gram in 2013; 140 MW of these projects are still under development. About 59 MW has been commissioned to date and 65 MW is expected to be commissioned by March 2016. Another 2 MW project is expected to be commissioned by the end of 2015. The status of the remaining 11 MW is undetermined as the developers have been unavailable for comment.
Andhra Pradesh DISCOMs have signed PPAs to develop 619 MW of solar projects with a first year tariff of INR 5.25/kWh ($0.081) at an annual escalation of 3% for 10 years. They are expected to be commissioned by April 2016.
Punjab: In Punjab, more than 1,000 MW of PV projects are in various stages of development. Phase I has about 195 MW commissioned as part of the 250 MW Phase I program. For Phase II, an LoI has been signed to develop 282 MW of large-scale solar, and another 53 MW of rooftop projects are expected to be commissioned by the end of 2016.
In another program, RfPs for 500 MW of projects were announced in June. Five developers won the bids with tariffs ranging from INR 5.09-5.98/kWh ($0.078-0.092); PPAs are yet to be signed.
Kerala: 11 MW of rooftop solar has been commissioned, with another 1 MW expected to by the end of 2015.
Madhya Pradesh: There are 260 MW of solar projects installed under Madhya Pradesh’s state policy (200 MW under RPO and 60 MW for Phase II). Another 60 MW of projects under Phase II are expected to be commissioned in early 2016.
Haryana: A tender inviting bids for 50 MW of solar PV projects was issued by the utility Uttar Haryana Bijli Vitran Nigam (UHBVN) in May 2014, but PPAs were signed for just 23 MW Haryana Power Purchase Centre, on behalf of UHBVN and Dakshin Haryana Bijli Vitran Nigam (DHBVN), invited tenders for 150 MW of solar projects with the deadline for opening financial bids extended to the end of November 2015.
Maharashtra: The state recently announced a renewable energy policy through which they expect to develop 7,500 MW of solar by 2020. New bids are expected to be invited in 2016.
Chhattisgarh: Chhattisgarh State Power Distribution Company Limited (CSPDCL) announced bid results for 100 MW of solar projects in early 2014. We have confirmed just 66 MW of projects have signed PPAs as of November. Of that figure, 32 MW is commissioned and 34 MW is expected to be commissioned by March 2016.
Karnataka: More than 1,300 MW of solar projects have been announced so far by the state.
Batch I. PV projects totaling 40 MW have been commissioned to date; 20 MW are likely to be cancelled. A 10 MW Concentrated Solar Power (CSP) project under Batch I is expected to be commissioned at the end of 2016.
Batch II . PPAs were signed to develop 120 MW of solar projects in early 2014. Of this, 59 MW has been commissioned and 10 MW has been cancelled. Projects totaling 30 MW are expected to be commissioned by the end of November and a 3 MW project is due to be commissioned by January 2016. Mercom Capital also has confirmation that a 10 MW project was abandoned and another 10 MW project has filed a petition for a tariff revision. The status of another 8 MW is unavailable.
Batch III. Under this batch, PPAs were signed for projects totaling 50 MW; a 10 MW project has been commissioned and the remainder is expected to be completed in 2016.
Batch IV. Karnataka Renewable Energy Development Ltd. (KREDL) signed PPAs for 500 MW in early 2015. They are expected to be commissioned by the end of 2016.
Karnataka announced 600 MW of projects to be developed especially by farmers and unemployed youth. Under this scheme, the state allotted solar energy projects of 258 MW to farmers and signed PPAs in July for a tariff of INR 8.40/kWh ($0.129). The projects are expected to be commissioned within 18 months. Another 300 MW is expected to be announced for allotment to unemployed youth.
Telangana: 515 MW were auctioned off in March 2015 through reverse bidding: of this, a 25 MW project has been commissioned and the remaining projects are expected in the first half of 2016.
The Southern Power Distribution Company of Telangana (TSSPDCL) invited 2,000 MW of solar bids on a ‘Build-Own-Operate’ basis in April. Although the LoI was expected to be issued in August, there has been a delay due to technical issues regarding the transmission of the power.
Bihar: 100 MW of solar projects are expected to be commissioned by the second half of 2016. Project financing is difficult in Bihar due to offtaker risk.
Tamil Nadu: According to our sources, Tamil Nadu Generation and Distribution Corporation (Tangedco), the state utility, was to develop projects of over 2,000 MW for a tariff of INR 7.01/kWh ($0.108) with the projects expected to be commissioned by March 2016. The PPAs were to be signed on the basis of a priority list. We were informed that the state is overriding this priority list and signing PPAs randomly. This action has caused enormous concern among the developers who have already started work on the projects because they would not be eligible to receive the attractive INR 7.01/kWh ($0.108) tariff after March 2016. It has also been reported that one project developer is opposing this issue legally.
Uttarakhand: Uttarakhand Renewable Energy Development Agency (UREDA) issued an RfP in October to develop solar projects. The list of selected bidders was announced to set up 181.4 MW of solar projects. The lowest tariff was INR 5.57/kWh ($0.086) and the highest was INR 5.99/kWh ($0.092).