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Why developers should factor out DISCOMS in solar tenders in the new (financial) year?
Why developers should factor out DISCOMS in solar tenders in the new (financial) year?

By Indian Solar Market | Solar Energy in India | 0 Comments

Solar Energy Corporation of India (SECI) has invited developers to participate in solar tenders with a cumulative capacity of 1225 MW. The tenders will take place at these locations: 750 MW (Kadapa Solar Park, Andhra Pradesh), 200 MW (Pavagada Solar Park, Karnataka) & 275 MW (Uttar Pradesh Solar Park)These tenders are part of NSM, Phase II, Batch IV. Also, these are first announced solar tenders for FY 19


A lesson from the past: Why Developers should factor out DISCOMS in these solar tenders and thereafter?

 

Because factor out means same as the factor in!!

DISCOMS of Uttar Pradesh, Tamil Nadu & Jharkhand managed to renegotiate solar tariffs days after the tendering processes were over and result declared (Read). Worst, the central government could do little about it. While the margins in solar market have already dwindled such ex-post facto tariff renegotiation further stresses a developer’s business. Therefore the developers will be at best in avoiding a similar face-off with DISCOMS and also avoid the risks of cost & time overrun in the new year.

But in southern states, the developers will be able to quote a tariff hovering around those that are currently prevailing. In Uttar Pradesh, they will have to be wary. As per NREL solar parks of Andhra Pradesh & Karnataka receive annual average solar radiation of 5.97 & 6.15 kWh/m^2/day. In comparison, Uttar Pradesh only receives 5.38 kWh/m^2/day. To achieve the requisite Capacity Utilisation Factor (CUF) D.C overloading will be higher resulting in higher cost. The opposite will hold true in solar tenders in Andhra Pradesh and Karnataka.


Will the tariff breach INR 2.44 in FY 19?

No!!

The latest SECI’s documents on solar tenders caps the upper limit of the tariff to INR 2.93 for Andhra Pradesh & Karnataka Solar parks. For Uttar Pradesh, it is INR 3.43 per unit.

In previous solar tenders, the tariffs were also low due to declining trends in the cost of solar energy modules. The module would cost between INR 20-22 per Watt. Currently, the average cost of high-efficiency modules cost between INR 24-26 per Watt without considering taxes! Further, should the Indian government decision to impose anti-dumping on imported solar panels from China comes into effect the tariffs will inch up (Read). But by how much?

The lowest solar tariff in India is INR 2.44 per unit. In December 2017 the average cost of solar panels was similar as it has been these days yet the developers were able to quote an INR 2.47 & 2.48 per unit in the solar tenders of Bhadla solar park in Rajasthan. This indicates that the aggression remains intact in the industry & will continue to be so in the new (financial) year too.

Here is the tariff snapshot in various solar tenders of India:

Why developers should factor out DISCOMS in solar tenders in the new (financial) year?
Source: Indian Solar Market Database

Thus at the moment what’s clear is that the developers are caught in a tug of war between DISCOMS and the GOI move on anti-dumping. Amid all this also comes a news that the DIRECTORATE GENERAL OF SAFEGUARDS is recommending 70% safeguard duty on Chinese panels. Some study suggests that this will be responsible for an increase in project costs by 40%.

Thus it is difficult that the tariff will breach INR 2.44 in these solar tenders. Team ISM will come on an analysis of this development very soon. 

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