NTPC, Coal India intensify price competition in renewable bids, says Fitch

Growing participation by NTPC Limited (NTPC, BBB-/Negative) and Coal India Limited (CIL) will intensify the price competition in bidding for renewable energy projects, and could in turn slow the pace of growth for private players in the near term, Fitch Ratings said in a note.

NTPC has emerged as one of the winners for the recent bids for solar projects, including a bid for 200MW at INR1.99 /kWh, the lowest tariff quoted in India, in a 500MW auction by Gujarat Urja Vikas Nigam Limited (GUVNL) in December 2020, Fitch said in the note, adding that similarly, in another more recent bid by GUVNL in March 2021, both CIL and NTPC have emerged as winners for 150MW and 100MW capacities, respectively, at INR2.20/kWh.  

Both NTPC and CIL, being state-owned and with sound credit profiles, have the benefit of lower cost of borrowings compared with private competitors. Lower borrowing costs also provides them with a competitive advantage – as borrowing cost is a significant determinant of overall returns on these projects – which can lead to lower bid tariffs, Fitch said.

“We do not see increased participation by NTPC and Coal India as having any material impact on ReNew Power Private Limited (BB-/Positive) and Greenko Energy Holdings (BB/Stable), private renewable energy companies rated under Fitch’s Corporate Rating Methodology. Greenko may not be affected at all, citing diminishing returns as the reason for not participating in these renewable auctions. ReNew, on the other hand, already has substantial capacities of 4.5GW under development, and we believe the company is not likely to bid at aggressive tariff levels,” the note said.

However, Fitch said, lower tariffs in recent bids could lead to delays from state power distribution companies (‘discoms’) in the signing of power purchase agreements (PPAs) for earlier awarded projects at higher tariffs. This could lower the pace of capital expenditure – and in turn commissioning for ReNew’s projects under development – as PPAs for around 50% of these projects are yet to be signed, it added.

NTPC’s quoted tariff was INR2.48/kWh for 600MW capacity in a 6.4GW auction by the Andhra Pradesh (AP) state utility in February 2021. This reflects that tariffs quoted vary with the off-taker profile, among other factors. Higher tariffs for AP bids could possibly reflect the concerns over off-take with AP state utilities, which are considered weaker than those in the state of Gujarat, especially after PPA renegotiation attempts in AP.

NTPC, India’s largest thermal power generation utility, has incorporated NPTC Renewable Energy Limited, a wholly owned subsidiary, to add renewable capacity aggressively, and has also stated it will not to develop any new coal-based thermal power projects other than those which are currently under construction. It aims to add 32GW of renewables capacity by 2032.

Similarly, CIL, the world’s largest coal mining firm and majority-owned by the India sovereign, has stated its plans to invest in 3GW solar energy projects over the next three years, in a joint venture with NLC India, another state-owned coal mining company.

Fitch said increased focus on renewable energy by these companies is driven partly by India’s aim to raise its renewable capacities from approximately 90GW to 175GW by 2022 and to 450GW by 2030, with solar power likely to account for the bulk of the additions.

Considering the scale of investments required to meet these targets, there would be opportunities for other players to bid and win projects in the medium term. However, price competition may intensify in the near term unless the quantum of new bids rises significantly, it added.

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