Only an astounding fall in solar equipment cots could make solar bids viable: Bridge to India

Even as bidding for renewable energy projects and the trend of low tariffs continue, only a miraculous fall in costs of solar panels would make these bids viable, noted Bridge to India, a leading consultancy in the Indian renewable energy market.

It has been raining auctions again. Seven auctions totalling 3,950 megawatt (MW) capacity have been completed in just seven weeks. A strong interest in bidding had led to a further fall in tariffs.

Recently, Solar Energy Corporation of India (SECI) discovered a record low tariff of Rs 2.34 to Rs 2.35 per unit for wind-solar hybrid projects in its 1,200 MW auction with NTPC, Ayana, NLC and Azure declared as the winners.

According to the renewable energy consultancy, tenders were getting heavily oversubscribed due to scarcity of auctions and high investor interest.

In comparison to last year, tariffs have fallen steadily despite the levy of basic customs duty (BCD) on solar cells and modules, higher equipment prices, and implementation of Approved List of Models and Manufacturers.

“Tariffs fell by 3 per cent over the last SECI solar-wind hybrid auction in December 2020,” said the consultancy firm. Madhya Pradesh’s 500 MW solar auction received bids of Rs 2.14 to Rs 2.15 per unit, another new low tariff since the announcement of BCD.

Bridge to India added that the bid interest in utility-scale tenders is at near all-time high levels. “Tenders are getting routinely oversubscribed by five to six times as developers are anxious to win projects. There was a big slowdown in auctions in the 12-month period leading up to July 2021,” it said.

Scarcity of auctions, huge backlog of unsigned power purchase agreements from last year and strong investor interest has distorted demand-supply balance.

There were as many as 22 unique bidders in the seven auctions. Aggressive bids by NTPC and other PSUs have added to the bidding pressure. Even state tenders with higher offtake risk are sailing through again.

Solar tariffs have hovered broadly in the Rs 2.30 to Rs 2.40 range, lower than levels seen for most of last year. This is despite a levy of 25 per cent to 40 per cent BCD on solar cells and modules, and equipment prices shooting up by more than 10 per cent. 

“All recently tendered projects face uncertainty in the procurement of modules with a likely ban on the use of imported modules,” it added. Further, it is hard to justify winning bid levels. As investment enthusiasm was running ahead of fundamentals and clouding objective risk assessment. Equipment prices would need to come down by 35 per cent to 40 per cent for these projects to be viable.

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