Power tender Concerns

What is the issue?

Solar Photovoltaic (PV) projects have witnessed rapidly declining prices in India over the past two years.

What are the issues with of solar power tenders?

• PPAs signed in the recently concluded solar park tenders that have mutual negotiation clauses and are under scrutiny.
• There is a price difference of almost 23% in a agreement between Kadapa and Bhadla solar plants in Andrapradesh and Rajasthan respectively.
• There is an aggressive trend of bidding to get the tenders at throw away prices.
• These sensitive PPAs (Power Purchase Agreements) and solar projects need to be addressed on a case-by-case basis.

What is the reason for this fall?

• The winning companies have credited the low rates to the sharp fall in global PV module price.
• Low cost of finance from foreign investments and low risk hedging because of the offtake guarantees provided by NTPC.
• Discoms who buy power from National Thermal Power Corporation or from solar developers directly are trying to renegotiate their commitments.
• Discoms demands developers with existing power purchase agreements (PPAs) of solar projects to reduce the PPA rate based on auctions.

What are the impacts of this fall?

• The cost reductions led to the capital costs falling to Rs 11-13 crores/Mw.
• The sustainability of solar sector is questionable.
• Investors are suspicious about Indian solar sector in the near future and hinder the growth by drying up access to finance.
• Developers with these PPAs face the risk of bankruptcy because the electricity generated will not be sold.

How this issue can be addressed?

• The central and state governments need to take a stand and ask developers to revise their rates.
• For upcoming tenders, developers need to hedge their risk and bid competitively instead of aggressively in order to gain entry into the immensely promising Indian solar market.
• There is a need to arrive at stable prices with sustainable business strategies for the overall solar sector to continue growing in India.
• Retendering can be thought of an option if the price difference is too high.

Source: Business Standard