In a rather interesting report yesterday, Bloomberg has highlighted the fact that Tata Power, India’s largest non- state electricity developer, is shunning the country’s first major solar auction on concerns that terms set by the government will make it difficult for projects to be built profitably.
The report quotes Banmali Agrawala, executive director of strategy and business development,as saying that Tata power has not bid for the National Solar Mission and that developers might submit bids underestimating the cost and complexity and that could backfire on them. He also talks about the complexity of implementing and executing a solar project. He has also mentioned that the size restriction of 5 megawatts per business group was too small.
All these are genuine concerns that Mr. Banmali Agarwala has highlighted and it is pertinent to note that the bidding has been aggressive and that discounts offered significant.
However, a number of Solar specific players have seen this as a huge opportunity to enter into this space in India and the opportunity cost would have played an important factor in their decision making and bidding process keeping in mind the broader picture of the National Solar Mission and what it intends to accomplish.
In fact, Tata Power itself has announced plans to increase Renewable Energy generation to 8000MW by 2017 and of plans to invest Rs.5000 Crore in Wind to augment generation to around 1000MW. Further the company was planning to commission a 3MW PV plant at Mulshi in Maharashtra and was planning to set up two PV power plants with 25MW of capacity each at the site of its group company Tata Chemicals (TTCH IN) at Mithapur in Gujarat. The company had then mentioned that they planned to do one under the State government policy and one under the Solar Mission.
As mentioned by Mr. Banmali Agarwala the the size restriction of 5 megawatts per business group might have led them to drop the plan to bid in the National Solar Mission, along with the fact that the reverse bidding process has brought the tariffs in line with those offered by state governments.
What is interesting and seems unclear is the fact that how a business decision of one group not to bid, as the size for solar PV is too small at 5MW for the size and capacity they aim to achieve, be a bad sign according to Ashish Sethia, lead analyst at Bloomberg New Energy Finance for the Solar Mission and India at large.
How or why this would influence Areva or its plans to invest in Solar in India is unclear as Areva has announced plans of huge investments in India including the Solar CSP space in which Tata Power has clearly said they will not be developing projects.
As the author of the Bloomberg article has observed that European governments including Spain, Germany and France are curbing solar subsidies and that India is seeking to avoid such problems by doing a reverse bidding could be a step in the right direction.
Further, Bloomberg New Energy Finance’s Sethia notes in the article, “There is definitely a risk that a number of projects might either be delayed and some even be shunned completely at later dates as developers find themselves unable to execute at quoted rates.”
This is a genuine concern, and one of the important steps that the Ministry of New and Renewable Energy has taken to address this concern has been to split the bidding for the Solar PV for the first phase of the mission into two, one that just got over and the second phase in a year from now.
Given that Lanco Infratech Ltd, KVK Energy and Infrastructure Pvt. Ltd and Anil Ambani-controlled Reliance Power Ltd’s (RPower) all participated and won the bids in the first phase of the mission it would be unfair to say that many large developers have not bid or stayed away from the Solar Mission.
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