According to reports, The first projects developed under the Jawaharlal Nehru National Solar Mission (JNNSM) during the ‘migration’ phase have shown real promise. They were developed with a tariff rate of R17.91/kWh, which presumably will prove sustainable for producing quality, energy-efficient solar projects.
But after the migration phase, the JNNSM implemented a batch-1 auction format in two phases, which would reward the lowest-cost bid but without proper screening about the bidders’ technical and financial experience.
The Rajasthan Electricity Regulatory Commission (RERC) has done a comprehensive study of solar economics in India based on cost-plus methodologies on existing Indian and international projects and concluded that tariffs of R15.32 for 25 years are necessary for quality solar projects.
Nevertheless, phase-1 opened to a bidding war with over 300 companies submitting proposals for over 650 MW of solar power, many for a tariff rate as low as R10.95, which is about 30% lower than the government-proposed rates. But capital expenditures have not fallen at a rate that justifies tariffs lower than R15.
And competitive bidding is relatively untested. In India, auctions were initiated only for the thermal power market last year, after 40 years of development. Likewise, the wind market is still under a tariff mechanism even after a decade of market development. Yet auctions were conducted for solar energy before any JNNSM project was completed.
This competitive bidding by inexperienced bidders created unrealistic benchmarks that may be next to impossible to meet. As a result, many qualified solar developers opted out of the bidding process altogether, adopting a wait-and-watch approach. Majors like Tata Power chose not to take part. In the end, the list of 37 winning bidders included a woolen yarn maker, industrial pipes supplier, and a animation company.
Though the technical expertise of many of the winning bids will surely pose problems for quality control and time lines, what’s an even more immediate concern is the funding of these projects.
Concern is also that developers will find themselves unable to execute on quoted rates, resulting in delays or complete project failures. Moreover, as a large number of companies compete for resources, labour, and fabrication costs are likely to increase rather than decrease, further compounding price problems for inexperienced developers. As a result, potential investors could delay investments as they wait and see how things play out.
India aspires to become a global hub for solar development, but if projects fail because of unbankable rates, or they fail because of technical shortcuts that result in unreliable and inefficient power generation, the entire sector may be doomed to failure.
The development of renewables with an auction element may well work, but likely only when the necessary qualifications are put in place .