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Tamil Nadu may be rushing too fast towards solar power

According to reports, power-starved Tamil Nadu recently unveiled an ambitious solar policy with the aim of adding three gigawatt of solar power within the next three years from almost nothing now, the steepest target for any Indian state.

But the aggression and manner of the rollout are bothering those in the industry who worry that there are too many risks. The main criticism pertains to the haste with which the state wants to put up solar projects.

Tamil Nadu has said projects must be commissioned within eight months of signing the power purchase agreement. Under the Union government’s National Solar Mission, on the other hand, this is 18 months. It’s far more difficult to set up a project in Tamil Nadu, considering the onus on land acquisition rests with the developers.

The urgency was obvious in a pre-bid meeting on Wednesday at the Tamil Nadu Generation and Distribution Corporation headquarters in Chennai. There were a slew of queries from prospective developers, mainly on land acquisition and evacuation infrastructure .

Answering them, K Gnanadesikan, chairman and managing director of the utility, said, “My mandate is to get 1,000 megawatt in one year. We are open to sole proprietors, partnership firms, Indian firms, transnationals and multinationals who meet the requirements .”On land and transmission issues , he said, “We will cross the bridge when it comes and you leave it to us” .

But Madhavan Nampoothiri, founder and director of RESolve Energy Consultants, said there would be pressure on developers to acquire land or sign MoUs with landowners in a very short time, as the bid period is short.

“In addition, some of the time available after the selection will also be taken up for load-flow studies. Also, it would put pressure on contractors as well in terms of resource mobilisation,” said Nampoothiri . The administration sees solar as a quick way to bridge the power demand-supply gap, sometimes as much as four gigawatt.

The solar promise was part of the manifesto on the basis of which J Jayalalithaa’s AIADMK contested and won the 2011 election. Jayalalithaa, who inherited the present mess in the power sector, has found the path to resuscitation difficult.

Capacity additions in more conventional power haven’t happened as easily as expected , due to problems with clearances. There’s also the issue of the Tamil Nadu Generation and Distribution Corporation facing enormous financial challenges .

Given this, the easiest way to augment capacity is solar. And with off-grid solar capacities, the struggling state utility won’t be needed to pay for the power too. There weren’t too many carrots for industry , though, when the solar policy was revealed in October.

The policy mandated a 3% solar obligation on industries by the end of 2013 and 6% by the end of 2014. Wheeling and carriage fee were to be charged, unlike neighbouring Andhra Pradesh where they were waived. Sudeep Jain, chairman of the Tamil Nadu Energy Development Agency, which promotes renewable energy in the state, could not be reached for his comment.

Many holes are also being picked in one of the recent tenders floated by the Tamil Nadu Generation and Distribution Corporation to build one gigawatt of power capacity. Analysts believe that the tender has conditions for bidders which are lax.

The tender for one gigawatt of solar power, which would entail an investment of about Rs 10,000 crore, mandates net worth requirement of Rs 1 crore per megawatt for a bidder, a third of the Rs 3 crore per megawatt requirement mandated by the National Solar Mission (that too only for 350 megawatt). “The lower net-worth requirement increases the risk for the lenders, as parties with much lower creditworthiness could be applying for loans,” said Narasimhan Santhanam, co-founder & director of consultancy Energy Alternatives India.

“This feeling of insecurity among lenders is something that the sector could do without at this point, since securing debt financing is not easy.” Another problem is with payment security in the form of letters of credit issued by the buyer’s bank (utility’s bank) to the seller (developer). While issuing the letter of credit, the bank takes into account the buyer’s ability to pay and also the project execution time.

And herein lies the problem. “Considering the wind sector’s woes, providing letter of credit as the only option for payment security may not be sufficient for investor confidence,” said Bharat BhushanBSE -2.75 % Agrawal, solar analyst with Bloomberg New Energy Finance. The reference is to the over Rs 1,000 crore dues that the electricity board of Tamil Nadu owes wind energy producers for more than a year now.

The utility has been in a big spot of financial bother, with accumulated losses of over Rs 40,000 crore. Another factor that makes it tough is the current anti-dumping investigation going on against PV makers of Malaysia, China, US and Chinese Taipei. If the investigations go in favour of domestic manufacturers, then the cost of imported equipment would rise.

Furthermore, some in the industry reckon the bidding process can make projects unviable. This is why they think so: Tamil Nadu, like Rajasthan and Andhra, has opted for a process dubbed ‘L1,’ wherein all bidders are asked to match the lowest bid. “The L1 mechanism is not a good way for pursuing solar projects,” said V Subramanian , former secretary of the Ministry of New and Renewable Energy, during a recent seminar. “You are asking the other developers to match the lowest bid, which puts pressure on developers, which puts pressure on margin.”

The National Solar Mission follows a reverse auction process while Gujarat has a straight-forward fixed power purchase agreement on offer. One of the most recent project allocations for 25 megawatt of capacity in Odisha has been signed for Rs 7.2 per unit. And the expectation in the industry is that the rate could fall further to Rs 7 or below. “At Rs 7, it is difficult to see how one would make money, given that raising foreign debt is involved,” said Pashupathy Gopalan, managing director of SunEdison for South Asia and Sub-Saharan Africa.

One comment

  1. Soly-nomics: Creating the hype of not completing the projects within 8 to 12 months through various mouth pieces, no payment security devil, Anti dumping duty monster issue, low tariff challenges, obvious unsustainability like wind energy non payment means a clear game plan for large corporate companies bidding for larger capacity and closing the contract in one month !

    One must know the confidence level the State government speaks off, which clearly points a finger that by reducing the net worth, the large companies can bid for 100 MW and above, few of them have already identified land with MOU with proxy land owners (real estate barons), few already might have tied up tax heaven country fund flow.

    I really feel pity for the small players, of-course, there will be few name sake small contract awards to known coterie to have a necessary cover up due to the name sake existence of democracy.

    One need to understand the political management of Engineering the Technical and Commercial tenders, which is very good in INDIA, supplimented by strategy plan as part of project acquisition plan by MNCs (or Indian Large companies with deep pockets) to the Secretaries / State Administration to eliminate the competition with an access to Power Corridor, policy makers, awarding agencies, low cost money, large parcels of land, excuse letters ready with State transmission authorities for not creating the evacuation facility for such large capacity, hence, an automatic project time extension what we saw with JNNSM for a 100 MW award took place in 2009. The large projects will be allowed to go slow with few lame excuses (of-course within the frame work of democratic norms) till a low cost buying of equipment happens, APPC or state tariff goes up, thus, prove high cost energy buying by quoting the shortage of power supply and the dispute between CENTRE GOVT AND STATE GOVT comes handy to convince (persistently fool) the COMMON MAN (Mango Man) very conveniently.

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