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Firms bidding for solar projects hit roadblock on high equipment costs

According to reports, the road to success for the Jawahar Lal Nehru National Solar Mission (JNNSM) may take a little longer than expected, as some of the companies who bid aggressively under the plan are finding it difficult to go ahead with their projects. They are finding the cost of equipment to be higher than the cost of the project, and may be looking for an exit.

A senior Tata Group official told Financial Chronicle that the solar power companies setting up projects under JNNSM plans are finding it difficult to set up plants due to overriding concerns of equipment cost and achieving financial closure. “We are evaluating some projects including a foreign player who were very enthusiastic when they entered India but now plan to wind up operations. However, there are a few concerns due to the change in ownership regulations that we are trying to sort out,” said the official refusing to divulge names.

The official adds that at the time of bidding, equipment prices were falling and companies that bid aggressively thought the price of modules would continue to fall. However, now the price has reached a plateau affecting plans of some of these companies.

According to information from the website of National Solar Mission, as of January 16, around 20 MW projects have been commissioned in Rajasthan by two companies —Green Infra, an IDFC PE-funded company that has commissioned 10 MW project and Fonroche Raajhans (a JV between France-based Fonroche and Mumbai-based PR Clean Energy) that commissioned two 5 MW each plants. The government, under JNNSM, allotted around 320 MW worth of projects in 2011 under phase 1, tranche II. In The phase I, tranche I, around 10 MW is still pending out of 98.5 MW that was allotted, according to the website.

However, when contacted, Tarun Kapoor joint secretary, ministry of renewables and new energy, told Financial Chronicle that there are always few laggards when projects of such high calibre are taken up. But even these companies have just sought an extension to date of commissioning. “I am not aware if anyone is planning to quit,” said Kapoor.

He says that they have already commissioned 20 MW in December. In January, they got 30 MW and aim to get 50 MW in February. The latest update on the website on January 16 however, only says 20 MW commissioned.

A senior Mumbai-based consultant with Deloitte says that lots of these companies bid aggressively and later the cost of equipment went higher than cost of project. “Many of these companies approached us to advice on reducing their project cost. However, we told them that at such low price sustaining the projects would be unviable. Many of them are in doldrums,” the consultant said.

Another industry official said companies that were able to show the funding through corporate balance sheet do not face any problem, however, only those that were looking for project financing are facing trouble, since the sector is still evolving and the domestic banks are not willing to offer loans to companies setting up project in solar sector. The loans are mostly available through foreign export import banks. The Export-Import Bank of the US was the biggest investor, funding seven different large-scale projects.

Some of the companies that were allotted projects under batch 2 of phase I at aggressive rates were Solaire Direct a French firm that bid at Rs 7.49 per kWh and Welspun Solar at Rs 7.97 per Kwh under reverse bidding where the government asked players to bid at discount to the benchmark of Rs 15.39/kWh.

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