According to reports, the recent record low solar tariffs have once again started the murmurs in the in the business circles and in the media about how low tariffs will render this sector ineffective in the long run. This argument was valid when we were in the midst of falling prices last year in the host of NTPC/SECI project auctions. While, the current Rewa Project pricing is in a very different context, it has not stopped the “low prices danger” brigade who are extending this argument to the whole industry.
The idea behind this article is to dispel such wrong notions and set out how the Rewa Project is different from other solar projects and, therefore, the pricing here may not be the right benchmark for all other projects.
First, and most importantly, it is required to note that this is an “Ultra Mega Power Project” on the likes of the UMPPs in coal which had seen a record low in coal power pricing of sub Rs 2 per unit levels. Therefore, by their very nature, UMPPs have the natural advantage of scale and project level benefits which the normal power projects do not have and, therefore, they tend to be of lower risks and hence lower tariffs.
Let us examine this project a bit more.
In the Rewa Project, the quoted tariff for solar power has dropped to Rs 2.97 per kWh in 2017 from the highs of around Rs 12 per kWh in 2010, which is a huge decline. Rewa Ultra Mega Solar Project in MP, for 750 MW, is thus a landmark project in the short history of reverse auctions in Solar in India.
Overall, 20 companies took a part in Rewa bidding out of which 18 companies are successfully qualified for reverse auction and three companies who have won the bid are Mahindra Renewables, ACME solar & Solenergi Power with all-time lowest tariff Rs 2.97 per kWh. The most electrifying part of solar technology is that it is constantly changing with the steadily dropping cost.
One of the advantages of this project is that the selected bidder will sign a power purchase agreement with Delhi Metro Rail Corporation and Madhya Pradesh Power Management Corporation (MPPMCL). Since DMRC is financially sound, there is no payment realisation risk.
Also, deemed generation is allowed which means if there is no offtake of power then the developer would be compensated for the power generation. Guaranteed generation is the additional key feature which enables each off takers to get the supply. Firstly it will be supplied to Delhi Metro rail corporation (DMRC) and then rest will be provided to Madhya Pradesh Power Management Company Ltd (MPPMCL).
Rewa project has its own unique features. For this project, the overall groundwork has been done by the State Government i.e. the identification of the land for the project as well as the land allotment to the developer. The developer has to pay land charges of Rs 5.4 crore for each 250 MW unit, infrastructure charges of Rs 3.57 crore for every six months for first 10 years for each 250 MW unit, administrative charges of Rs 75 lakh for each 250 MW unit, local area development charges of Rs 5 crore (in two instalment), registration fees Rs 2.5 crore and project development fees of Rs 76 lakh. All these payment mechanism removes the uncertainties as compared to others projects.
Loan for the development of 33/220 KV Pooling substation to evacuate power from the Rewa Solar power project is done through World Bank. It is one of the first project to get funding from Clean Technology Fund (CTF) in India. In this project they introduce three tier payment security Mechanism for the procurer. Largest solar power tender is led by a State and not led by Central Public Sector Units (CPSUs). There is no Viability Gap Funding for the developers. This is one of the highly bankable project as all arrangements are done by the government i.e. from land to grid connectivity. In this scenario, the developers can tie up their debt funding for long tenure at lower costs.
If we compare Rewa projects with other projects like SECI Anantapur & Kurnool in Andhra Pradesh, and NTPC Rajasthan etc, this UMPP has far more security and lower risks to justify the viability of this low price of Rs 2.97 per Unit.
Looking at the big picture of the 100GW vision of the Government, they had kept aside 20 GW to come for such UMPP’s and based on the success here – it is now hiked to 40 GW. To achieve this target, the number of installations would be at least 50 solar parks, each with a capacity of 500 MW. Large chunks of land are available in some States. There are some developers who are keen to take up their very large projects. Land has been identified in Gujarat, Rajasthan, J&K (Leh and Kargil) and Madhya Pradesh. This will help the Government of India to achieve the 100 GW target of Solar power in India.