After the boom of 2017, solar power developers in India ran into a big, if not completely unexpected problem. Government expectations of price drops, when it came to bidding at auctions.
The cancellation of the 1000 MW auction by Gujarat Urja Vikas Nigam Limited (GUVNL), for its Dholera solar park site was on expected lines. The reason cited? Zero bids. The disappearance of developer interest has been blamed by them on unrealistic expectations of the state agency on pricing. The state agency had placed a price ceiling of Rs 2.75 for the auction. This agency is set to go for another auction on March 19 now.
After 2018’s record low of Rs 2.44 per unit, the solar industry has found itself between a rock and a hard place, with government agencies almost ‘anchored’ to that price, and increased market volatility on the other hand. Thus, even as the Rs 2.44 per unit was achieved on the basis of hopes of cheap funding, further drop in landed costs of modules and quick execution, the reality today is more expensive financing, relatively stable prices for Chinese imports and delays in project execution.
For GUVNL, the pressure to drop down prices is not a one off, as the agency has regularly opted out from moving ahead when it found bids too high for its liking. Bids received for its 700MW solar auction held in December for projects at Raghanesda solar park were cancelled because it felt the winning tariff of Rs 2.84 per unit was too high. Incidentally, the auction received bids only from foreign firms. When told that the higher tariff was due to high charges at Raghanesda, it preferred to go for another round of bidding after reducing charges. An auction that is yet to happen. In March it has already cancelled a 500 MW auction at which the lowest price reached was Rs 2.98 per unit.
The only recent auction GUVNL has accepted lately was the one held in February this year, for 500 MW, at which winning bids ranged between Rs 2.55 and Rs 2.68 per unit.
While the Gujarat issues have been at the forefront because of the state’s eminent position in the renewable leaders in the country, the fact is, the pricing issue is dogging the industry everywhere. In Karnataka, Tamil Nadu, Rajasthan, the story is the same. A desire to place ceilings on bid prices at levels where developers claim that the profitability is completely at risk in case of any of multiple parameters like forex fluctuations, financing rates, project delays kicking in. That could also be one reason that even the bids that did come in, came in from foreign developers, namely SB Energy, Finland’s Fortum, and France’s Engie.
That might be at least one reason why firms like Tata Power, Cleanmax Solar and the likes have made a determined retail pitch recently, with a focus on rooftop solar. In retail, they will at least some more control over their pricing and margins. Rather than surrender that freedom to bureaucrats who seem to know everything about the business except actually doing it themselves.
For the state governments, caught as they are between the need to generate and supply more renewable power and allegedly low capacity to pay, its a tough call. With no solution to the centre of the mess, that is state discoms which have failed to reform despite every effort, this is one squeeze that is set to continue.