Foreign Firms Attracted to Competitive Bidding in Indian Solar Tenders: CRISIL

Rating agency CRISIL has said the absence of any formal duty on imports at the time of project tendering and lower returns globally in the wake of the COVID-19 outbreak have resulted in competitive tariff rates in the solar energy sector. According to the agency, a chance coming together of several positives has led to a new record low tariff bid in the interstate transmission system (ISTS) tranche IX auctions of the Solar Energy Corporation of India (SECI).

Improved interest from global firms in the Indian solar sector, especially given the environment of lower returns globally due to the COVID-19 pandemic, and absence of any formal duty on imports when the projects were tendered, resulted in the discovery of lowest tariff of Rs 2.36 per unit for the SECI bids, said CRISIL.

“A big reason for lowering of tariff compared with even ISTS VIII was the timing of the auctions, which offered a window of opportunity before any additional taxation (in the form of safeguard duty and/or basic customs duty) set in. Without the current duty of 15 percent, keeping module prices stable, capital costs would be lower by 5-7 percent,” the agency said.

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The lowest tariff was quoted by Solarpack Corporacion Tecnologica SA, while Avikaran Surya India (Enel Green Power), Amp Energy Green, Eden Renewables, and ib Vogt Singapore Private Limited quoted the second-lowest tariff of Rs 2.37 per unit.

AMP Energy won 100 MW of projects, while the other companies won 300 MW of projects each.

Meanwhile, ReNew Power quoted Rs 2.38 per unit for 1200 mW of projects but won only 400 MW under the bucket filling method.

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“The positives include a surge in interest from foreign shores. Indeed, six out of seven winners are global energy firms. These bidders have a portfolio of 1-1.5 GW in India, and would be keen to expand, especially given the environment of lower returns globally after the COVID-19 pandemic,” CRISIL said.

At Rs 2.36 per unit, the new low is a tad more than three percent below the previous lowest of Rs 2.44 per unit seen in 2018, and 19 percent lower than the weighted average tariff of Rs 2.90 per unit in fiscal 2020.

The weighted average tariff for the previously allocated SECI ISTS tranches (I to VIII) was Rs 2.76 per unit, though ISTS VIII, held in February this year, had drawn bids at the Rs 2.5 per unit mark.

The agency further said that the interest comes at a time when the top seven developers have a pipeline of 26-27 GW. “Coupled with a large capacity under execution, existing developers are also grappling with delayed payments from the financially weak state distribution utilities,” it said.

CRISIL noted that SECI’s ISTS auctions have always been well-placed, given a perception of lower counterparty risk for central entities and the flexibility in these tranches to locate the projects anywhere in India.

“Besides, ISTS projects also connect directly to the inter-regional transmission grid system, eliminating intrastate transmission charges and leveraging the waiver provided by the MNRE to all renewable projects commissioned by December 2022, thus raising cost competitiveness to end-users,” it said.

CRISIL further noted that since the auctions have occurred prior to the formal notification of any such taxation, it provides the developers the option of pass-through of costs, under the change in law provision.

“This would allow developers to claim additional compensation for any rise in costs due to tax changes post allocation of capacities,” its Director Hetal Gandhi said.