SECI Finally Finds The First Buyer for Manufacturing Linked Tender- GRIDCO

Late last week, SECI (Solar Energy Corporation of India) announced the first power supply agreement (PSA) in connection with its manufacturing-linked solar tenders, floated in November 2019. These were won by Adani Green and Azure Power finally. Signed in Bhubaneshwar between SECI and GRIDCO Limited (or Grid Cooperation of Odisha), a subsidiary of Odisha Electricity Regulatory Commission (OERC), the deal will see GRIDCO  acquire 500 MW of solar power from SECI under the interstate transmission system (ISTS)-connected solar projects linked with manufacturing program (Tranche-I). GRIDCO will be buying the power to fulfill its renewable purchase obligation (RPO) targets.

Interestingly, one of the winners, Azure Power, had indicated in an investor meet that it expects a slight markdown in tariffs to get these projects moving.

First PSA of 500 MW Solar Power from ISTS Manufacturing Linked Scheme signed with GRIDCO Limited at Bhubaneswar. pic.twitter.com/EIO7BzhFdl

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— SECI (@SECI_Ltd) July 23, 2021

This is the first deal to be signed under for the manufacturing-linked tender, which had seen developers Adani Green Energy and Azure Power emerge as bid winners in January 2020. Since the award of letters to them over a year ago, this massive batch of solar projects has been stuck on account of its large capacity and high discovered tariff, resulting in SECI not finding any discoms willing to sign PSA’s and move the process along. Now that GRIDCO has made the first deal, things might be looking up for the rest of the unexecuted solar projects.

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Background

SECI had floated a first of its kind manufacturing-linked solar tender in November 2019 for 7 GW of solar capacity. The tender received a good response and was oversubscribed by 1 GW. With effectively a guaranteed off take for the first 3-4 years for the manufacturing that is set up, at a higher tariff ceiling price, the idea was to provide manufacturing investments with enough comfort for a ready demand and pricing in the initial phase.

Adani and Azure both won the bid to develop 2 GW of projects each with 500 MW of manufacturing capacity. The winning tariff quoted by both the companies was ₹2.92/kWh and the ceiling tariff for this tender was fixed at ₹2.93/kWh. This was to be the largest single investment in the country’s solar sector.

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Later, under the greenshoe option, another 8 GW of solar projects were auctioned to be developed at the same tariff. Adani Green Energy won the bid to create 8 GW of solar projects at ₹2.92/kWh and Azure Power also won 4 GW at the same tariff. With a high tariff and a large capacity of 12 GW, SECI found it challenging to sell power to discoms, even after pooling this tariff with others discovered during the first half of 2020.

As a solution, SECI decided to bundle the 12 GW of the solar in batches of 3 GWs. This bundling would be liable to changes depending on the actual commissioning achieved by the projects. For projects that are commissioned after June 2023, ISTS charges and losses would be applicable, and the cost of the project would differ.

The 3 GW of solar projects with the tariff of ₹2.92/kWh is to be bundled with 1.2 GW (Tranche VIII) and 2 GW (Tranche IX) of ISTS-connected solar projects, which were auctioned in February and June last year, respectively. The winning tariffs in the 1.2 GW auction ranged between ₹2.50/kWh and ₹2.5/kWh. The tariffs for the 2 GW auction were in the ₹2.36/kWh and ₹2.38/kWh range.

The resulting average tariff or the pooled tariff was around ₹2.66/kWh at which SECI planned to sign PSAs for 6.2 GW of solar projects.

Now that GRIDCO Limited has signed a fresh PSA with SECI, announcements of similar deals might be expected soon, accelerating the manufacturing-linked solar projects which have seen many a delay in the last year. Of course, much has changed since then, with the PLI scheme for solar manufacturing the notable change. Whether these projects will make in time to qualify for that remains to be seen.

A key consideration for a sale finally might also have been the gradual inching up of solar bids this year, from a low of Rs 2 to Rs 2.63 for MSEDCL’s tender, and generally at prices over Rs 2.40 now.