Hujambo & Mambo Friends !!
Have addressed you all like this as I am writing this article from the beautiful & endless Masaai Land of Tanzania – The Serengeti National Park – where we are acting as a solar project consultant to what is to become Tanzania’s largest hybrid captive solar power project for one of the prestigious resort !!!
Also friends posting this article after a long time and also have been getting repeated requests from readers to posts regularly but lately have been busy to execute some of the very unique upcoming solar projects of the developers & am glad to inform you all that as a part of aggressive scale-up & business expansion this year we have now marked our presence and introduced our services across the countries like Mauritius, Tanzania, Ghana, DRC, Kenya, Uganda, Nepal besides extensively working across India. So we will now be acting as a solar project consultant in all the above geographies across Africa in addition to India too 🙂
While it’s raining all over India, the renewable energy sector is also experiencing severe solar raining in terms of totally installed solar projects across the country. India’s cumulative utility scale solar capacity is now 14 GW and rooftop solar capacity is 1.6 GW totalling – 15.6 GW !!
Also the slight relief for the developers is that the Ministry of New & Renewable Energy (MNRE) has issued the Guidelines for Tariff Based Competitive Bidding Process for Procurement of Power from Grid Connected Solar PV Power Projects which tries to cover the payment security for the developers and tries to stress upon the must run status for solar projects.
These Guidelines have been issued under the provisions of Section 63 of the Electricity Act, 2003 for long term procurement of electricity by the ‘Procurers’ [the distribution licensees, or the Authorized Representative(s), or an Intermediary Procurer] from grid-connected Solar PV Power Projects (‘Projects’), having size of 5 MW and above, through competitive bidding.
To summarize, the new guidelines for tariff based competitive bidding process for procurement of solar power will help :
- enhance transparency and fairness in the procurement process, while
- protecting consumer interests through affordable power.
- These guidelines will also provide standardization and uniformity in processes &
- Risk-sharing framework between various stakeholders involved in the solar PV power procurement.
- Help in reducing off-taker risk and thereby encourage investments,
- Enhance bankability of the Projects &
- Most importantly improve profitability for the investors 😉
Some of the Key Reform Initiatives as per these Guidelines are as follows:
- Generation Compensation for offtake constraints thereby reducing offtake risks: The “Must-run” status for solar projects has been stressed upon. Generation Compensation provided for following off-take constraints:
- Back-down – Min. Compensation 50% of PPA Tariff
- Grid unavailability – Compensation by way of Procurement of Excess Generation / Outright Compensation
- PPA: To ensure lower tariffs : Minimum PPA tenure has been kept at 25 years. Unilateral termination or amendment of PPA is not allowed.
- Event of Default and the consequences thereof clearly defined to ensure optimal risk sharing between Developer and Procurer. This has been done by clearly defining the generator and procurer events of default, and describing the consequences thereof.
- Project preparedness to expedite and facilitate setting up of projects: Issues related to land, connectivity, clearances etc. and the extension in case of delay, have been streamlined.
- Payment Security Mechanism: Risk of generator’s revenue getting blocked due to delayed payment / non- payment by the procurers has been addressed through provision of Payment Security Mechanism through instruments like Letter of Credit (LC), Payment Security Fund, State Guarantee, etc.
- Termination Compensation to increase bankability of projects by securing the investment by the Generator and the lenders against any arbitrary termination of PPA. Quantum and modality for termination compensation in case of both generator default and procurer default has been clearly defined.
- Change in Law provision to provide clarity and certainty to generators, procurers, and investors/lenders – Change in Law provision, effective from the date of bid submission and covering any change in law/Tax rate which has a direct effect on the Project (and not just taxes made applicable for supply of power) has been provided.
- Rationalisation of Penalties: The penalties have been rationalised, so as to reduce the overall cost to the Generator, while at the same time, ensuring compliance with the Commissioning Schedule/Scheme Guidelines.
- Early Commissioning & Part-Commissioning for expeditious completion of projects – Early commissioning and part commissioning have not only been allowed, but incentivised, by way of allowing the PPA for a minimum 25 years from the Scheduled Commissioning Date.
- Repowering: Generators are free to repower their power plants. However, the procurer will be obliged to buy power only within the CUF range in PPA.
- Bid structure and process: Bids have been allowed in both Power (MW) and Energy (kWh) terms. Also, e-bidding has been emphasized to improve transparency.
What’s wrong with the Solar Developers in India !!
While all these new proposed guidelines are in a way going to provide huge benefits for the developers but many Indian solar project developers are in our opinion one of the worst across the world in terms of evaluating Financial Projections & Risk Assessment for their upcoming solar project.
Many of the Indian solar project developers are purely into the “RAT RACE” whereby blindly following each other and not knowing where they are taking their projects towards and thereby severely damaging the entire solar sector.
The solar developers routinely ignore risks and bid aggressively for major infrastructure projects making preposterous financial projections and assumptions in a bid to win at any costs. Then when the projects go down as mostly they do, they go crying to the government for a bailout. This has been the trend ever since the mid-2000s when the government opened the infrastructure sector to private investments.
The Indian solar developers have bid aggressively at every stage without taking cognizance of multi fold risks such as forex, interest rates, equipment supply etc. They have been blessed by Lady Luck in the last few years as falling solar panel prices have made their foolish bids seem like a stroke of genius. The solar panel and inverter prices have fallen faster than expected leading to good gains for these developers, as their forecasts of the panel and inverter prices, turn out to be higher leading to good profits as project costs turn out to be lower.
However, this trend following will now lead to a major blowback as the last aggressive solar bids of INR 2.44/kWh was made on the assumption that solar panel prices will keep falling by 10-20% every year. However, that has not been the case with solar panel prices going up by 20% in the last few months. This has been due to some geopolitical issues such as the looming USA ruling on import duties on solar panel imports and China deferring the lowering of its feed in tariffs to September from June. This will mean that Acem and Softbank face some serious financial viability issues for their Bhadla solar plant projects which were seemingly bid of prices of panels as low as 25 cents/watt. Currently, the prices are near 35 cents/watt throwing their financial model totally out of whack.
Indian solar industry has seen tons of financial investors and developers entering the market lured by the massive size of the solar opportunity in India. However, most of these developers have employed some really dumb people who are just following the trend like the financial traders during the 2008 global financial crisis. When the tide turns, the naked will be exposed. Unless the solar panel prices fall back drastically again, I think some people will get badly exposed.
The current solar bids are projected as a new ‘Trend’ in the solar industry. However, there is Difference between “TREND” & “TRENDY” in Solar : A TREND is established overtime & tends to lead to lasting change. TRENDY is an attention catching phase – similar to what India witnessed during the latest lowest solar bids !! Current low(below cost) pricing is unfortunately a margin crushing long term trend in the solar PV industry. Instead of grid-parity satisfaction , there is much skepticism about financial sustainability of the recent low Rs 2.44/unit solar bids !! Only time will tell, whether it’s just another another poster boy headlines like India witnessed a couple of years back or not !!
And please make no mistake people the current solar project prices are below costs. If this continues quality will suffer & there will be a significant consolidation. There are lots of false information making waves across solar arena. And if you only get your news from PR driven media, dedicated news feeds & a pay for play media you risk being misinformed – which is the current case of Indian solar industry. What is the logical justification of the developers past project costs based on IRRs viz a vis new pricing based on tariffs. Have they embraced the changing realities?
Well guess this is going to be a part and parcel of Industry now !
And in case you are thinking of going green and powering your premises via solar or are thinking of setting up solar power plants across India, as a solar consultant in India we can always help you 🙂
Also will keep you guys posted on the unique installation of our solar project here in Tanzania, Africa which we are currently executing here in Tanzania.
Till we meet next time …
Kwaheri from Tanzania ! 🙂
Solar Project Consultant – India
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