Aggressive bids at heart of JNNSM's batch 2 of phase 1 tenders

Solar energy in India will power ahead in 2012 as the sector touches new heights with the result of the batch two of phase one of its National Solar Mission bid round. But will the aggressive market entry tactics survive a long-term market plan for India?

NTPC Vidyut Vyapar Nigam (NVVN) has shortlisted 22 bidders to set up solar energy-based power plants in India under the batch II of phase 1 of Jawaharlal Nehru National Solar Mission (JNNSM).

French Company Solar Direct has emerged as the lowest bidder offering solar power at Rs.7.49 ($0.149) per kwh while Green Infra emerged as highest bidder with an offer of Rs.9.39 ($0.187) per kwh.

Other developers such as Welspun 3 projects quoted Rs.7.97 ($0.159), Rs.8.05 ($0.161) & Rs.8.14 ($0.162), Sun Edison @ Rs.9.28 ($0.185) Mahindra Solar bids at Rs.9.34 ($0.186), Sai Sudhir @ Rs.8.22 ($0.164),  VS Lignite @ Rs.8.54 ($0.170), Sunborne Energy @ Rs.8.99 ($0.179) while Punj Lloyd offering no discount this time.

Azure Power quoted a very aggressive price of Rs.7.91 [$0.158] (50 MW's), Sujana Energy @ 9.09 ($0.181), and Kiran Energy quoting Rs.9.34 ($0.186) for a 50 MW project. Green Infra emerged highest bidder quoting Rs.9.39 ($0.187) per KWHR.

Project sizes for batch II have increased to 20MW from 5MW, in order to facilitate cost reductions through economies of scale. Companies (or group of companies) can now bid up to 50MW worth of projects each.

Over 150 companies, including Reliance (Anil Ambani Group), Lanco, Moser Baer and Tata, had expressed interest in developing large solar photovoltaic projects of up to 20 MW under the second batch. Request for selections were received for 218 projects for over 2,500 MW, much higher than the 350 MW offered.

The turning point of the batch II bidding is that for the first time Solar Photovoltaic Power in India is closing to the grid parity with the lowest bid being Rs.7.49 ($0.149) per kilowatt hour (/kWh).

NVVN’s role

The trading arm of NVVN is the allocated agency for sale and purchase of grid-connected solar power under the phase-I of the JNNSM. NVVN had already distributed letters of intent to the short-listed developers for the second batch of phase-I in December 2011.

NVVN was expecting to sign power purchase agreements (PPAs) with 22 companies by the end of January to develop 350 MW of grid connected PV power.

Ambitious targets

Projects awarded in the two rounds of the first phase need to start producing electricity by March 2013. JNNSM envisages the implementation of the solar programme in India including utility grid solar power in three phases – first phase up to 2013 (1,100 MW), second phase up to 2017 (4,000 MW), and third phase up to 2022 (20,000 MW).

Letters of intent have been issued to the short-listed companies for 28 projects all over India. The largest share is held by Rajasthan where 24 projects are located. Two are in Maharashtra in the mid-West and one each in the southern states of Andhra Pradesh and Tamil Nadu. More than 150 companies have apparently expressed their interest in develop projects up to 20 MW under the second batch.

The JNNSM's phase 1 batch II is likely to generate business around Rs.30 billion ($600m) in next one to two years. As a mandate, Solar PV projects using Crystalline Silicon Technology have to use modules and cells 'Made in India' while thin film Panels can be imported. Analysts say that this policy of the government is also a big boost for the Indian solar cells and modules manufacturers.

Aggressive bidding

Indian market observers say that the low cost quoted by some companies is a result of aggressive bidding and the future potential of solar energy in India.

Analysts further say that aggressive bidding has brought the tariff further down. The trend suggests that the difference between cost of solar and conventional power is reducing faster than the energy sector anticipated.

Shashwat Green Fuels and Technologies business development head Karan Dangayach, was quoted by press reports as saying that cost of commissioning solar projects is coming down significantly on account of global recession, changing technology, innovations and indigenization. Also, global recession and competition among domestic investors will continue bring the tariff for solar projects down.

Solairedirect  is the second largest solar power company in France and is understood to have quoted the lowest price possible as a part of market entry strategy as they have big plans of entering and growing in the Indian market.

"In India, Solairedirect would like to repeat the success of its business model in France as an integrated player in the upstream value chain of the photovoltaic market," according to the company. It boasts on its web site that it aims to become the leading independent producer of solar energy in India.

When asked about the calibre of bidders, Gopal Lal Somani, Advisor (solar energy) at KVK Energy says: “The winning developers / investors are carrying the implementation through strong EPC turnkey supplier and technology provider. The developers like Welspun, Mahindra, Azure, Kiran Energy, Sun Bourn, SunEdison etc. are experienced and have good portfolio in solar energy business across the globe.

“The presence of foreign winning participant i.e. Soliare Direct and Fonoche at affordable price is a great enthusiasm discovered by the efforts of Indian government. All the winning bidders are having a strong balance sheets and cash flow,” says the KVK Energy analyst. 

Mohit Anand, a Senior Consultant at  Bridge To India, says with falling cost of solar modules and Capex as whole to level of sub INR 9CR ($0.18), the bids seems realistic.

There were only two bids below INR 8 ($0.16) per unit one by Solar Direct (INR 7.49 ($0.149) for 5MW), which is a strategic move for company’s entry in India and second by Welspun (INR 7.97 ($0.159) per unit for 20MW), they won total 50MW so the average cost will be above INR 8 ($0.16) per unit.

Market entry strategies, sustainable tactics?

Anand adds: “Well if we look at the list of winning bidders they have names like Mahindra Solar, Welspun , kiran energy, Azure and many others which are able to pull the projects on their balance sheet. The requirement of net worth and penalties kept away the non-serious bidders.

“For JNNSM we have seen in the first phase that though developers faced challenges for financial closure, at last everyone except one or two achieved that. There might be some players who will take an early exit, but only after commissioning but not before that.”

Anand is of the view that international EPC players will come as they are pretty much required for timely commissioning and quality of projects. Also, developers can leverage an EPC’s image for financial closure. An international EPC also provides long term credit facility to developers.

The result of batch II has proven that the Indian solar market has a potential on scale or in excess of that of China. It is believed that next round of bidding may see even more healthy competition among bidders.