While solar installations in India have picked up speed, tenders and auctions have been slowing down over the past couple of quarters, according to a Mercom Capital report. About 1.9 GW of solar power was tendered in Q1 2017 (1 GW of this was a retender) compared to 3.4 GW in Q4 last year. There was 1.3 GW of solar projects auctioned in Q1 2017 compared to 255 MW in Q4 2016. The slowdown in activity has been disconcerting to developers and manufacturers who have been gearing up for more activity based on India's solar installation goal of 100 GW by 2022.
As per the target set by the government, India needs to instal 18 GW of solar power every year till 2022. If the government wants to meet its solar installation goals, the pace of tenders and auctions must pick up quickly. Companies, who have invested hundreds of millions to expand to meet the demand and build projects, are anxiously waiting for the activity to pick up.
According to the report, "Some of the reasons for decline in tender and auction activity include poor financial condition of distribution companies (DISCOMs), transmission issues, weaker power demand and increases in captive generation by commercial and industrial companies. DISCOMs that are continuing to struggle financially are not taking on new generation that is more expensive than coal, which is leading to curtailment of solar and wind projects as well as payment delays to developers."
The World Trade Organization (WTO) ruling against India's domestic content requirement (DCR) has resulted in continuous cancellations and postponements of planned DCR tenders.
"In some states, weak power demand is removing the urgency to speed up the pace of solar tenders and auctions. Increases in captive generation by industrial customers have compounded the situation since they are requiring less power generation from DISCOMs," the report adds.
The recent record low bid of Rs 3.30 (approximately $0.494)/kWh at the REWA solar park auction is playing a big role in the slowdown of auction activity as government agencies and states are stalling to renegotiate PPAs that are more expensive than the bids received at REWA.
For DISCOMs, coal is still the cheapest option available. According to Mercom's December Solar Quarterly Report, DISCOMs have resorted to sporadic curtailment from some solar projects in Rajasthan and Tamil Nadu because cheaper power is available on the power exchanges. Even when there is demand, several states have complained that the DISCOMs are resorting to power cuts instead of buying power on the exchanges to save on costs.
Several other developers told Mercom that as of now Bihar, Jharkhand, Tamil Nadu, Rajasthan and Maharashtra are the problem states. According to Mercom's Solar Project Tracker, tendering activity has declined in these states with most of the old tenders being continually extended.
"We hope this is a short-term issue which, once resolved, will see tariffs get down to realistic levels and there will be a big spurt in activity. However, if some of these pressing issues are not resolved quickly, growth will stall," said Raj Prabhu, CEO of Mercom Capital Group. "There needs to be a policy mechanism put in place to avoid the stop and start in tender activity every time there is an outlier in terms of a low bid. However, if states revise their tenders to include all of the positive aspects of the REWA tender, it can be a win-win for all," he added.