India’s tribal state of Jharkhand receives high solar tariff bids due to Land acquisition and Discom health issues
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The two biggest risks in India’s utility solar market came to haunt India’s tribal state of Jharkand’s solar reverse auction for 1.2 GW. The state has put out tenders for two categories of solar projects – below 25 MW and 25-500 MW. The bids were in a wide range of INR 5 to INR 8/ kWh, with lower bids being seen for larger projects. However even for the larger projects the bids were around 15-20% higher than what has been seen in the last major Indian solar bids in Rajasthan and Andhra Pradesh, which had seen new all-time low bids of INR 4.34/kWh ( around USD 6 cents).
The major reason for the higher bid was:
- The uncertainty in getting the land for solar project. Jharkhand is a tribal majority state and buying/leasing of tribal land is prohibited as per Indian laws. This implies that the solar developers will have to buy non-tribal land, which is difficult given the scarcity. This would raise the costs of developing the projects (land is between INR 5-10 lakhs/acre). This would escalate the cost by around 5-10% reducing the project IRRs.
- The second is the bad health of the distribution utility, which will buy the power from these solar projects. The selling of power is a major risk in India, as most distribution utilities are heavily indebted and run massive losses due to the government’s subsidy programs. Many times these utilities do not have money to pay the power generator. Jharkhand’s discom is amongst the worst utilities in India and this would have certainly increased the risk premium substantially.
The major winners of the solar auctions were Goldman Sachs backed Renew Power and Indian wind energy developer Suzlon Energy. These two companies have won more than 70% of the capacity that was put on auction. SunEdison, OPG and Acme were the other major winners in these solar auctions. It was surprising to see SunEdison in the winner’s list, given the dire straits being faced by the company on the liquidity front. It is being rumored that SunEdison is looking to sell the 500 MW AP bid that it had won last year, for INR 4.63/kWh but it is not getting any buyers.