Bureaucratic Wrangling Leads To Project Date Extension by Uttarakand – Bonanza For Developers
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Another hilly state of Uttarakhand has seen huge bureaucratic wrangling, leading to a delay in signing PPAs with solar power developers who won projects in a solar power tender. There is bad blood between the renewable power agency and the power utility, which led to long delays in signing PPAs of 180 MW with the solar companies who won projects in a reverse auction. Companies such as Rays Power could not build the projects without the PPAs.
In response to the petition from developers calling for an extension, the Uttarakhand Electricity Regulatory Commission (UERC) said: “the delay in achieving financial closures and consequently the commissioning of the projects is due to the inefficiency of Uttarakhand Power Corporation which led to delays in the signing of the PPAs.”
Indian lenders require a PPA before disbursing loans for solar power projects which can be upto 80% of the cost. Given that the problem was created by the government, there has been an extension till March 2017 which has been given to developers to build these projects. Note the prices bid for the tender were quite high to start with at INR 5.8 per unit which equates to almost 8 cents per unit, as compared to the 6-7 cents being seen in other state tenders.
The reason for the high price was the difficulty in logistics in the hilly state besides the higher risk of payments perceived from the Uttarakhand distribution utility. Note it will be great for developers who can buy solar panels at atleast 20% lower price than what they would have modeled for. This would result in IRR’s exceeding 15% and maybe even reaching 20%, which is a big bonanza for developers.
The time delays could have worked either way. If the prices of panels would have increased then the projects would have given lower returns to these developers. But now that prices have crashed, these developers can make abnormal profits. If I was the utility, I would have pressed them to go for lower prices given that the situation has changed in the interim.
Uttarakhand has been a laggard when it comes to solar power. The state did not install a single megawatt during the first quarter of 2016, when the whole country plans at achieving 100 GW of solar installations by 2022. In stark contrast states like Rajasthan, Gujarat and Tamil Nadu are the leading solar states in India, with installed capacity greater than 1 GW. Uttarakhand ranked 21st out of the total 25 state ranks in India as of January 2016.