India Solar Project Bidding under JNNSM to be Hypercompetitive and Loss Making like China

India recently started the First Phase of its ambitious 20 GW by 2022 JNNSM scheme.While the Solar Thermal part of the Subsidy is seeing less competition mainly because of the technology/expertise barriers,the Photovoltaic Part of the Subsidy has seen extreme competition.Like the general trend in Solar Projects which are opened for bidding by Governments,the winners end up making losses from these projects.China’s 280 MW Solar Projects Bidding scheme was marked by cutthroat competition with bid going down as low as 10.8c/KwH which is clearly unprofitable .

India’s 150 MW Solar Allocation to PV Technology has seen overbidding upto 10 times and the winners will be decided based upon the discounting on the Rs 17.91/Kwh (40c/KwH).The discounting promises to be clearly be irrational and loss making as Large Conglomerates and Integrated Solar Companies fight with each other to win projects at any cost.Feed in Tariffs across the world has only worked out well where there is no discounting or bidding mechanism.In case of bidding,especially in immature nascent markets,the winners of the projects end up as the losers.Renewable Energy also ends up on the losing side as many of these projects are not completed or have to be restructured defeating the entire purpose of the Subsidy Scheme.India’s Solar Energy Sector promises to be one of the biggest energy oppurtunities in the 21st Century.However this will require a very smart subsidy strategy by the government.

Where is the money in solar? – Indian Express

The word on the street is that the bidding is going to be aggressive. With some bone-chilling numbers being bandied around informally in solar circles, the solar gold rush many had anticipated is fading fast like a desert mirage. Many cross-sectoral hopefuls, with little prior exposure to anything remotely connected to energy generation, had jumped onto the solar bandwagon, convinced that solar offered disproportionately high and stable 30-year returns. Now that they are faced with the reality of tariff bidding, most are wondering, where is the money in solar?

So who are the likely winners?

No matter who wins in the bidding, the technology that is likely to do quite well is thin film PV. This is because thin film costs less than crystalline and cost, as we know, is going to be a critical factor. Financially justifying crystalline PV will be near-impossible, unless suppliers are willing to take it on the chin in order to build some presence in the programme.

Integrated players such as those who are in manufacturing and generation are better positioned to go deeper on the discounts. After all, they can choose to make their returns from the sale of PV modules or from energy generation.

Recently capitalised solar companies are likely to be aggressive bidders. They need to show traction to their investors, and it’s hard to show traction if you fail to get an “allocation” or a chunk of MWs allotted to you by the government.

Lastly, the bulge bracket Indian conglomerate with a large and/or growing power generation business will be there in the winners’ circle. For this type of player, absorbing a loss on a leader project is relatively easy, but not having a seat at the solar table will appear costly.

And who will lose?

There will be two types of losers. Those who, in spite of best efforts and scaled-back return expectations, are not able to get to the irrational (from their perspective) levels required to win. This includes professional foreign companies that have built solar projects elsewhere in the world, and that we hope would bring their experience and skills to India, but are unlikely to win because their knowledge of costs and hurdle rates will put them out of the race. And there are those who, without fully doing their homework and in a moment of impulsive boldness, actually do submit a winning tariff. For the latter group, pursuit of the solar mission is likely to turn out to be a rather costly endeavour.