Solar Energy in India- Maharashtra learns from JNNSM,not to use Reverse Auction Bidding in Subsidy Mechansim

Solar Energy in India is seeing huge investments and interest from domestic manufacturers as well as foreign solar companies.Maharashtra which is the largest power generating state in India but deficient in renewable energy sources of generation will not use the discredited reverse auction bidding mechanism being used in the First Phase of the JNNSM Federal Solar  Subsidy Policy.The reverse auction  bidding was done due to the massive deluge of applications for setting up solar PV and solar thermal power plants in India.Based on the Rs 17.91/Kwh Feed in Tariff,developers had bid discounts with the solar project owner offering the biggest discount winning the right to build the solar power plant.This had led to irrationally low bidding for projects and it is all but certain that these solar projects will either be not be built at all or run into heavy losses.

JNNSM First Phase Problems

JNNSM which was unveiled with much fanfare has promised much but teething problems threaten to crash the Solar Party in India.While some of these problems were discussed earlier like a) Debt Financing of Solar Projects b) Irrational Bidding c)Small Plant Sizes of 5 MW d) Unhealthy Competition ,other problems have cropped up.Note India was trying to avoid the fate of the Czech and Spanish example of renewable energy subsidy boom and subsequent bust  by auctioning the projects to lower bidders.However this has resulted in a new set of problems seen with this type of bidding which has been seen in China. The biggest problem is that the winners of the Solar PV Projects are mostly unknown small firms who have bid so low that make the returns negative for investors according to the renewable energy ministry officials (MNRE).Bidding has gone as low as 23c/Kwh which is crazily low considering the debt costs in India are as high as  13% annually.Compare that to China where debt is priced as low as 3-4% and the winners are huge utilities.With even India’s Tata Power saying that the projects are not  bankable as their is confusion how the electricity tariffs will go to developers,its difficult how these unknown firms could manage the financing .While the companies will lose their bid deposits if they don’t finish the projects,Indian Solar Energy will be the biggest loser as the failure of the Phase 1 of JNNSM of 1000 MW by 2013 will lead to even further delays.

Indian Solar Program Won’t Use Reverse Bidding, Official Says

India’s Maharashtra state, home to the country’s financial capital of Mumbai, will avoid the reverse-bidding process used in the first national solar auction that led to “unbankable” projects, an official said.“It won’t be reverse-bidding,” H.M. Kulkarni, general manager at the Maharashtra Energy Development Agency, said in an interview in Mumbai today. “We’ve seen how that has led to some issues with aggressive bids and that projects aren’t bankable.”The agency has submitted a draft solar power policy to the state government which targets the development of 500 megawatts of solar power capacity over three years, he said.The policy is expected to be approved within a month or two, he said.

Note reverse auction bidding has not worked well in most places in the world where solar FIT has been implemented.China too has tried out this model with its giant power utilities bidding as low as 10.8c/Kwh for solar projects under the Golden Sun.Maharahstra is aiming at around 500 MW of solar power capacity in the next 3 years as the government electricity regulator (MEDA)  has submitted a draft proposal.Note except for Gujarat no other state has moved forward on the solar energy front in a decisive manner.Rajasthan which has won the lion’s share of the solar projects under JNNSM has also passed  Rajasthan State Solar Policy 2011 to provide state level incentives for solar power.Note Solar Power in India is poised to be one of the biggest oppurtunities of the decade despite the initial hiccups and tumbles.

Cabinet clears solar policy among other decisions

The state cabinet on Wednesday took a number of decisons. At a meeting presided by chief minister Asok Gehlot it cleared the Rajasthan State Solar Policy 2011″The policy has been prepared in order to promote solar powe production and bring in maximum investments into the state. The government aims to develop Rajasthan as a hub of solar energy. Under the Jawaharlal Nehru National Solar Mission, India plans to produce 1,000 MW of solar energy, of which 50% has to be done in this desert state,” Gehlot told the media after the cabinet meeting. He added the first solar plant would soon come up in Nagaur with a capacity of 2.5 MW while the second will be at Bikaner.

The state is expected to generate up to 1,500 MW from solar energy by 2013-14 and expecting an investment of Rs 15,000 crore in the private sector. The production would be increased to 3,000 MW by 2017-18 with an additional investment of Rs 20,000 crore. This apart, units for manufacturing of the required equipment for generation of 500 MW power will also be set up by 2013-14 at an investment of Rs 2,000 crore. “Apart from large investments coming to state, employment opportunities will also be created. The policy has a provision of allotting land for solar energy plants at 10% of the DLC rates in the area,” said Gehlot.