The government has scaled down the componentmanufacturing requirement under its first such solar tender where developers must also agree to locally produce equipment to win projects.
The manufacturing component of the tender has been cut to 3-gigawatt capacity from 5GW, as fears persist over developers quoting higher tariffs citing manufacturing cost. The maximum permissible tariff rate for the tender has also been brought down to Rs 2.75 per unit from an earlier cap of Rs 2.93.
Solar Energy Corporation of India, the nodal agency for the implementation of the National Solar Mission, had earlier this year floated the 5 GW solar component manufacturing tender linked to a 10 GW power purchase agreement (PPA), in a move to support the local solar manufacturing industry currently facing the onslaught of cheap imports from China.
ETreported on August 3 that the government was planning to bring down the manufacturing component in the tender. The size of the PPA, however, remains unchanged at 10 GW.
“This will ensure better competition and cheaper tariffs discovered through the bidding process,” Anand Kumar, secretary at the ministry of new and renewable energy, told ET.
The size of manufacturing has been scaled down because the government has got a sense that private players were not very keen on this tender, industry watchers said. The industry, however, is not convinced with the government trying to control the tariff.
“Some of the IPPs have been aggressive and it is probably to do more with the capacity addition than the returns, and they bid very aggressively even after the safeguard duty. But having said that, I don’t know if it’s viable,” said Sunil Jain, chief executive of Hero Future Energies.
“The government took a cue from that and capped the tariff. While new bids will keep coming in, it could create NPAs While solar power developers have already expressed their reluctance to enter the solar manufacturing business, the government feared that developers will try and hike up the PPA tariffs to make up for margins lost in the manufacturing, given the cost of manufacturing is higher in India and the components that the manufacturers produce may not be able to compete with cheap imports from China.
“It’s difficult to understand how the ministry has calculated this tariff cap of Rs 2.75 per unit. While this tender has been floated with an intent to spur domestic manufacturing in India, I do not see the tender eliciting a strong response unless the government lets the market forces to decide tariffs,” said Rakesh Tiwari, a member of the Indian Solar Manufacturers Association.
Solar power developers have expressed their concerns alike, saying the government was forcing them to enter the manufacturing business.
Under the tender, companies can bid for a minimum 2,000 MW PPA, pursuant to which capacity to produce 600 MW of solar components must be set up.
“Some fine-tuning is required whereby higher PPA tariffs are allowed, and the ratio between manufacturing and PPA should be increased which will help manufacturers to realise their investment which they put in setting up of solar power projects,” Tiwari said.
Solar tariffs have recently become a point of contention between the government and industry. Project developers are seeking higher tariffs with the depreciation of the rupee and the recent imposition of safeguard duty on imported solar equipment. Power distribution companies, however, are not convinced of purchasing expensive solar power, the tariff for which hit as low as .`2.44 per unit last year, becoming cheaper than thermally generated power.