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Solar projects: Ain’t no sunshine

Despite the sector’s efforts to inch closer to grid parity, disruptive bidding games, a negative WTO panel ruling and a dependency on land availability and evacuation facilities for success puts investments in jeopardy.

Written by Anil Sasi |
Updated: April 13, 2016 6:23:43 am
solar energy, solar power plant, solar projects in india, SunEdison, cheap solar power, sunedison solar panels, India solar installation, solar installation capacity, Indian express While solar projects, unlike roads and thermal power plants, have smaller gestation periods and can start generating revenues swiftly, this is critically dependent on the availability of land and evacuation facilities.

In November 2015, SunEdison — the US-based solar developer — created quite a stir in the Indian solar market by quoting a record low generation tariff of Rs 4.63 per unit (kWh) when global bids were opened for a solar photovoltaic technology-based power project in Andhra Pradesh. The quote effectively brought solar within touching distance of grid parity with other major sources of power generation.

Four months down the line, as the US solar company teeters on the brink of bankruptcy and its share reduced to a penny stock, it’s abundantly clear that SunEdison, flushed with low-interest bearing financing, was possibly playing a disruptive bidding game aimed at destroying competition in projects such as the one that it bagged in Andhra Pradesh. A number of Indian players had participated in the tariff-based reverse bidding for setting up solar plants, but despite going in for cheaper, fully imported solar panels, none of them could succeed in the face of the really low bids placed by companies such as SunEdison.

For the Indian solar sector’s efforts to inch closer to grid parity, there are even bigger setbacks. The news of America’s biggest solar company going belly up comes close on the heels of the World Trade Organization’s Dispute Settlement Panel ruling last month that New Delhi violated global trade rules by imposing domestic content restrictions on the production of solar cells and modules as part of the Jawaharlal Nehru National Solar Mission — a blow to the country’s solar power programme.


Over the last couple of years, the NDA government has clearly shifted gears in trying to harness renewable energy sources, especially with a concerted solar push that focussed on a domestic manufacturing effort. Simultaneously, most of the states are investing heavily in transmission facilities for evacuation of green energy and state-owned transmission major Power Grid Corporation Ltd (PGCIL) has started developing about 10 high capacity inter-state green energy corridors being developed for renewable rich states. The scheme also includes Control Infrastructure — establishment of Renewable Energy Management Centers and Dynamic Reactive Compensation — to facilitate grid integration of renewables and addressing its volatility challenge.

While solar projects, unlike roads and thermal power plants, have smaller gestation periods and can start generating revenues swiftly, this is critically dependent on the availability of land and evacuation facilities. The Union Power Ministry has already assigned PGCIL to take up implementation of transmission system for nine solar parks with capacity 7,020 MW across Andhra Pradesh, Madhya Pradesh, Karnataka, Rajasthan, Gujarat, Uttar Pradesh and Meghalaya. Implementation of inter-state transmission system scheme costing about Rs 15,000 crore and involving about 3,400 ckm (circuit kilometres) of transmission lines, 18,000 MVA of transformation capacity and six new sub-stations in the states of Rajasthan, Tamil Nadu, Gujarat, and Punjab have already commenced. The scheme is expected to be commissioned progressively from 2016-17 to 2017-18. Implementation of Intra-State Schemes costing about Rs 13,146 crore is also being implemented by the respective State Transmission Utilities (STUs) and is scheduled to be commissioned progressively from January, 2017, to December, 2018.


Officials indicated that the investments in some of these transmission projects could be in jeopardy, if the solar projects fail to sum up. The worries are compounded by the fact that the aggressive bidding by companies such as SunEdison has a parallel with the coal-based Ultra Mega Power Projects or UMPPs, where a number of developers resorted to over aggressive bidding.

In the end, the tariff of two UMPPs had to be revised, two were simply abandoned by the developers and the bidding for two had to jettisoned after the RfQ (request for qualification) stage.

Just to put the SunEdison quote in context, the tariff order notified by the Central Electricity Regulatory Commission (CERC) for the year 2015-16 had pegged the cost of power generated from solar power production units — the levellised tariff for 25 years — at a sharply higher Rs 7.04 per unit for solar power plants based on solar photovoltaic technology and Rs 12.05 per unit for solar power plants based on solar thermal technology.

Also, the average generation cost of power from a domestic coal-fired thermal power project is pegged at Rs 4.5 per unit. The SunEdison quote comes remarkably close to the thermal power benchmark. In the recent bidding for grid-connected solar PV power plants under National Solar Mission, in Bhadla Phase-II solar park in Rajasthan, lowest bid was an astounding Rs 4.34 per unit.

Apart from the risks associated with such financing engineering, large solar developers may be expanding far faster for their own good. SkyPower, another one of the large investors in India, has announced aggressive plans to enter other markets too, thereby increasing the risk in investments and potential failures. The solar sector’s growth in India is a completely different growth story as compared to the US, where the industry has thrived on the back of fiscal incentives, including tax credits and accelerated depreciation, which helped leverage tax-equity financing. Such incentives, while essential to catalyse the development of a market, may not be the most efficient way of financing post-maturity market expansion.

In that sense, the unraveling of the SunEdison bid does deflate the solar grid-parity story somewhat, exposing the weakness of the underlying tax-sop driven bids. The damage from the WTO panel ruling, though, has ramifications that could further raise concerns. The NDA government is clearly hinting at doublespeak on part of the US.

“It amazes me that a country (the US) which speaks of encouraging green energy goes to the WTO against us and asks as to why we put up 400 MW of domestic production facility and says that we should have allowed it to compete in those 400 MW facilities too,” Power and Coal Minister Piyush Goyal said while speaking at the Pune International Centre on Sunday. The government, he affirmed, would continue to support domestic manufacturers, under which it plans to add 1,00,000 MW of solar power capacity by 2022.

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