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INDIA SOLAR
WEEKLY MARKET UPDATE August 4th, 2014 |
Uttar Pradesh releases RfP for 300 MW
The state of Uttar Pradesh released a Request for Proposal (RfP) for 300 MW of solar PV last week (click here to access). This is a part of Uttar Pradesh’s solar policy announced last year that targets 500 MW by 2017. In March 2013, the state had announced an RfP for 200 MW out of which 110 MW have already been signed.
The story so far
Uttar Pradesh announced its solar policy in 2013 and aims to achieve 500 MW of solar by 2017. This is the second RfP that has been announced so far, the first being a 200 MW RfP that was released in March 2013. Out of the 200 MW auctioned, PPAs worth 110 MW have already been signed. With the recent announcement of 300 MW, it appears that the state could achieve its policy target much earlier than anticipated. Therefore, Uttar Pradesh could potentially expand its target like some other states such as Karnataka.
There were six successful developers under the first RfP of 200 MW (Essel Infra, Moser Baer, Sree Developers, Azure, Reflex, Jackson and DK Infracon). The tariffs were among the highest in the country (INR 8.01 to INR 9.33/kWh). The high tariffs were likely a result of the shorter 12-year PPA. Some developers have commented that a short PPA could actually be an advantage, because this gives them flexibility to re-negotiate contracts after year 12. However, the policy clearly states that PPA price after year 12 will be at the APPC prevailing at that time. The current APPC in Uttar Pradesh is at INR 2.77/kWh. Assuming a reasonable escalation of around 3%, this gives us a tariff of INR 3.95/kWh in year 13. We therefore see no reason, how a shorter PPA could be advantageous to any developer. Moreover, it drives up the solar price for the state and ultimately for the end consumer.
BRIDGE TO INDIA expects the bids to be in a range of INR 7.8/kWh to INR 8.6/kWh this time around.
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Bidding pre-requisites
Bidders are required to have had previous experience in setting up infrastructure projects. Bidders are required to show for projects worth INR 2.5 cr (USD 400,000) for every MW that they apply for.The selection process will be through a reverse bidding process - the standard process for most solar projects in India today. However, the L1 (lowest bid by any bidder) shall not be enforced on all developers (unlike Andhra Pradesh and Tamil Nadu). Bidders shall be given 13 months to commission projects of capacities lower than 25 MW and 18 months for higher capacities, which is more than adequate.
PPA terms and risks
The PPA signatory would be Uttar Pradesh Power Cooperation Ltd. (UPPCL). The company is already in poor financial health. In FY 2013-14, the company reported a net loss of over 7,000 cr (USD 1.16 bn). In fact, the Ministry of Power with ICRA and CARE released a report that rates distribution utilities across the country on financial health. UPPCL secured the second lowest rating (click here to access that report). Last year saw prominent power producers like Reliance Power and Lanco infratech sever PPA with UPPCL due to non-payment of dues (see article). The Central Government through the Power Financing Corporation (PFC) had to step in and back up UPPCL (see article). These instances show that the PPAs with UPPCL are risky and developers need to factor in adequate risk into their business models.
TRAINING PROGRAM
GSES is conducting short 3-day training programs on solar photovoltaics. Their upcoming training program is:
- Solar PV Best Practices: 11th-13th August 2014
This program will be taken up by international master trainer Geoff Stapleton.
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