Falling bids may cast a shadow on solar projects

It’s not entirely good news that bids for solar projects are falling because they may leave developers with little financial buffer to face challenges such as cost overruns and counter-party delays. Grid curtailment risk, which may be temporary, is also a concern as renewable energy penetration increases.

Falling solar panel prices and rising competition have led to aggressive bidding. The increase in panel conversion efficiency has contributed to a reduction in the land required for panels and a fall in the balance of system cost.

Rate of return

According to an India Ratings and Research (Ind-Ra) analysis, a tariff of ?2.44/kWh could have an equity internal rate of return of 10 per cent.

Against the backdrop of distribution utilities trying to reduce power purchase costs, the emerging threat of renegotiation and termination of power purchase agreements can derail developments in the sector.

The Rewa bid started this trend of risk allocation in tenders and has taken centre stage in bids. Tenders floated consciously address payment security and grid curtailment to attract low bids.

Solar Energy Corporation of India and NTPC have witnessed low bids from developers because of the comfort derived from their credit profiles.

The pace of solar capacity auctions, along with an emphasis on compliance with renewable purchase obligations, is critical. On the other hand, rooftop solar capacity installation is lagging behind ground-mounted installation owing to limited effort to achieve targets, the report stated.

Payments days across counter-parties, except Tamil Nadu’s distribution utility, have been observed at less than 90 days.

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