The manufacturing-linked tender is one of a suite of measures implemented by the Ministry of New and Renewable Energy (MNRE) to boost India’s solar PV manufacturing sector. However, this is an ineffective measure as the underlying causes of the competitive disadvantage of domestic PV manufacturers remain unaddressed. Moreover, the tariff discovered at the tender could burden cash-strapped discoms.
Cost implications of the winning tariff
The winning tariff of Rs 2.92/kWh was marginally below the ceiling tariff of Rs 2.93/kWh. Considering that there are no restrictions on project location or a requirement to use domestically-produced modules, the tariff discovered in the auction is quite lucrative. To put this into perspective, a tariff of Rs 2.50/kWh was discovered when 1.2 GW inter-state transmission system (ISTS)-connected capacity was awarded by SECI in February 2020—barely a month after this manufacturing-linked capacity was awarded. Further, given the relaxed commissioning timelines—staggered deployment of capacity in annual increments till 2025—the developer would benefit from further declines in equipment costs. Thus, tariffs even lower than Rs 2.50/kWh could have been viable.
According to our analysis, the increment over the Rs 2.50/kWh tariff translates into an additional payment burden of around Rs 22,000 crore over 25 years or nearly Rs 900 crore annually for 8 GW capacity (assuming a capacity utilisation factor of 30 percent at 50 percent DC overloading). Given the financial implications, it has become challenging for SECI to find discoms to sign the power sale agreement for the electricity generated.
The higher tariff could be a reflection of limited interest from developers in participating in the tender and to compensate for the additional risks involved in setting up manufacturing capacity.
PV manufacturing versus RE project development
PV manufacturing and renewable energy (RE) project development are businesses characterised by different underlying risks. The predictable annuity-like returns for RE developers are a stark contrast to the lack of predictability in returns for manufacturing. Unlike the long-term offtake contracts for RE projects, orders from customers (developers) in manufacturing are typically…
Read More: View: Manufacturing-linked tenders not the silver bullet for domestic solar