Bridge India

NLC India Limited, a government of India owned coal mining company, recently completed auction for a 20 MW solar project integrated with 28 MWh storage capacity in Andaman & Nicobar Islands. This is the first utility scale storage tender in India to announce results. The tender includes provision of complete EPC and O&M services for twenty-five years. Mahindra Susten won the auction with a final all-in price of INR 2.99 bn (USD 46 mn). Replacement of diesel fired power is the most obvious application for solar cum storage plants both commercially and environmentally; Large variation in bid prices suggests inconsistent understanding of technical specification amongst bidders; Utility scale storage adoption in India is expected to be slow as DISCOMs are highly cost sensitive and lack awareness of its technological potential; There have been four other utility scale storage tenders in India until now by Solar Energy Corporation of India (SECI) and NTPC in the states of Andhra Pradesh, Karnataka and Andaman & Nicobar Islands respectively. But all these tenders, with aggregate capacity of 35 MWh, have been scrapped without any reasons being given. Andaman & Nicobar Islands is a group of islands in the Bay of Bengal with a total… Read More »

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Solar Energy Corporation of India (SECI) completed a 1,000 MW wind project auction last week. Tariffs fell to a new low of INR 2.64 (US¢ 4)/ kWh. Winning bidders include ReNew (INR 2.64, 250 MW), Orange Power (INR 2.64, 200 MW), INOX Wind (INR 2.65, 250 MW), Sembcorp Green Infra (INR 2.65, 250 MW) and Adani (INR 2.65, 50 MW). This auction comes 7 months after the first wind auction in India when tariffs were observed to be around INR 3.46 (US¢ 5.3)/kWh, implying a price reduction of 24% in a relatively short time. Parity in prices means that there is likely to be further alignment between wind and solar power procurement policies and regulations; The main reason for the reduced tariffs is simply increased competition; Rapid reduction in tariffs makes wind power more attractive but also increases dissonance risk for DISCOMs who have agreed to previously pay much higher feed-in-tariffs; Developers will sign 25-year, fixed price PPAs with SECI, which will in turn sell power to DISCOMs in Uttar Pradesh, Bihar, Jharkhand, Assam and Goa. The developers are free to locate projects anywhere in India and connect to the more reliable inter-state transmission network. Fall in tariffs makes wind… Read More »

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Acme Solar and Sembcorp have announced plans to access capital markets for raising equity capital. Acme has filed preliminary papers for an INR 22 bn (USD 336 mn) initial public offering (IPO) with Securities Exchange Board of India (SEBI). Sembcorp has said that it may list its Indian unit either in India or elsewhere. Azure Power was the last Indian renewable IPP to list on New York Stock Exchange (NYSE) about 12 months ago. Our understanding is that Renew Power is also keen to launch an IPO sometime in the coming year. Financial investors looking for exits and developers looking to raise capital for new projects is creating urgency in equity market activity; Deals are held up because of mismatch in pricing expectations and portfolio performance, investors are likely to take a cautious view because of poor performance of previous issues from both conventional and renewable IPPs; Investors are driving hard bargains and closures are likely only for credible developers at the right price levels; Solar sector has seen significant capacity addition and allocations in the past two years and developers are scrambling to raise capital to sustain business growth. Nine private developers have built up solar portfolios exceeding 500… Read More »

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US trade case resonates in India

The US International Trade Commission (USITC) has unanimously agreed that solar imports have caused “serious injury” to local manufacturers. Suniva and SolarWorld are calling for duties of US¢ 40/ Wp on imported cells and a floor price of US¢ 78/ Wp on modules. But USITC may consider all possible remedies including new tariffs, minimum prices or import quotas. Solar industry in the US is against the suggested trade remedies, which they say will lead to market contraction and substantial job losses. USITC has the deadline of November 13 for finalizing its recommendations to the President, who has the authority to accept, reject or modify the recommendations. Trade barriers are expected to have a huge negative impact on the downstream solar industry without any guarantee of positive impact on the manufacturing industry; Past protectionist measures in the US, Europe and India have almost completely failed to meet their objectives; It is highly unlikely that new manufacturing investments will be made at a time of long-term policy uncertainty in an industry facing global oversupply and rapid change; The reason for a rare use of Section 201 for this investigation is that existing anti-dumping duties on solar imports from China and Taiwan were… Read More »

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Average clearing price for power on the energy exchange has been inching up from INR 2.61/kWh seen on 2rd September 2017 and spiked up to a high of INR 9.91/kWh last week. Current prices are in the range of INR 5.00 – 6.20/ kWh range. These high prices are in stark contrast to the past two years, when power was selling at near a ten-year low of INR 2.20-3.80/kWh. Exchange prices are regarded as a barometer of overall power demand-supply balance in the country and low prices have been seen as an indicator of excess supply situation. The current spike in spot prices has come about largely because of supply side issues rather than any sustained pick-up in demand ; Shortfall arising from scheduled maintenance of 10 GW of thermal and nuclear capacity, reduced wind and hydro generation and an uptick in demand could not be compensated through India’s underutilized thermal fleet due to a seasonal coal shortage; The spike sends a signal to consumers and DISCOMs that they need to proactively manage their power procurement plans and that reliance on short-term trading comes with its own set of challenges; DISCOMs meet bulk of their power requirement through long-term purchase… Read More »

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Andhra Pradesh recently became the latest state to notify forecasting, scheduling and deviation settlement regulations for solar and wind power generation. It joins Karnataka, Chhattisgarh, Jharkhand and Uttarakhand, who have already announced these regulations. Six other states including Rajasthan, Gujarat, Madhya Pradesh, Tamil Nadu, Odisha and Manipur have announced draft regulations. Together, these states account for about 70% of operational and under development solar capacity. The primary objective of the new regulations is to make generators more accountable through enhanced forecasting requirements and penalizing them for deviation. Once operational, this should help facilitate large scale grid integration of intermittent renewable power while maintaining grid stability. Industry experts believe that compliance cost for a single project, including penalties, may be around INR 0.02/kWh; Generators can comply with the regulations on an individual basis or on a ‘virtual pool’ basis by joining others; The regulations are highly desirable and developers would happily bear additional compliance cost in return for reduced curtailment risk; The national power regulator, Central Electricity Regulatory Commission (CERC), first announced a regulation for deviation settlement mechanism back in 2014 and has made three subsequent amendments. All state regulations essentially follow the CERC regulation with some minor variations. For example,… Read More »

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In a major cabinet reshuffle yesterday, India’s erstwhile Minister of Power and Renewable Energy, Piyush Goyal, demitted office to become the new Minister of Railways. R.K. Singh, an erstwhile bureaucrat and now a Member of Parliament, has been appointed as the new minister. During the 40 months of his tenure, Piyush Goyal initiated important supply side reforms including allocation of coal linkages, increase in domestic coal production, solar parks policy and green corridors program. In this time, thermal power capacity has grown by 60 GW, renewable power capacity by 23 GW and transmission capacity by an aggregate of 25%. Not accounting for latent power demand, these steps have turned India from chronically power deficit to a power surplus country. Surplus power situation, if not addressed through adequate demand side reforms, will affect renewable sector prospects; Rural electrification is unlikely to result in any tangible growth in power demand but may actually increase financial burden on DISCOMs; The incoming minister’s priorities should be to rationalize pricing of power, enforce operational improvements in DISCOMs, deal with the ‘Make in India’ conundrum and improve investor confidence in the sector; However, power pricing and demand side reforms have not kept pace. Despite UDAY scheme’s… Read More »

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Is there a case for solar InvITs?

InvITs are infrastructure investment trusts set up pursuant to SEBI Regulations 2014 for investment in infrastructure projects. Money raised from InvITs is used to repay external debt and buy back equity investments in underlying project companies. Recently, IRB and Sterlite power successfully launched the first two InvITs for road and power transmission projects by raising INR 50.3 Bn (USD 775 million) and INR 22.5 Bn (USD 345 million) respectively. Other infrastructure and energy asset developers are expected to follow suit later this year. SEBI regulations mandate a minimum of 80% of assets under an InvIT to be revenue generating for at least a year and at least 90% of distributable cash flow from underlying projects to be transferred to the InvIT unit holders. Thus, unit holders are assured periodic payments from distributable cash flows. An InvIT can only borrow up to 49% of its asset value on a consolidated basis. The overall InvIT structure is akin to a yieldco with tighter regulatory oversight because of its trust structure and attractive tax benefits:   Tax benefits   SPV ·         Exemption from dividend distribution tax ·         Interest payments to InvIT not subject to withholding tax InvIT ·         Exemption from corporate income tax… Read More »

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