Bridge India

Bidding stays aggressive in solar auctions

NTPC, SECI and Maharashtra State Electricity Distribution Company Limited (MSEDCL) completed auctions for their 750 MW, 200 MW and 1,000 MW tenders respectively in last two weeks. The NTPC and SECI projects would be located in Anantapur solar park, Andhra Pradesh and Pavagada solar park, Karnataka respectively. There is no solar park availability for the MSEDCL tender.

Capacity has been won by following developers:

– NTPC tender: Sprng (250 MW, INR 2.72), Ayana Renewables (250 MW, INR 2.73) and SoftBank (250 MW, INR 2.73);
– SECI tender: SoftBank (200 MW, INR 2.82);
– MSEDCL tender: Technique solar (20 MW, INR 2.71), Adani (200 MW, INR 2.71), ReNew and ACME (250 MW each, INR 2.72), Tata (150 MW, INR 2.71) and Azure (130 MW, INR 2.72);

The difference between profiles of winning bidders in the three tenders is pretty stark. Successful winners in the NTPC and SECI tenders are large international developers, who tend to be more risk averse particularly on offtake and land acquisition aspects. In contrast, winners in the MSEDCL auction are predominantly Indian developers.

After factoring in solar park costs (NPV of INR 9.8 million and 8.8 million/ MW for Andhra Pradesh and Karnataka solar parks respectively), bids under NTPC and SECI tenders are extremely aggressive as per our calculations. It is clear that the international bidders are paying a substantial premium for their risk aversion.

MSEDCL is one of the healthier DISCOMs (A rated) in the country but its record on renewable energy has been mixed with multiple incidents of payment delays and PPA execution delays. Despite that, the tender was oversubscribed by 45% and the winning tariffs are also fairly aggressive in our view. It is notable that the Maharashtra tender had to be re-issued for the fifth time. It failed to attract sufficient interest previously due to missing change in law protection from safeguard/ anti-dumping duty risk. But after the clause was added, the tender saw strong bidder interest.

By our calculations, risk-adjusted equity IRR for all these tenders is barely in double digits, way below the return hurdle for the sector. More than 10 GW of tenders are pending allocation but 7 GW of this capacity is stuck due to intra-state transmission system connectivity concerns. Developers, keen to add to their business pipeline now, appear willing to accept growing execution challenges and ignore soaring tender promises of MNRE.

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