Problems continue for the Tamil Nadu Solar Policy

Problems continue for the Tamil Nadu Solar Policy

Mr. Mohit Anand heads the Market Intelligence team as Senior Consultant at BRIDGE TO INDIA.

The Tamil Nadu Solar Policy has encountered a host of problems since its launch. As mentioned in our Tamil Nadu Policy Brief, the state’s power distribution companies have been burdened by their past record of payment delays which has weakened the inherent bankability of the PPAs.

The eight-month timeline provided by the state government for commissioning of the projects created immense pressure on the bidding participants. In addition, the hasty allocation process pursued by the state did not provide adequate time for the developers to plan ahead. As a result, many developers did not participate in the bidding.

  • TANGEDCO sued for adopting an unfair tender process
  • Lack of approval of PPAs by the TNERC may create problems for developers in achieving timely financial closures
  • Participant developers are unlikely to accept the L1 bid
To add to the policy’s woes, The Solar Energy Society of India has recently filed a case against
TANGEDCO on grounds of adopting an unfair methodology of tender allocation. The L1
bidding method or ‘everyone should meet the lowest bid to get the project’ formula has not
been well received as it has been accompanied by several unaddressed questions such as:
  • How are all bids of different capacities asked to match the price of the least bidder?
  • How will the State renegotiate the price if the least bid is too high as per the State’s expectations?

The problems with the Tamil Nadu Solar Policy have only continued since the bidding.

  • The revolving line of credit that promises to be a guarantee of payment to the developers is unlikely to favor the developers in securing finance.
  • One clause in the agreement implies that the Government will have the right to make amendments in the policy and guidelines of the agreement from time to time. Such a clause places the developer in a position that is not protected from policy or governance changes.
  • Another clause states that the Power Purchase Agreement is subject to approval from the Tamil Nadu Electricity Regulatory Commission. The time required to obtain such approval from the TNERC is not known and may create considerable problems for the developer in achieving financial closure.

BRIDGE TO INDIA believes that if the PPA does not get TNERC’s approval in time, developers will face difficulties in achieving financial closure. This will further strain the already stringent eight-month commissioning deadline.

Further, as predicted in the January 2013 edition of the INDIA SOLAR COMPASS, we believe that some of the bids received will not convert into signing of a PPA as the participants of the L1 bidding process will adopt a take-it or leave-it approach instead of meeting the lowest bid. This is because matching the lowest bid could be financially unviable for the developers. Further, the process has attracted only a small number of bidders, providing leverage to the developers to avoid accepting the lowest bid for a PPA.

Download the INDIA SOLAR COMPASS January 2013 edition for more.

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