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How to think about your NSM bidding strategy?

How to think about your NSM bidding strategy?

The RfS for capacity allocations of 750 MW under batch one of phase two of the NSM has been released (refer) and interested developers are required to submit their proposals by 28th December 2013. There are several aspects of the process which will have an impact on the bidding strategy for different developers. In this analysis, BRIDGE TO INDIA gives an assessment of what this might mean. We will continue to analyze more aspects in our blog over the next few days.

  • Developers can bid for a maximum of 10 projects and 200 MW
  • CUF limits are fairly lax, at least for generating on the higher side
  • A capacity of 375 MW has been earmarked for DCR

Aspect 1: Developers can bid for a maximum of 10 projects and 200MW

This means that developers will likely try to diversify their risk profile and have a variance across bid amount across multiple projects. For example, in a hope to get multiple projects with a higher average tariff, a developer might ask for a VGF amount of INR 15m in the lowest bid and INR 17m in the highest. Due to this attempt to find a higher mean incentive in the form of VGF, companies may end up dividing the aimed for capacity into multiple projects, accepting that they end up perhaps not getting the entire 100 MW capacity. Individual project sizes are likely to be small (10-30 MW) and even the most successful bidders will most likely end up with far less than the maximum 100MW. The total number of projects will likely exceed 30.

Aspect 2: The first VGF tranche will only be released after project commissioning

As the developers will need to finance the entire capital cost upfront, it would be preferable to use cheaper short term construction finance (with a solid guarantee of the VGF being released after commissioning) in the form of trade financing or supplier’s credit rather rather than seeking bank loans for the entire amount.

Aspect 3: CUF limits are fairly lax, at least for generating on the higher side

The RfS document has fixed the maximum AC power output and minimum DC power generation. However, there is sufficient room for developers to account for the losses of DC to AC conversion. Also, SECI has mentioned that any excess power generated can also be bought at INR 3/kWh if SECI finds a buyer for this power. Due to this, developers will try to keep the DC side of the project as high as possible to keep the CUF in range. Developers could opt for as much as 15% excess on the DC side as compared to the rated AC capacity . Aggregate project capacity (DC) could theoretically reach 863 MW.

Aspect 4: Projects need to be commissioned within 13 months

A number of projects will be over 50 MW (at single location) and prominent EPC companies with a good track record, like Sterling & Wilson, Mahindra, Enerparc or L&T, will have their hands full. This opens up a lot of room for sub-contracting. Smaller EPC companies could offer specific parts of the EPC services to these larger EPC companies rather than trying to offer turn-key EPC services directly to the developers. Developers will also need to ensure that a certain EPC does not have its hands full before awarding it a project. This can lead to delays.

Aspect 5: A capacity of 375 MW has been earmarked for domestic content requirement

There are a total of 12 domestic cell manufacturers with total capacity of around 1 GW. Most of this capacity is currently lying idle and only a few meet quality requirements of large scale projects. Developers can assume an annual production capacity of less than 500 MW for good quality cells and modules. This means that these manufacturers will have to start their production units very soon and stock their products to cater to the upcoming demand. However, almost all of these companies do not have sufficient working capital. A key factor for developers to tie up Indian supplies will be to make advance payments.

This is a preliminary analysis from BRIDGE TO INDIA and we would like to engage the stakeholders to discuss these and other such aspects of the bidding process in further detail. Also, if you have any concerns with the RfS document that you feel should be taken up among fellow developers or clarified by the competent authority, please write to Jasmeet Khurana ( We will try to take up common concerns from the industry.

Track BRIDGE TO INDIA’s take on the National Solar Mission here.

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