Weekly Update: A Lesson from Bihar: states should allocate solar projects based on a policy
Bihar State Power (Holding) Company Limited (BSPHCL) had recently issued a tender for an allocation of a 100 MW capacity in the state. Today (July 1st 2013), is the last date for the submission of the bids. The solar projects are expected to meet the solar renewable purchase obligations (RPOs) of the state-owned power distribution companies.
- Allocation of projects should be under a policy that defines planned capacity of allocations, the time-frame and responsibility of various state entities
- Under the grading mechanism used for project allocation in Bihar, the quantum of allocations to be made was never clear
- State governments should come up with well thought of policies to allow more clarity and healthier competition
Such tender based allocations are becoming fairly common in the states that have no formal solar policies. Recently, the power distribution company Brihan Mumbai Electric Supply and Transport Undertaking (BEST) from Maharashtra has signed an agreement with Welspun to buy power from a 20 MW solar project in order to help meet the solar RPO. Mahagenco, the power generation company of Maharashtra, which has developed and recently commissioned its own 125 MW project in the state, plans to release a tender for an allocation of 75 MW soon.
While it is a good sign that these state level entities are serious about meeting their RPOs, the announcement and process for these allocations is often not very well communicated and many serious developers are unaware of such allocations. This means that the competition is low and the state might end up paying a higher price for the solar power. It would be better to allocate projects under a policy. A policy typically defines the planned capacity of allocations and the time-frame for such allocations. A policy also helps streamline the process by defining the responsibility of various state entities. It can provide incentives such as lease of government land at a discounted price and/or waiver or land conversion charges, etc. Such pre-defined processes help give more clarity to the developer and will allow for the tariff to be determined in a more competitive manner.
There is often a lot of ambiguity about the allocations which take place in states that do not have a policy. For example, Bihar was earlier looking to allocate projects based on a grading mechanism – the Bihar Renewable Energy Development Agency (BREDA) had received applications for 776 MW and completed its final evaluation on December 10th 2012. Under this mechanism, projects were graded based on aspects such as technical criteria, financial criteria, possession of land, distance from sub-station and the obtaining of a No Objection Certificate (NOC) from the pollution board, etc. The quantum of allocations that were to be made from these applications was never clear.
The state governments are aware of their obligations and should just come up with well thought through policies to define the how and within what time-frame they wish to meet their obligations. In addition any allocation process should be realistically and professionally managed. This allows for more transparency and clarity, less ambiguity, healthier competition and -ultimately -cheaper power for the state.
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