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Weekly Update: Andhra Pradesh changes allocation process, policy instability to hurt investor confidence

Weekly Update: Andhra Pradesh changes allocation process, policy instability to hurt investor confidence

The south Indian state of Andhra Pradesh had carried out a bidding process for an allocation of 1,000 MW earlier this year. The state followed a L1 (lowest bid) process, where developers were required to meet the lowest tariff being offered by any other developer for a given sub-station.

  • The policy’s bidding process accounted for different project sizes, land costs and irradiation levels and was considered to be a progressive variation of the L1 process
  • In a sudden change of process, after the bidding process was complete, the state announced that it could only offer a tariff of INR 6.49/kWh
  • This policy instability and sudden change in process is expected to severely impact the outlook on new capacity addition as well as the investor confidence in the state
This process was different from the L1 process followed in Rajasthan and Tamil Nadu, where the developers were required to meet the lowest bid (L1) across the state. This key differentiating factor allowed to account for different project sizes, land costs and irradiation levels and was considered to be a progressive variation of the L1 process.

Based on this, 330 companies participated in the bidding process and the planned investments to be made were to the tune of INR 70 billion for a 1,000 MW capacity. In the April 2013 edition of the India Solar Compass , BRIDGE TO INDIA had predicted that a capacity of 550 MW would come up by the end of the first quarter of 2014. However, in a sudden change of process, after the bidding process was complete, the state last week announced that it could only offer a tariff of INR 6.49/kWh. The state’s cabinet sub-committee on power fixed this benchmark price at its meeting on 23rd April 2013 (refer).

This policy instability and sudden change in process is expected to severely impact the outlook on new capacity addition as well as impact the investor confidence in the state. Using the L1 process, Rajasthan, for example, has been able to allocate only 75 MW of the planned 100 MW capacity. Tamil Nadu, after revising the offered tariff up from L1 of INR 5.97/kWh to an ‘acceptable tariff’ of INR 6.48/kWh with an escalation of 5% per annum for the first 10 years (refer to the April 2013 edition of the India Solar Compass), has been able to allocate only a little over 200 MW of the planned 1,000 MW.

In Andhra Pradesh, the average bid had come out to a little over INR 8.7/kWh and only 13 bids out of the 330 bids are below INR 7/kWh and at several locations, the L1 is as high as INR 8.89/kWh. In such a situation, it is unlikely that many developers will agree to the proposed tariff. Currently, only the bids submitted by SunBorne and Essel Mining are close to the offered benchmark price.

Many project developers and even supplier’s had invested in the state based on the earlier proposed process. While project developers had invested in the development process, many suppliers have been looking to set up local presence to cater to the sales and service requirements arising out of the opportunity. The change in process is expected to have a negative impact on such investments. Based on the new announcements, BRIDGE TO INDIA has revised its new capacity installation outlook for Andhra Pradesh from 550MW to under 200 MW for the next four quarters.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

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