Last week, Karnataka opened financial bids for 500 MW solar PV projects, just a few days after financial bids for another 500 MW solar PV projects were opened in Andhra Pradesh. The bidding process in both the states was based on reverse bidding: on the basis of flat tariff in Karnataka; 3% escalation per year until the 10th year in Andhra Pradesh. The median winning bid in Karnataka is INR 6.94/kWh (USD 0.12/kWh). The levelized (adjusted for escalation) median winning bid in Andhra Pradesh is INR 6.70/kWh (USD 0.11/kWh) (refer).
- The opportunities in both the states are quite comparable
- Both First Solar and Acme who aggressively bid in Andhra Pradesh, did not participate in the Karnataka bids
- Overall solar tariffs in India seem to have stabilized between INR 6/kWh and INR 7/kWh
The tariff difference is only 3.6%. The opportunities are quite comparable. Project sizes are in the same range and execution timelines are similar. Payment risks are manageable. The PPAs are well structured and the distribution companies in Karnataka and Andhra Pradesh have similar financial ratings. The preferred districts in each state, where most projects are to be built, have similar solar irradiation levels of around 5.3 kWh/m2/day. Land prices in Karnataka and Andhra Pradesh are also comparable and range between INR 400,000-500,000/acre. However, the land acquisition process in Karnataka is more tedious.
In Andhra Pradesh, aggressive bids by First Solar and Acme helped in bringing down the median tariffs. First Solar has quoted INR 5.25/kWh (levelized tariff INR 6/kWh) and INR 5.35/kWh (levelized tariff INR 6.11/kWh). Acme has quoted INR 5.64/kWh (levelized tariff INR 6.45/kWh) and INR 5.72/kWh (levelized tariff INR 6.53/kWh). These four bids amount to 200 MW. Both First Solar and Acme did not participate in Karnataka.
Overall solar tariffs in India seem to have stabilized between INR 6/kWh and INR 7/kWh. With a significant number of new project opportunities across the country (especially the 3 GW planned allocation under the NSM), the competitive pressure on tariffs is likely to ease off. At the same time, average project sizes are increasing and PPAs are better structured. This bodes well for professional developers, EPCs and equipment suppliers who had to work on wafer thin margins in the past.