JNNSM Phase I Batch 2 -Solar Power reaching the Grid Parity in India

This was a fantastic news for all of us involved in Grid based Large Solar photovoltaic Projects. Jawaharlal Nehru National Solar Mission (JNNSM) is bringing Indian solar sector to the new heights. The turning point is that for the first time Solar Photovoltaic Power in India is closing to the grid parity with the lowest bid being Rs.7.49 ($ 0.146) per kilowatt hour (/kWh). I could sense the enthusiasm when I visited the SOLARCON conference at Hyderabad, where the speculations were there that this time the bids will be still coming down from the previous one. Lot of US and European based companies had set up booths at SOLARCON like Solar Semiconductor, Azure Power, BERGEN Power, SunEdison etc.

Aggressive bidding has taken place at the JNNSM Phase 1 Batch II. A very aggressive bidding round was seen at the Scope Complex Auditorium for the Batch II of Phase 1 of the Jawaharlal Nehru National Solar Mission (JNNSN). Solar Direct Emerges was the lowest bidder at Rs.7.49/kWh, while Green Infra was the highest bidder at Rs.9.39/kWh.

Other developers such as Welspun - it quoted three projects at Rs.7.97, Rs.8.05 and Rs.8.14/kWh; SunEdison at Rs.9.28/kWh; Mahindra Bids at Rs.9.34/kWh; Sai Sudhir at Rs.8.22/kWh; VS Lignite at Rs.8.54/kWh; and Sunborne Energy at Rs.8.99/kWh.

Meanwhile, Punj Lloyd offered no disount this time. Inderpreet Wadhwa led Azure Power and quoted a very aggressive price of Rs.7.91/kWh (50 megawatts); Sujana Energy at 9.09/kWh; and Kiran Energy quoted Rs.9.34/kWh for a 50 MW project. Green Infra emrged as the highest bidder, having quoted Rs.9.39/kWh.

This has set a trend on the one side making solar energy closer than ever to grid parity while on the other it has presented a big challenge for these projects to achieve financial closure and prove viability.

This bidding for the Solar PV project allotment under the second round of JNNSM phase I and the results from the bidding has shown signs of solar becoming genuinely cost competitive with grid power. While sub 10 bids were obviously expected, the bid price falling below 8 was indeed amazing for many developers and experts.

The Rs 10.59/kWh bid during the first round of bidding during the previous year, resulted in serious discussion over whether the developers are trying to pull wool over the eyes of the general public and more importantly the lender community.

Similar to the previous year results, the new numbers that were out yesterday too has resulted in a lot of debate. With severe penalty clauses in the second round this year and considerable learning during the last year, the discount that could be offered was never expected to cross 50% but all the assumptions and predictions are here to be bulldozed in the solar PV industry. Though the numbers might seem unreasonable at first sight, if one gives a proper thought over it, we would understand that these developers had every reason to submit such lower quote.

As earlier said, the French company Solaire Direct created shock in the industry with an unimaginable Rs7.49/kWh which was just close to grid parity.

Solardirect is the second largest solar power company in France. The company has quoted the so called ‘rock bottom’ price possibly as a part of market entry strategy as they have big plans of entering and growing in the Indian market. The latest report on photovoltaic support schemes released by the French government has caused haywire in the industry since the government threatens to severely curtail incentives including a potential annual cap of 500 MW. The French company has a pressing need to expand their market presence and India being one of the most promising market, the company had shown serious interest in the country with an anticipated target of 25 MW in the year 2011-2012. Also, the company has now saved loads of money which they would otherwise have spent on marketing. They have managed to hit all the headlines and gained extremely significant visibility in the country and all without any phenomenal marketing investments. All the revenues saved could come handy when they implement and operate the historic Rs 7.49/kWh project. The calculative risk and the low bid price is all a part of the market entry strategy.

Welspun Solar, with three different bid prices emerged second only to Solairedirect. Three different price levels and a 50MW clean sweep – and there is definitely some serious thought process behind their high discount bids. For Welspun, solar is of strategic importance and they are well on their way to become the bid daddy of Solar PV power generation sector in India. Project allotments in the first round of JNNSM phase I and projects from Gujarat state policy would have given them very good learning’s and confidence to go all out to secure 50MW and do not forget, they are on the fray to get projects allotted in Karnataka policy too. With past experience (something which is a rarity in the niche solar PV sector in India), the company definitely would have working relationships with EPC companies, module makers, inverter and other BoS manufacturers, lenders etc. The past experiences and associations comes in handy not only for Welspun, but a similar situation exist for a few other renowned solar PV developers like Azure Power, Mahindra Solar, Kiran Energy, Sai Sudhir Energy, Sun Edison India, Green Infra and Sun Borne Energy. All these companies have made the early mover advantage to their fullest benefit and managed to get projects allotted by quoting competitive yet viable prices.

There can be a number of arguments to justify the low bid prices, but we have to wait and see that how these companies are achieving financial closures with these lower tariffs.

Export-Import Bank of America, OPIC will be one of the sought after destinations for many of the victorious developers other than Azure Power. It is however surprising to know that two other well known developers – Punj Lloyd and Acme Solar who were EXIM bank beneficiaries in their previous projects, did not quote competitive prices to emerge victorious.

Deadline for achieving financial closure in the second round of JNNSM phase I has been raised to 210 days (7 months) from the earlier 180 days (6 months). The timeline for the commissioning of the project is also extended by a month – to 13 months from the date of signing PPA from 12 months earlier in batch I. With one more month of additional time coming in as a cushion for the victorious developers, one would have to wait and watch the actions that are to unfold in the days to come.

Now the challenge is to accomplish the projects as per the schedules after signing the PPAs. Of course, most of these developers can benefit from their previous experience in India in setting up Solar Photovoltaic Projects. I am sure that Solar will overtake Wind Energy sector in India if this enthusiasm and spirit prevails which can replace several tons of carbon dioxide otherwise would have produced with fossil fuel based power plants.