Tata Power Co., India’s largest non- state electricity developer, is shunning the country’s first major solar auction on concerns that terms set by the government will make it difficult for projects to be built profitably.
“We haven’t bid for the National Solar Mission,” Banmali Agrawala, executive director of strategy and business development, said in an interview in Mumbai on the plan to generate 20,000 megawatts of power from the sun by 2022.
The decision by Tata Power, the generating unit of India’s biggest industrial group, not to take part in the first bids highlights concern that the plan is failing to draw companies with the skills and resources to jumpstart the program.
That could delay the development of India’s solar industry, which potential investors including the World Bank and atomic reactor maker Areva SA see as one of the world’s most promising. India gets about 300 sunny days a year in most of the country.
“These are bad signs,” said Ashish Sethia, lead analyst at Bloomberg New Energy Finance in New Delhi. “Many large players have either not bid very aggressively or stayed away from bidding.”
European governments including Spain, Germany and France are curbing solar subsidies that set off a boom of investment and spiraling state renewable-energy costs. India is seeking to avoid such problems in part by awarding capacity to developers offering the deepest discounts to the rate at which they’ll sell their electricity.
‘Piece of Cake?’
That could backfire should developers submit bids underestimating the cost and complexity of setting up solar plants, Agrawala said.
Some of the bids may be “a little aggressive,” Agrawala said. “We do hope that the people who are bidding those numbers understand what it means to set up a solar project. It’s not a piece of cake.”
The government set an initial selling price of 17.91 rupees (39 U.S. cents) a kilowatt-hour for solar photovoltaic projects and 15.31 rupees for solar thermal projects. Bids have been submitted offering discounts of as much as 4 rupees to those rates, he said.
“There is definitely a risk that a number of projects might either be delayed and some even be shunned completely at later dates” as developers find themselves unable to execute at quoted rates, New Energy Finance’s Sethia said.
State Alternatives
India’s wealth of sunny days provides 5,000 trillion kilowatt-hours per year of solar energy equivalent, according to the Ministry of New and Renewable Energy. In comparison, India’s projected total energy consumption this year is a fraction of that, 848 billion kilowatt-hours, a ministry report showed.
The country’s Solar Mission initiative seeks to draw investment to the sector by offering incentives including special tariffs and a power-bundling arrangement designed to assure projects of a buyer for their electricity. It has also set restrictions, including limits on solar equipment imports and a 5-megawatt limit on any one developer.
“To restrict the size to just 5 megawatts per business group we felt was too small,” Agrawala said. “Also, you’re not allowed to import equipment. As an owner, I’d like to discover what is the least possible price in the global markets.”
Tata Power determined it would have trouble raising loans from banks under the program because it wasn’t clear whether the designated power buyer, a unit of state-run utility NTPC Ltd., has the financial backing to ensure developers are paid for what they generate, Agrawala said.
Mumbai-based Tata Power is setting up a 25-megawatt solar plant in western Gujarat under a separate state program, Agrawala said. It expects to sign a power purchase agreement with Gujarat state this month and commission the plant by the end of 2011, he said.
“Serious players are still exploring other state-based mechanisms and the success of the sector will also be dependent on the success of those schemes,” Sethia said.
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