Bidding in JNNSM project phase II: Three Musketeer can make or break your Solar Plant profitability
Rapid decline in cost of solar PV has made it attractive preposition to the investors and we observed that in every bid phase, there are new aggressive price discoveries are made. The benefit of bid process is that it allows cost optimization to the investors, which is reflected in the bid price, and this point can be evidenced by from the bid price as low as INR 6.5 / kWh.
MNRE’s recent announcement, Viability Gap Funding (VGF) in JNNSM Phase II batch I, allows solar project developers (SPD) to bid for a fixed upfront subsidy/ capital support, so that the electricity from the solar project can be made available at a price of INR 5.5/ kWh. There are various factors which affects the profitability of a solar project. However, three crucial factors namely Interest rate, Capital cost, and PLF can make or break the profitability of any solar project. In this article, we will discuss these three parameters and try to analyze their respective impact on LCOE. In each analysis one parameter will be changed and other shall remain constant. Basic assumptions are Interest rate 13%, Capital cost INR 7 Cr and PLF 18%.
To start with, take a case of Interest rate which is the foremost factor among these three, as about 70% of LCOE is depended on interest rate only. If the solar project developer have cheaper interest available it can make the project viable irrespective of higher upfront cost. While JNNSM phase II, Batch I, has a minimum lot size of 10 MW, it will be possible for the developers to get External Commercial Borrowing (ECB) at a cheaper rate. Following examples highlighted the impact of interest component on Levelized cost of Energy of solar project.
Second crucial factor is Capital cost of the project. There are various ways to optimize the capital cost. For example, if the modules are sourced from domestically, the capital cost can reach INR 8 Cr/ MW. Similarly, if the modules are imported from some of the Chinese supplier and the developer decide to de-bundle the EPC package, he can bring the cost as low as INR 6.5 Cr/ MW. While it is important to keep the cost low, however, it is equally important to note that sources cheaper finance will require a reputed EPC contractor to implement the project, hence, will increase the capital cost. Decision making is a trade of between the cost and quality. Following graph highlights the impact of capital cost on Levelized cost of Energy of solar project.
The third chief factor is the Plant Load Factor, which reflects the net energy injected into the grid. Maintaining a good PLF, not only depended on your O&M strategy but also equally depended on quality of PV modules and installation of balance of system (BOS). Using the single axis or double axis tracker can take your PLF to as high as 26%. Following example highlight the impact of PLF on LCOE of your solar project.
It is essential for developers to consider all three factors simultaneously and analysis with lots of permutations and combinations should be done to assess the impact of these vital factors in the overall profitability of the project. To demonstrate, we have analyzed three different combinations with different approaches, Optimistic, Moderate and Pessimistic.
As JNNSM phase II bidding is to avail VGF at a fix LCOE of INR 5.45/ kWh. It is essential to control all three factors to remain competitive. In case I, highlighted in above example the LCOE of 5.4 can be achieved with a viability gap of about INR 1 Cr/ MW. However, this is highly aggressive approach, in which the developer has to control not only the Capital cost but also the Interest and PLF needs to be optimized. The PLF of 20 % can be achieved through good workmanship and regular O&M of the solar plant. It can also be achieved through thin film technology based PV modules, which demonstrate higher performance ratio as compare to crystalline technology. In scenario II- 22.5 % PLF can be achieved by installing trackers, this will surely add on some extra amount in Capital cost. In scenario III- double axis tracking system is assumed to be installed to increase the PLF up to 25.5%. The cost of double tracking system is considerable and same has been shown in the capital cost (INR 7.5 Cr) and also requires high level of O&M procedure.
There can be different combinations of these three critical factors however, bidding price need to be carefully evaluated by the project developers before participating in bids. We anticipate that the VGF requirement in this bid will range between INR 1 -1.5 Cr /MW as a winning bid.