POLICY RECOMMENDATION FOR SOLAR ENERGY DEVELOPMENT IN AP and TELENGANA
Andhra Pradesh has been facing severe energy deficits and the situation is likely to continue in the coming years. The current Deficit is + 15.2%. The deficit has rising trend and likely to continue due to:
- Domestic coal shortages
- Drastic drop in domestic gas availability from KG – D6
State’s aggressive Solar Energy Development Plan
To address severe peak deficit in meeting growing energy demand, AP has an ambitious plan to tap the solar potential in the state in coming years, issued Solar Policy 2013 and called a tender for procurement of 1,000 MW of solar power.
No. of solar power projects in Andhra Pradesh is low which can be increased in future as AP provides huge scope for setting up solar power projects in the state.
Out of 44 MW capacity installed in AP, NTPC Vidyut Vyapar Nigam (NVVN) is supplying 30 MW capacity solar power to Andhra Pradesh under NSM Phase I program.
Government of AP therefore formulated a solar policy in which it directed the DISCOM’s to procure 1,000 MW of solar power through a competitive bidding process. APTRANSCO initiated the tender process in January 2013.
SOLAR POLICY MERITS AND INCENTIVES
The Government of AP under its Solar Policy has provided excellent incentives listed here under to the solar power generators in the state for encouraging solar power generation and achieve implementation target of 1000 MW PV solar projects by June 2014.
- 100% banking facility
- No wheeling & transmission charges
- No cross subsidy surcharge
PPA for 20 years and payment security for bankable proposals
- Electricity Duty exemption
- VAT refund for all the inputs required
- Refund of Stamp Duty & Registration charges
- REC eligibility
Net Metering facility to be implemented to encourage consumers to set up solar PV plants at unutilized places on rooftops, waste lands, industries, offices, institutions, etc,
There has been over whelming response when around 187 bids were received for identified individual s/s in the state and offered projects worth 1780 MW. It is worthwhile to mention that SPD’s put bids based on capital cost, solar resource at the identified sites, length of transmission and grid interface required and cost of funding and its source.
BID OPENING RESULTS – Response on L 1 Bid Price offer
Financial bids of qualified bidders were opened, evaluated & the lowest bid L1 of L1 was Rs. 6.49/kWh. Surprisingly away from the publicly announced tender conditions this rate was offered to all bidders to match the lowest bid price. The completion target fixed to June 2014.
Less than planned only 60 MW of PPAs were signed in the state until now and around 80 MW more might opt to sign at the offered tariff of INR 6.49/kWh (EU R 0.08/kWh; USD 0.10/kWh). Under the circumstances Andhra Pradesh is compelled to allocate a revised target capacity limiting to 350 MW. This apart considering to the large shortfall with respect to the earlier goal, the state has offered PPAs to any project developer under open policy who wishes to set up the PV solar plants at same tariff of 6.49/kWh. Further, even now and looking to unfavorable response from developers, Andhra Pradesh expected to extend the deadline to allow more developers to evaluate the risks and tariff conditions as they might opt to sign the PPA if projects are viable.
The AP initially had aggressive target to allocate a capacity of 1,000 MW. However, following a mid-way revision of tariffs i.e. L-1 0f L 1 i.e. Rs. 6.49 / kwh offered to all the developers irrespective of they being L 1 in line with public tender document provided by APTRANSCO, most developers withdrew their interest due to risks in investment and subsequently the target was revised to 350 MW. Now, due to additional issues such as the creation of Telangana and the depreciation of the Indian Rupee, developers who are eligible for AD benefits and have access to low cost foreign funding could only see economic viability and opt to sign PPA (May be for a total capacity of 140 MW under the current allocation process).
APTRANSCO are now aware that most perspective developers and new entrepreneurs stated their concerns during various meetings called by APTRANSCO that they would opt not to sign the Andhra Pradesh PPAs. This is partly because of concerns related to the state’s political split and partly due to projects no longer being viable in the wake of increased component costs (driven by the rupee’s devaluation) and likely imposition of Anti Dumping duties.[/ezcol_1half] [ezcol_1half_end]
WEAKNESSES AND GAPS
following are the weakness and gaps responsible for this low response and failure to achieve 1000 MW capacity Solar target
- Lack of comprehensive, integrated approach
- No mention and clarity in originally published public tender document for offering L 1 price
- Lack of Political will and administrative approach to achieve aggressive target though existing power crisis might have forced the Government to take the decision to announce excellent investment friendly solar policy and asking state DISCOM to procure 1000 MW Solar Power.
- Lack of understanding about relationship between objectives of the Policy and proposed action after the bids were opened.
- Role & Responsibility/Institutional capacityEnergy Department,New and Renewable Energy Development Corporation of Andhra Pradesh (NREDCAP), Electricity Distribution Companies (DISCOMs), Andhra Pradesh Electricity Regulatory Commission (APERC) has not been proactive and worth appreciable to demonstrate its role in achieving goal though Honorable CM’s announcement of bidding for 1000 MW solar plants has been a mandate.
- Changes in the Policy and offering L 1 of L 1 bid price to all the developers had financial implications and investment risks.
- Facilitation / Providing comfort particularly for new entrepreneurs and investors has been absent.
- Initiatives lacked to tap resources including external / multilateral sources
- Group of Ministers on Renewable Energy had lacked of vision on CM’s mandate.
- Lack of involving of Developers and FI’s in decision making
- Lack of Leadership, Coordination and Transparency
BLUNDER – FAILURES
The greatest blunder carried by the state authorities is that all the developers though they were L 1 in respective S/S wise competitive bidding, were offered L 1 of L 1 bid price and asked to confirm acceptance. This move along with $ acceleration has forced the developers to re look at project economics and bankability for funding and confirm signing the PPA at Rs. 6.49 / Kwh.
The developers are who even signed the PPA approached lenders and opined that FI’s in India are not convinced for financial viability on following
- The project economics and returns are not sufficient for debt servicing at the L 1 tariff of Rs. 6.49 / kwh. However, the solar project developers (SPD’s) who are eligible for AD benefit, has strong balance sheet and access to foreign funds could secure the financial closer to started site work. It may be noted that AP’s current solar policy do not facilitate separate tariff for SPD’s between AD and non AD developers in line with CERC Tariff regulations and MNRE guidelines being followed by SECI and NVVN in competitive bidding cycles of NSM Phase I and phase II development.
- The decisions of the state government in Rajasthan, Tamilnadu and AP asking SPD’s to match L 1 price has discouraged the investors, entrepreneurs and stake holder in making investment decision. Further, the lenders in India too did not support such tariff as Indian lending cost is very high (+13%). All these states who offered developers L 1 price when bids were opened suffered badly in achieving goals in Solar Energy development.
- In contrast to above failures in AP, Rajasthan, TN and recently in Chhattisgarh, there has been remarkable achievement in implementation of NSM Phase I, Batch 1 and 2, MP, Karnataka, Gujarat Solar Policies and recent bidding cycle under NSM Phase II batch 1 where SECI and SPD’s could sign PPA worth 750 MW projects and offered projects on its quoted tariff in bidding by SPD’s.
The success story of solar energy development under NSM Phase I and Phase II Batch I projects could be learning lesson for these two new states to follow for capacity allotment to SPD’s for its timely achievement of ambitious Solar Energy Development Plan .
A special incentive of 70 paisa / kwh in L 1 tariff i.e. Rs. 6.49 / kwh offered to all SPD’s who are not eligible for AD benefits will result in economic viability of the solar projects, attract these developers to sign the PPA and deliver the projects in time. The CERC tariff orders / Regulations in this reference are relevant.
Mr. Gopal Lal Somani[/ezcol_1half_end]