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India's Biggest Private Power Developer to Shun Solar Bidding
2010-11-28 17:00:01.0 GMT
By Natalie Obiko Pearson
Nov. 29 (Bloomberg) -- 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.
--Editors: Randall Hackley, Todd White
To contact the reporter on this story:
Natalie Obiko Pearson in Mumbai at +91-22-6612-9107 or
npearson7@bloomberg.net.
To contact the editor responsible for this story:
Clyde Russell at +65-6311-2423 or crussell7@bloomberg.net.
