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First-Time Solar Producers May Imperil Indian Projects (Update2)
2010-12-20 10:26:23.144 GMT
(Adds foreign companies setting up India operations from
21st paragraph.)
By Natalie Obiko Pearson
Dec. 20 (Bloomberg) -- India's first solar auction, planned
to boost clean energy in the world's fourth-biggest polluter,
may risk failure after winners were selected without experience
or proof that they can keep projects afloat earning low margins.
A woolen yarn maker, an animation company and an industrial
pipes supplier with no experience building power plants were
among 37 winners of the government auction announced Dec. 13.
The lowest bidders quoted prices that mean they may struggle to
earn an attractive profit, said Bloomberg New Energy Finance
analyst Bharat Bhushan.
"These projects aren't going to get built," Anmol Singh
Jaggi, director of Gensol Consultants Pvt., which funds
renewable energy projects, said in an interview. "I don't see
how they'll get financed or get returns."
India, which averages 300 sunny days a year, aims to
generate 20 gigawatts of solar power by 2022, equivalent to 12
percent of its total electricity production today. A setback may
delay solar's development in Asia's second-fastest growing major
economy at a time when equipment makers, including Arizona-based
First Solar Inc., face a potential supply glut and seek new
markets as European countries slash solar subsidies.
The three largest projects went to companies experienced in
building power plants: Lanco Infratech Ltd., KVK Energy Ventures
Pvt. and Rajasthan Sun Technique, a unit of billionaire Anil
Ambani's Reliance Power Ltd. Abengoa SA, which has built plants
in Spain and the U.S., and Acme Group, which is building a 10-
megawatt solar thermal plant in India, were passed over.
'Returns Not Important'
"The returns aren't very important at this stage," said
Alok Nigam, Lanco's vice president of business development.
"What we wanted to ensure was we got a berth in the National
Solar Mission."
"Are these tariffs really sustainable on a long-term
basis?" Nigam said. "I have my doubts."
Under auction rules, project developers offering to sell
their electricity at the cheapest rates were selected. The
lowest solar photovoltaic bid price came in at 10.95 rupees (24
cents) per kilowatt-hour and the lowest solar thermal bid was
10.49 rupees per kilowatt-hour, offering discounts of more than
30 percent to government-proposed rates.
By contrast, the global average rate solar thermal
developers need to earn is about 28 U.S. cents (12.70 rupees) a
kilowatt-hour, according to New Energy Finance data.
The auction awarded 470 megawatts of solar thermal capacity
and 150 megawatts of photovoltaic capacity. New Energy Finance's
Bhushan said the seven solar thermal winners, including Lanco,
KVK Energy and Rajasthan Sun, quoted bids that may be below the
levelized cost of generation in India. The lowest photovoltaic
rates may be at cost, he said.
Knitwear Maker, Animation
Levelized analysis compares the costs of energies produced
from different sources after accounting for expenses such as
financing and installation.
Bid winners included Oswal Woollen Mills Ltd., Kolkata-
based Amrit Animation Pvt. and Megha Engineering &
Infrastructures Ltd., which makes water-pumping equipment.
Oswal Woollen, based in Ludhiana, Punjab state, said in an
e-mailed statement that it has run a 15-megawatt bio-gas plant
and that concerns about its ability to build a solar facility
were unfounded. "We will be more aggressive in the successful
implementation of our solar energy plant," it said. "You have
to wait for only nine months."
Megha Engineering has no experience in solar or building
conventional power projects though it has "good financial
strength," R. Balaji, an engineer at the company's power
division, said by telephone. No website or contact details could
be found immediately for Amrit Animation.
Skills Untested
Companies weren't evaluated on their technical skills,
Deepak Gupta, secretary at the New and Renewable Energy
ministry, said Nov. 29. To prevent irresponsible bidding,
companies had to pay bid bonds on projects and will be charged
fines for delays or failure to build.
"I don't think there's a problem," Gupta said after the
auction. "There's no reason why we shouldn't reach our
target." The bids were probably accounting for declining
equipment costs and cheaper financing, he said.
"I personally don't believe it can happen" at these
rates, said Petra Leue-Bahns, chief financial officer of
Ecolutions GmbH, a Frankfurt-based renewable energy investment
company. Borrowing costs, banks' reluctance to lend and a
shortage of mandatory domestic equipment may also prevent
projects from getting off the ground, she said.
"From the perspective of a risk-averse institutional
investor, the whole story seems like a work-in-progress still,"
Leue-Bahns said.
Costs, Complexities
Developers may be underestimating the cost and complexity
of setting up solar plants, according to Mumbai-based Tata Power
Co., India's largest non-state electricity developer, which
shunned the auction. "We do hope that the people who are
bidding those numbers understand what it means to set up a solar
project," Executive Director Banmali Agrawala said in an
interview. "It's not a piece of cake."
The auction drew bids for more than eight times the 620
megawatts of capacity offered as companies sought to benefit
from government subsidies and power needs in India where peak
electricity demand outstripped supply by more than 10 percent
this year, according to the Central Electricity Authority.
Foreign Manufacturers Ready
The German glassmaker Schott AG is among the manufacturers
that are ready to make solar components in India if there is
sufficient demand, NEF's Bhushan said.
"India has the capacity to emerge as a huge manufacturing
ecosystem but we need scale," said B. Santhanam, managing
director of the Indian unit of Saint-Gobain, which makes glass
used in solar panels. "To make an investment, we need
visibility."
The Asian Development Bank announced it plans to partially
guarantee commercial bank loans to $425 million worth of solar
investments in India to help the sector take off. "But the
projects have to be credible," said Sujata Gupta, head of the
bank's private sector group in India.
"What's going to determine this market is projects that
get done, that get financed, that get finished," said Rana
Mookherjee, senior director of project finance at Fremont,
California-based Solaria Corp., which is making modules in
India. "Success is what's going to help this market take off."
For Related News and Information:
Most-read India stories: MNI INDIA <GO>
Top alternative energy stories: GREEN <GO>
More solar energy news: NI SOLAR <GO>
--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:
Reed Landberg at +44-20-7330-7862 or
landberg@bloomberg.net
