New Delhi: Enthused by record low solar tariff of Rs2.97 per kilo-watt hour conducted for Rewa Ultra Mega Power Ltd, a joint venture of Solar Energy Corp. of India Ltd (SECI) and Madhya Pradesh Urja Vikas Nigam Ltd (MPUVNL), the state government plans to set up large solar power projects to help meet India’s clean energy requirements.
In an interview, Manu Srivastava, managing director, MPUVNL, talks about the possibility of tariffs falling further and firms such as PTC India and Coal India Ltd interested in setting up joint venture (JV) solar power projects with the state. Srivastava, a 1991-batch Madhya Pradesh cadre Indian Administrative Service (IAS) officer, also questioned the need for viability gap funding, role of risk sharing in lowering tariffs and land been identified at Neemuch, Shajapur, Agar, Chattarpur and Morena for setting up large solar projects. Edited excerpts.
What made you chase such an ambitious tariff?
Earlier the project was envisaged as a normal SECI project wherein the role of the state government was to only provide the land and the bid management was to be done by SECI. Had that been the case, this could have been a very big project but the tariff would have been the same that SECI gets.
I thought that if we could get Rs5.05 per unit for a case-I project (where the quantity and time of power procurement is identified, but sources and location of the plant are not specified) then why should we need viability gap funding (VGF) to get Rs5 as tariff which was targeted at that time. So, I wrote to the government in the second half of last year that we will do this project without any VGF but we will do it the way we want to and not on the lines of the SECI tender.
As we went ahead, the target tariffs were reduced to Rs4.50 per unit. So, that was a challenge for us. Because achieving Rs5 per unit without VGF seemed within reach but achieving Rs4.50 without VGF was a challenge.
One of the reasons why the tariffs are low in the initial years as you have provided for escalation in tariff for 15 years. Where did this stem from?
It was our own idea. It is a simple fact. The distribution firms (discoms) or any consumer find it easier to pay lower prices initially. In this case, the Delhi Metro would always compare our rate to the Delhi discom rates which increases every year. So for fair comparison it is reasonable that our tariffs should also increase slowly rather than being a fixed number. This is important for improving the acceptability of solar power in the country.
There is a concern about the viability of these bids. Your thoughts?
These are rigorous companies and they would have thought it over in terms of risks. We have a bid security of Rs25 crore for each of the three developers. And once they sign the power purchase agreement, then the performance guarantee is Rs75 crore for each of the units. All these companies are reasonable companies.
How important is the cost of capital in developing such projects?
Finally it boils down to that, when it reaches such low levels. Definitely, the cost of panels has come down. If we do back of the envelope calculation, the last lowest solar tariff was Rs4.34 per unit. You can say 70% of that price per se was of solar panel. That makes it almost Rs3. Now, that has gone down by 26%. This will translate to a price of Rs3.60 per unit. Our levelized tariff comes to Rs3.30 per unit which means that there are unique things with this project.
Why is Rewa project unique?
For Rewa, we were not interested in profits. At whatever rates we are getting the power, Delhi Metro gets it at the same rate. Also, there is no viability gap funding.
We are the only solar power project in the country which has taken a World Bank loan as it was crucial for us to keep our cost low. Till now, the power from solar projects in India has only been supplied to the discoms. We are fulfilling 90% of the day time requirement of Delhi Metro…we are meeting their live day time requirement, which is quite a challenging task.
Also, our contract is in energy terms. We are doing optimum scheduling which is catering to the varying demand pattern of the off-takers. In this case, we will first cater to the requirement of the Delhi Metro and then remaining power will go to Madhya Pradesh. Our responsibility to provide power is in energy terms. There is a concept of guaranteed energy offtake and minimum supply obligation…These concepts have been picked up from gas…Ours is the first energy contract in the country, not only in the solar space but also in the energy space. So it is an energy contract and not a power contract.
Typically contracts in India don’t specify the final customer. In that case, the credibility of the final end customer doesn’t impact the rates. In our case, we made an upfront declaration that our customer was the state and Delhi Metro. So while there was no doubt in the case of Delhi Metro, there were some concerns regarding the state’s payment capability. The state government agreed to a state guarantee, meaning that in the event of the discoms unable to make the payments, the state will be obliged to make the payment.
In all government contracts whether in solar energy or others, the entire risk is with the supplier. Supplier in turn loads that uncertainty or risk in the price. If we have a more smart distribution of risk between the developer and the procurer, then we will get lower tariffs. That is manifested in numerous ways in the tender.
The learning is that if there is an intelligent distribution of risk between the government and the supplier, then each uncertainty will not be loaded onto the price and the government would get things at a cheaper rate. It applies across all contracts.
We have also opened up the doors for interstate open access customers. Till date there was no such project in the renewable energy space which supplied electricity to interstate open access customer.
Also, for a state led organization for so many foreign companies to have participated is a big achievement. There was Soft Bank, Engie from France, Eneel from Italy, Canadian Solar, Sembcorp from Singapore and Solenergi which won a bid.
Will the tariffs fall further?
We can be improving our tender even further…Howsoever low rates we have got, if you look at Chile, Saudi Arabia, Dubai they got even lower rates. Now I am inquisitive about what have they done? How should we address things to get those rates?
How has life changed after the Rewa reverse auction?
There are many today who want to procure solar power from Madhya Pradesh such as Indian Railways…Lots of organizations such as Coal India Ltd, are also very keen to have an agreement with us…We have signed agreements with Indian Oil Corporation and Oil India Ltd for setting up a 500 MW project through a JV in Madhya Pradesh in October. PTC India wants to set up a 500 MW project in a JV with us.
We have been in advanced discussions with the Indian Railways…We are in discussions with SECI and Coal India about how to set up a project.
Which are the other projects apart from the ones you mentioned?
We want to do more. We are already doing one 250 MW project with NTPC Ltd. where we are playing the limited role of a solar park developer.
We would be implementing other projects in the state…We have already identified land for other projects at Neemuch and Shajapur in Western Madhya Pradesh, and at Agar, Chattarpur and Morena. We are looking at project sizes of 250 MW, 500 MW or 750 MW.