SunEdison and SkyPower: How India's solar dream is becoming unviable

QUICK PILL

The crisis

• Courtesy stiff competition between bidders, India got cheap solar power in 2015
• Things won\'t be this easy this year as solar companies are facing a crisis
• SunEdison is facing a crash SkyPower is looking to exit India

More in the story

• Has India been too ambitious in its solar power plans?
• What is the way out?

The year 2015 was a path-breaking one for the Indian solar sector. Solar power suddenly came at par with coal-based power, well almost. Two international companies backed with private equity capital became so aggressive in their bids that they offered a price never imagined before in the Indian context.

In solar bids held in Telangana, the lowest bid was made by Canada based SkyPower that won four projects of 50 MW each by quoting tariff between Rs 5.17 and Rs 5.37 per unit.

In the bids held in Madhya Pradesh, Canada based SkyPower won 150 MW with three projects of 50 MW each by quoting tariffs in the range of Rs 5.05 and Rs 5.29 MW. Out of the 300 MW, 200 MW of projects were won by companies with access to foreign funds.

In Andhra Pradesh, out of the 28 players who had place their bids, just one company - SunEdison - won the whole portfolio of 500 MW by quoting the lowest tariff in the country so far at Rs 4.63 per unit.

But in 2016, it seems that we will never get the solar power at this price.

California based, SunEdison is facing cash crunch and may well be on the verge of bankruptcy. And if we believe a news report in Economic Times, Canada based SkyPower, too, is looking to exit its India based projects.

Deja Vu

All this looks like a repeat of what had happened with the Ultra Mega Power Projects (UMPP), where the government had got excited with the aggressive bids submitted by Reliance Power.

Reliance Power bagged Sasan UMPP in 2007 in an international tender quoting the lowest 'levelised' tariff of Rs 1.19 per unit for 25 years. But later on, when the price of International coal went up and the cost calculations of the company proved to be wrong, it started asking for an increased price for its power from the UMPP.

Tata Power, which won the Mundra UMPP,  also invoked the same logic for its demand to charge more for its power from the project.

Even though the Sasan and the Mundra UMPPs are functional today, the idea of UMPP has become history in the Indian context as companies as well as government have lost faith in the concept of UMPPs.

What are the targets?

Coming back to solar power, since 2010, over 7500 MW of solar power projects have been tendered and the winning tariffs have fallen by 58%.There is no doubt that improvement in technology has led to a decline in the cost of generating solar power in India and elsewhere in the world, but here the question is - what price is viable in the long run?

And in case the company fails to deliver the project on the bidding price, what would be its fallout on the overall targets for solar energy in the country?

India's push for clean energy has made it embark upon world's most ambitious target in the solar power sector. The government wants to set up 100 GW generation capacity by 2022.This is even more than twice the capacity of Germany which is world's largest solar powered country having 39 GW of generation capacity.

What if the target is missed?

Nobody was expecting the government to meet 100% of its target. Most analysts as well as international observers were discounting the project by at least 30%. But even 70 GW would have be a great achievement. But falling short of the target should be for non-bidding or non allocation of projects.

When a government sets up massive targets, it is quite possible that not all of the planned projects would be delivered. However, when the shortfall is on account of cancellation or non-delivery by the winning parties, that raises serious questions about the policy framework of the sector.

If the solar sector lands in a situation similar to the one faced by the UMPPs, its implications would be far reaching. India's climate talks under the aegis of United Nations Framework Convention on Climate Change depend on its solar energy targets to a large extent.

A large scale revision in India's solar energy target may put India on the backfoot in the future talks with the developed nations as they have been demanding aggressive emission cut targets from India, which would not be possible in the absence of a strong solar energy capacity addition.

It is time that the government pitches in proactively and dwell on the viability of over aggressive bids submitted by the companies and get them vetted by the experts of the sector.

India's experience with competitive bidding to award projects has not been great in the past, be it in the power or the roads and highways sectors. Companies, be it Indians or foreign often quote aggressive prices to undercut competition only to demand government help in completing their projects through revisiting tariff policies.

It is time the Indian government gets realistic about the ability of the private sector to bring down the cost of building projects. And companies promising the sky must be made to deliver it without any negation.

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