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Why Piyush Goyal is not bothered as SunEdison goes bust

Neeraj Thakur | Updated on: 12 July 2016, 13:20 IST

India's Renewable Energy Minister Piyush Goyal is not perturbed with the busting of SunEdison. The American company, with the largest renewable enrgy portfolio in the world, made news in India by biding the lowest for any solar power project in 2015 at Rs 4.63 a kW/hr.

However, banks have now started cashing SunEdison's bank guarantee, as the company failed to meet its deadline in initiating the construction of projects.

"I did not ask the company to bid so low. It was an open bid and if they have not managed to check their finances, it is there problem," Goyal said Monday.

The bidders were told that there would be enough for all companies. "Despite that if they are getting over aggressive, government can't help them," Goyal added.

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The Centre now intends to put the the projects lost by SunEdison on the bidding table again. But that's likely to take some time.

When SunEdison and SkyPower started bidding aggressively in the Indian solar sector, analysts questioned the viability of such bids.

Bids by foreign companies

In Telangana, the lowest bid was made by Canada-based SkyPower. The company won four 50 MW projects each by quoting tariff between Rs 5.17 and Rs 5.37 per unit.

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

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In Andhra Pradesh there were 28 bidders. But SunEdison won the whole portfolio of 500 MW by quoting the lowest tariff in the country so far at Rs 4.63 per unit.

Is the Minister over confident?

India's push for clean energy has made it embark upon the world's most ambitious target in the solar power sector. The government wants to set up 100 GW generation capacity by 2022. That's more than twice the capacity of Germany, the world leader in solar power capacity at 39 GW.

A similar scenario was faced by the UPA government with its Ultra Mega Power Project Policy (UMPP).

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 the government have lost faith in the concept of UMPPs.

What are the targets?

But here is the difference.

In the case of UMPPs, the UPA government failed to enforce any penalty clause for errant companies.

However, the NDA government has learnt its lessons from the past, and inserted such a clause that kicks in if a winning company does not start processes like 'setting up special purpose vehicle', signing power purchase agreements, etc.

It has also taken bank guarantees from the winning parties that stands to get encashed in case a company failes to meet its deadlines as per the contract.

SunEdison has already started losing bank guarantees to state governments. Any other company that fails to meet its deadline will also face the same consequences.

However, the bigger question here is, will confiscating bank guarantees be enough for the government to meet its targets? What if the state governments make billions of rupees by way of confiscation of bank guarantees, while the central government fails to meet its ambitious target of 100 GW by 2022?

Goyal must be relying on the market forces to teach corporates lessons in financing and viability of projects. If it happens, the bids in future would be at a cost that can be delivered on ground. Otherwise in India, Goyal would be a disappointed man.

Edited by Sahil Bhalla

First published: 12 July 2016, 13:20 IST
Neeraj Thakur @neerajthakur2

As a financial journalist, his interface with the two dominant 'isms'- Marxism and Capitalism- has made him realise that an ideal economic order of the world would lie somewhere between the two. Associate Editor at Catch, Neeraj writes on everything related to business and the economy. He has been associated with Businessworld, DNA and Business Standard in the past. When not thinking about stories, he is busy playing with his pet dog, watching old Hindi movies or searching through the Vividh Bharti station on his Philips radio transistor.