Solar industry members have expressed concern that this week's record low bids for solar contracts in India may not translate into "workable" projects.
This week SkyPower won a tender with a bid of INR 5.05 (US$0.080) per kWh for a 50MW solar plant in Madhya Pradesh. Meanwhile the highest winning bid was INR 5.64 per kWh for a 38MW plant by Indian developer Hero Future Energy.
Reinhard Ling, business manager at IBC Solar Projects Private, IBC Solar’s Indian subsidiary, told PV Tech: “I see workable tariffs between 6 and 6.5 INR per unit.”
He said some bidders may be speculating about future price drops, but there is “little” to indicate that happening. He also warned that this winning development may come at the cost of quality – adding: “I am not sure whether all the successful bidders will really realise the projects.”
Tobias Engelmeier, the founder of consultancy firm Bridge to India wrote in blog post that it is difficult to make solar projects in India profitable.
He said: “There is strong competitive pressure on tariffs and that percolates down through the entire value chain, leaving bare bone margins of around15% (at a debt cost of 11-13%), if at all.”
While Engelmeier cited some players as being over-optimistic and taking undue risk, he said there is “widespread assumption” that a portfolio of projects “generates value above the returns of individual projects” with financing options later on.
He also wrote that the low bids bring utility-scale solar to a place where it may no longer require government subsidies.
For example, the benchmark for Viability Gap Funding (VGF) in India’s forthcoming National Solar Mission auctions is INR5.45 per kWh, which is higher than the SkyPower bid.
Engelmeier also noted that the current price for thermal energy from coal is around INR4.5 – 5 per kWh. As solar prices fall over time, the Indian market may even take on solar, with it to be complemented by wind and gas, as an example.
Ivan Saha, president and chief technical officer of PV developer Vikram Solar, told PV Tech: "At the first glance these prices sound very far-fetched, but at the same time reverse bidding in India has always been in a way that has attracted low prices. With the current euphoria in the Indian solar sector, this is another step forward in the same direction and good for the solar industry in general.
"However, a word of caution here- there needs to be strict moderation of quality standards of components in these projects. Lower cost should not be synonymous with inferior quality."
Meanwhile, Raj Prabhu, chief executive and co-founder of Mercom Capital, said that several banks had told him that only prices of INR6-6.5 per kWh were “workable” based on current market conditions. He also warned of lower quality developments and profitability for the winning projects.
This article has been revised to include comment from Ivan Saha.