Why SunEdison's bid to sell cheapest solar power may be unviable

The plunge in tariff at the latest reverse e-auction for solar projects to Rs 4.63 per kilowatt-hour (kWh) has most in the industry scratching their heads as to how will the US-based SunEdison Inc, which has won the bid for 500 megawatt (mw) project in Andhra Pradesh, deliver at this rate.

Kushagra Nandan, COO of SunSource Energy, which recently got land allotted for 50 mw solar power through a request for proposal (RFP) floated by the Madhya Pradesh (MP) government, believes it could prove tough for SunEdison to raise finance and implement the project at the tariff it has quoted.

"I'm not in a position to authoritatively comment on it but the number seems too low to be true. We are trying to put our heads together to get to those numbers. It will be a big challenge to get the project (10 units of 50 mw) financed. We have seen it in the past too where projects were so low that the actual implementation became tough. Same was (the case) in coal bids. Certain coal bids were so low that the actual production could not happen.

So, it has to be tested out," he said.

Nandan estimated Rs 4.80-4.90 per unit would be a more feasible tariff for a 500 mw solar plant that would ensure its financial viability, leaving enough room for servicing of debt.

The previous low for solar tariff was Rs 5.05 per unit achieved by Canada's SkyPower Ltd, which won a 150 mw of solar capacity in July in MP. SunEdison's bid is about 15% lower than the industry average.

The SunSource Energy founder felt that even at a lower cost of financing, SunEdison's tariff economics was not "adding up".

"Maybe, they (SunEdison) have a lower cost of finance, but given where the dollar is today and increased hedging because earlier the hedging cost was much less, then also it is not adding up," he quipped.

Ujjwal Bhattacharjee, senior fellow – renewable energy technology applications – at The Energy and Resources Institute (Teri), said cost of loan, which generally constitutes 20-25% of the project cost for an energy project, would be critical for its viability.

"It (viability) would depend on the cost of loan. Indian commercial loans can be secured at between 11% and 13% while a dollar or Euro loan can be raised at 4-5%. This could push down the tariff, and probably make it viable," said the fellow at the renewable energy research institute.

He also felt sourcing downstream materials at competitive prices could also help in reducing prices of solar power.

"It would depend at what price they are able to source solar modules and panels. If it is bought at favourable prices (from China) then it (achieving a tariff of Rs 4.63 per unit) doesn't seem so tough," said Bhattacharjee.

Nandan said a future drop in prices of solar panel and other materials seems have been discounted into the tariff, which he feels was speculative.

"They (SunEdison) may have priced in the drop in the prices of solar panel and other materials because the (AP solar) project has to be built late next year. This is speculative," he said.

According to him, China, which is targeting to deploy 18 gigawatt (gw) of solar power this year, was fully prepared to meet the demand and this could keep downstream prices stable. India's large part of the demand for solar panels and modules are met from China.

"Next year, they (China) have increased the target by another 5 gw (up to 23 gw). We are not seeing any lack of inventory from China. They've actually increased their capacity for deployment. Therefore, I don't see solar panel prices reducing further. We wish we would be wrong," he said.

The government has scaled up capacity addition target five times under the National Solar Mission from 20 gw to 100 gw by 2022 from solar parks, rooftop and distributed power plants.

Pashupathy Gopalan, managing director of SunEdison – Asia Pacific, has reportedly said the low bid was "possible because National Thermal Power Corporation (NTPC), a profit-making public sector undertaking (PSU), was the buyer".

Tarur Shankar, spokesperson of SunEdison, also reiterated the same to dna, "It would be possible to work at quoted tariff because of NTPC, which is a profitable PSU".

The AP solar project had bids of Rs 4.80 per unit from SoftBank of Japan and Rs4.79 per unit from China's Trinna Solar Ltd.

Last fiscal, NTPC sold coal-based electricity at an average rate of Rs 3.25 per unit while the tariff of power from its other projects was between Rs 2 and Rs 4.50 per unit.

Most analysts believe solar tariff could ease further as states like Karnataka and Rajasthan will also soon be inviting bids for solar parks, and could move closer to achieving grid parity.