A significant drop in global commodity prices and fierce competition among domestic cash-strapped power project contractors have led to a steep fall in prices of solar EPC ( engineering, procurement and construction) contracts, benefiting power asset owners and consumers.
EPC contractors are learnt to have quoted the lowest ever prices of around Rs 5.6 crore a megawatt for solar power projects of NTPC in Rajasthan (260 MW) and Madhya Pradesh (250 MW) in the first-ever re verse auctions in the domestic content category.
The development comes at a time when global and domestic solar power developers have been aggressively participating in the auctions, pushing down solar pow er tariffs to the lowest-ever levels of Rs 4.34 a unit in the latest auctions in Rajasthan.
Fortum Finnsurya, part of Finland's state-owned Fortum, emerged the lowest bidder in 420 MW of solar projects in the reverse auction by NTPC for its solar park in Rajasthan. The lowest tariff until now had been Rs 4.63 a unit, offered by Sun Edison (500 MW) and SB Energy (350 MW) - the joint venture of Soft Bank, Foxconn and Bharti Airtel - in the open category for projects in Andhra Pradesh.
Solar power experts say the stage has been set for discovery of yet another competitive EPC price during the forthcoming reverse auction for 750 MW of NTPC's open-category project in Andhra Pradesh. With the open-category projects allowing use of cheaper imported cells and modules, they say the EPC prices may now see a new low of below Rs 5 crore a megawatt.
Rajinder Kumar Kaura, national convenor of Solar Energy Society of India, said the costs of solar projects, both for developers and EPC players, were witnessing new competitive benchmarks owing to various factors that include the fall in global commodity prices, cheaper sourcing of imported cells and modules, and the large sizes of solar units in the reverse auctions.
According to Kameswara Rao, PwC partner, energy and utilities, the continued decline in solar tariffs was due to a combination of several factors.
These include lower imported module prices and competitive interest from project developers.
Tendering agencies were also playing key role in shaving costs by offering larger projects, more secure contracts, and pre-developed facilities. "Despite stiff competition, EPC contractors are benefiting from buoyant project activity and, with growing experience are delivering projects in shorter time. In fact, some are taking ownership positions now, albeit funded by global investment banks," said Rao.
Ashish Khanna, ED and CEO of Tata Power Solar Systems, an integrated solar power player into production of solar cells and modules, and EPC contractor, said integrated players would have the advantage of cost optimisation of efficiencies that help them quote low tariffs and EPC bids. Finding no significant changes in input costs of solar cells and modules of late for solar prices to fall, he viewed that the aggressive price bids by domestic and foreign players could be based on certain assumptions on future trends of prices.
Airing apprehensions over of quality and technology of products going into solar projects at aggressively low tariffs and prices, Khanna has urged the government to ensure safeguards the quality and efficiency of the solar projects for quality and reliable power supply.
India currently has an installed solar power capacity of 3,744MW by end of March 2015, with Rajasthan and Gujarat together accounting for more than half of it while Madhya Pradesh and Maharashtra play catch up.
As a part of India's plans to achieve a target of 100 gigawatt of solar power by 2022, which is considered incrementally the highest globally, NTPC had floated tenders for 1,750MW under the developer mode and 2,760MW under EPC mode. Of this, some solar units will come in the solar parks and some outside the parks. The developers will have to supply the solar power to NTPC at lowest tariffs per unit to be arrived in the reverse auctions. The state-owned power giant will own the solar power assets to be built by the EPC contractors at the lowest cost per megawatt being arrived in the reverse auctions.
NTPC had invited EPC bids for 260MW of solar PV projects in Rajasthan, dividing it into four blocks of 65MW each and for 250MW in Madhya Pradesh in five blocks of 50MW each.
"Tata Solar, Vikram Solar, Jackson, Lanco and BHEL are among those who emerged the lowest bidders at Rs 5.6 crore a megawatt and a decision and formal announcement on awarding contracts is expected shortly," said a senior NTPC official, who did not want to be named, refusing to divulge details on the exact solar blocks and quantities these EPC players could be awarded. Couple of EPC players confirmed emerging as lowest bidders.
Kaura of Solar Energy Society cautioned the local developers on quoting aggressively lower tariffs. "It could turn suicidal for the domestic solar developers, who are quoting tariffs lower than what CERC finds justified. Such low tariffs of below Rs 5 a unit won't be economically viable for domestic developers if we take into account the costs of operations and maintenance for 25 years and costs involved in replacing solar PV modules that get damaged during this period. Only the foreign firms with access to cheaper funds and accelerated deprecation could afford such predatory pricing, which could eventually kill the domestic solar industry."
However, PwC's Rao views that the development risks in solar were limited and low, and "the only concern is recent decline in exchange rate of the Rupee, which will impact the capital costs and equity returns."