Seeds of instability sown in Modi’s push for solar boom

NEW DELHI — India’s solar developers are voicing concern that foreign investors are promising to supply clean power at rates that are unrealistically low, threatening to destabilise the industry.

Companies such as SkyPower Global of Toronto have undercut Indian companies in recent auctions for contracts to build solar power plants. Local rivals including Azure Power and CLP India say their competitors may not deliver what they promise.

The dispute is a test for Prime Minister Narendra Modi’s efforts to draw in as much as US$100 billion (S$142.66 billion) for solar power, reducing emissions from plants fired by fossil fuels and the greenhouse gases they emit. Mr Modi’s government is preparing to announce India’s pledge for reducing emissions before the next round of global warming talks culminate in December in Paris, making it the last major developing economy to do so.

“The tariffs that are coming, we find them quite challenging,” said Mr Samir Ashta, director of finance and chief financial officer at Mumbai-based CLP India, a wholly owned subsidiary of CLP Holdings. “We will look to enter the market, but at these tariffs it’s a challenge.”

In July, SkyPower Global won half of the 300MW of solar capacity auctioned in the state of Madhya Pradesh by offering to supply electricity at 5.05 rupees (S$0.11) a kilowatt-hour. It was the lowest rate ever quoted and more than 10 per cent below the highest bid from India’s Hero Future Energies.

The next month, SkyPower won the contract to develop 200MW of solar in the state of Telangana with a bid of 5.17 rupees a kilowatt-hour, again the lowest offered in that auction.

“It’s not wildly out of whack” to see those prices, said Ms Jenny Chase, lead solar analyst at Bloomberg New Energy Finance. She noted that a project in Dubai by Saudi Arabia’s ACWA Power International bid US$0.059 (S$0.083) a kilowatt-hour, a rate that “would be totally impossible in India”.

India’s Azure Power is concerned that the bids coming in are falling faster than can be explained by the weakness of the rupee or declines in the cost of solar panels.

American firm SunEdison, the world’s largest renewable-energy developer, pulled out of a 20MW solar development in India in April last year because of local equipment shortages and prices that made it unviable.

Mr Pashupathy Gopalan, SunEdison Asia Pacific’s president, said his firm is not bidding too low.

“We’ll not bid aggressively just for the sake of winning,” he said. “We need to make money.”

The government expects that 10 per cent of the capacity it awards will never be built because developers fail to secure financing or land in time. About 100MW of projects have been delayed by more than three months for similar reasons, said Mr Tarun Kapoor, joint secretary at India’s Ministry of New and Renewable Energy.

Promises to invest in India have been mounting for months. In June, SoftBank Group Corp linked with Bharti Enterprises and Foxconn Technology Group on a US$20 billion solar venture in India. The aim is to add 20GW of generating capacity.

It’s likely some announcements will not get translated to reality, said Mr Sumant Sinha, founder and CEO of Gurgaon-based ReNew Power Ventures, which has 230MW of solar projects under construction in India. BLOOMBERG