The state’s 1,000 MW solar auction in May initially faced troubles, but was eventually completed.

The Maharashtra government is planning to auction around 2,000 MW of solar capacity by August 15. The state’s 1,000 MW solar auction in May initially faced troubles, but was eventually completed. The lowest bid at the last auction was Rs 2.71/kWh. The initial four auctions by MSEDCL failed; IPPs did not bid since they wanted higher ceiling on tariffs of Rs 4/unit from Rs 3/unit. The ceiling on tariffs was earlier reduced to below Rs 2.60/kWh after aggressive bidding last year.

Although the government did not increase the tariff beyond Rs 3/kWh, it allowed procurement of power from outside Maharashtra at the last auction. The government even allowed developers to set up 2 MW at a single location from 5 MW earlier, helping smaller developers to participate in the bidding. Developers were also apprehensive of impending safeguard duties, as they were not sure if they would be allowed to pass on after duties were imposed.

The lowest bidders at the last 1,000 MW auction in Maharashtra were: Adani Green Energy’s Mahoba Solar (UP), which won 200 MW, and French developer Technique Solar, which got 20 MW, both at Rs 2.71/kWh. State energy secretary Arvind Singh told FE, “Our last auction was a great success where we achieved the lowest bid at Rs 2.71/kWh. We are awaiting final regulatory clearance from MERC, after which the projects will be awarded. We further plan to auction 2,000 MW solar capacity in two tranches by August 15.”

More solar auctions will give the state distribution company the ability to source cheaper power and will also fulfill their renewable purchase obligations. However, there is a danger that the discom may try to renegotiate its existing PPAs that were at high rate of above Rs 5/kWh with wind power generators such as ReNew or Tata Power Renewables. Prashant Khankhoje, advisor to the Independent Power Producers Association of India, said these auctions would be successful only if IPPs are able to make returns above 13% on their investments. Most of the companies who have won projects in latest auctions at aggressive tariffs have the backing of foreign funds.

However, it’s difficult for small domestic investors to source foreign funds. “The government should bring down the cost of domestic funds to single digit from the high 10-12% at present. Moreover, due to competitive bidding, there is no business model for small investors. The options left are large IPPs and captive or group captive,” Khankhoje said. The other disadvantage in Maharashtra is the cost of land, which is very high. Land also needs to be made available at economical price for these projects, Khankhoje said.