Wednesday, December 22, 2010

National Solar Mission.

Harness the power of the sun. That is the tall ambition of India. It wants to generate enough solar energy to take care of 12% of the total energy needs of India by 2022. Ambitions as lofty as the sun.


We tend to ridicule every target set by the Govt as it has the unbeatable, consistent track record of always missing it by huge gaps. And given the number of scams under probe in the country now, we cannot help but wonder whether the solar projects also reek of a new scam.

Last week, the Jawaharlal Nehru National Solar Mission, which aims to increase the country's solar capacity to 20GW by 2022, awarded 5MW solar projects each to 37 companies. The Govt received bids from 344 companies for solar projects spread across 14 states. Of this, 37 got selected – 7 are for solar thermal and 30 for photovoltaic.

Sounds good on paper, reads well too. But a little more digging reveals that this could largely remain merely on paper. The solar party risks getting crashed even before take off as those participating themselves could derail the whole cart. And the cost of the party being borne by the hosts, could very well jeopardize the entire partying.

The single biggest point of failure could be the bidding price for selling the power. To ensure that they get the bid, companies have quoted crazy and hence unviable prices. The lowest solar photovoltaic bid price is at Rs.10.95/kilowatt-hour v/s government's proposed rate of Rs.17.91. And the lowest solar thermal bid came at Rs.10.49/kilowatt-hour v/s government rate of Rs.15.31. At such huge discounts, how can the projects make money at all?

The cost of capital currently stands at Rs.14 crore per megawatt. And when these companies borrow funds for the solar projects, it would be at an average rate of 13% per annum. India’s target of 20GW by 2022 is same as that set by China but in terms of cost of borrowing, debt in China is as low as 3 to 4%. The rates at which these companies have bid to sell solar power is not enough to even recover their outgo on interest on the debt which they will need.

Camelot Enterprises, which has won a 5 MW solar photovoltaic in Maharashtra was the lowest bidder at Rs 10.95/ kilowatt-hour. And this is a handicraft company! And this is the company which was selected first, much ahead of the likes of IOC, Punj Lloyd, Lanco Infratech Ltd., KVK Energy.

Companies have justified this low bidding saying that more than making money, their bids were about getting a berth on the National Solar Mission. But is getting a berth alone enough? After winning the contract at auction, the developers have one month to sign power purchase agreements and a further 11 months to complete the project itself. To prevent irresponsible bidding, companies had to pay bid bonds on projects. They are liable to pay hefty fines for delays or failure to build. Well, we have fines for road building projects too but does that speed up the developers in any way?

Tata Power withdrew its name from this solar auction, citing it as unviable. It said that getting funding from banks at viable rates would be a problem and hence backed out. Azure Power, which has won the bid, is looking at funding from abroad. There is also confusion on how the electricity tariffs will go to developers.

What is also questionable is the quality of companies who have been awarded the projects. More than awarding projects on technical grounds, winners have been chosen merely on the lowest rates bid. There are the likes of (apart from Camelot Entp) Oswal Woollen Mills, Amrit Animation and Megha Engineering & Infrastructures (makes water-pumping equipment!). In the same breath, experienced developers like Abengoa SA, which has built plants in Spain and the U.S., and Acme Group, which is building a 10- megawatt solar thermal plant in India were chucked off. GAIL, Birla Corporation and Aban Goa have been outbid by Rajasthan Sun Techniques, Aurum Renewables, Megha Engineering, Corporate Ispat Alloy and Godavari Renewables. Almost 15 of the 30 lowest bidders are complete unknowns. Isn’t this how winners were chosen in the telecom bidding too?

The stink raised by the telecom scam is as such making breathing difficult and now, here too there wafts in the smell of another scam.

Two things can never be hidden – the sun and the truth. Hope the sun reveals the truth in this new scam.

Courtesy: http://www.premiuminvestments.in/cover-feature-50533/106/Solar-projects-eclipse-threatens-to-stain.html

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