Solar auction: UP does an AP, denies bidder rights

In November 2020, a tariff of Rs 2/unit was discovered in Seci’s solar auctions for Rajasthan.

Solar power auctions are losing their sanctity and developers their confidence, with Uttar Pradesh becoming the latest state to cancel winning bids without any valid reason, other than the lure of lower tariffs discovered in subsequent auctions. On receipt of letter of cancellation of the bids from the Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA) on Monday, the three winners of the reverse auction held in February 2020 are planning to move the appellate tribunal for electricity (Aptel) against the move. They may also write to the prime minister seeking his intervention to remedy the situation.

UPNEDA wrote to three firms – Vijay Printing Press, NV Vogt Singapore and a consortium of Saudi Arabia-based Al Jomaih and India’s Jakson Power – , stating that since no action was taken by the firms after they “consented for the extension of the bid period validity till March 31, 2021”, the bids have become “time-barred and infructuous”.

Soon after assuming office in May 2019, Andhra Pradesh chief minister YS Jaganmohan Reddy had revised the power purchase agreements (PPAs)of solar and wind projects worth around 8,000 MW in the state even though the PPAs were signed with the firms concerned by the previous government. The matter is now before the Amaravati High Court. Gujarat, too, suspended the process for allotting solar capacity of 700 MW in February this year, while it was obligated to sign PPAs with the winners in the auctions held earlier.

Industry sources said in the latest instance, the companies had only agreed to the UPNEDA’s request for extending the validity of their bank guarantees, and they were in no way responsible for the cancellation of the auction. In fact, UPNEDA also stated in the letter that since much lower tariffs have been discovered in recent solar auctions in other states, “it seems very likely that a fresh bid may deliver better tariffs for the electricity consumers of Uttar Pradesh…”. The agency also offered to return bank guarantees submitted by the companies.

Solar power tariffs reached a record low of Rs 1.99/unit in December 2020 under auctions held by Solar Energy Corporation of India (Seci) in Gujarat. In November 2020, a tariff of Rs 2/unit was discovered in Seci’s solar auctions for Rajasthan.

Speaking to FE, on the condition of anonymity, an official of the UP energy department said that since neither letters of intent (LoIs) have been issued nor PPAs signed with the firms, the companies had no right to challenge the UPNEDA’s decision. “All contractual rights and obligations begin once the PPA has been signed,” the official said. Another official, on the condition of anonymity, said the real reason behind the move was the lower tariffs discovered in recent auctions held by Rajasthan and Gujarat, and recently by UP itself.

Subrahmanyam Pulipaka, CEO at National Solar Energy Federation of India (NSEFI), the umbrella body of solar firms, said the letter from UPNEDA had no rationale. “There is no question of us giving consent for any extension of the bid. All our member companies were verbally communicated that because of Covid-19, the validity of the bids is being extending for one year till March 31, 2021. There was no written communication. Moreover, the issue is not the bid, but the fact that no LoI had been issued (to the winners). This shows blatant disregard for the process” He added that, “we are escalating the issue to PM office and we will definitely challenge it. We are trying to figure out the strategy and whether we should challenge the UPNEDA move in Aptel or UPERC or the high court or the Supreme Court,” he said.

While Uttar Pradesh had invited bids for 500 MW of solar power in February 2020, it received bids for the setting up of plants with a combined capacity of 184 MW from four companies, including the above three. One of them – SolarArise – bid for just 9 MW and it subsequently withdrew. Al Jomaih won 100 MW capacity, NV Vogt 50 MW and Vijay Printing, 25 MW.

While the UP government expects the tariffs to be lower in fresh auctions, industry executives say that might not be the case as the cost of solar equipment has increased with the rise of commodity prices globally. Tariff of Rs 3.17 per unit quoted in the auction in February 2020 itself was looking viable any longer, they say. “Higher land cost in Uttar Pradesh and the environment of policy instability also leads to higher tariffs in the state,” a solar industry professional told on the condition of anonymity.

The UP government, however, is confident of receiving lower-tariff bids given the auctions concluded in May this year discovered a tariff of Rs 2.69/unit. “We had invited RFPs for developing 275 MW solar power in March this year, against which two developers have been chosen to set up the 200 MW plants. On May 17, we went ahead and issued LoIs to SJVN for setting up a solar plant of 75 MW at Rs 2.68/unit at Orai, in Jalaun district, while REC Power Distribution Company will set up a 75 MW plant at Rs 2.69/unit in Jalaun district and another 50 MW plant at Rs 2.69/unit in Kanpur Dehat district,” the second official from the department quoted earlier said.

As FE reported earlier, the solar industry had written to the state’s chief minister Yogi Adityanath to expedite the issuance of the LoIs so that the winners of the auctions could commence construction of the parks. According to the tender document, the LoIs from the state government were supposed to be released within three months after the completion of the auctions. Delays in approval could even lead to the companies, many backed by foreign investors, to rethink their investment proposals in the state, the industry had cautioned in the letter.

India has set a target to raise the capacity of installed renewable energy generation plants to 450 giga watt (GW) by 2030. Of the 143 GW of tenders floated for building solar capacities, since FY17, around 78 GW have been cancelled.

The current installed renewable energy generation capacity stands at 95 GW and about 33 GW is under various stages of implementation while 30 GW is under various stages of bidding. Of the 40 GW of installed solar capacity in the country, Uttar Pradesh houses 1.7 GW. Industry experts have also attributed administrative and regulatory roadblocks to solar tariffs being higher in UP compared with those in other parts of the country.