Solar Park Bhadla III India:Lowest bid of Rs 2.44/KWh by ACME -Is it a Finance Game only Or, a big game of technology & commercial viability as well?


On 12-May-17, ACME Solar was the L1 bidder of 200 MW Bhadla Solar Park. On 12-May-17, ACME Solar was the L1 bidder of 200 MW Bhadla Solar Park. Solar LCOE of Rs. 2.44/KWh is not only a finance game but a big game of technology/commercial viability as well?

Recently auctioned 500 MW capacity in Bhadla Phase-III Solar Park of Rajasthan in India with a winning bid of Rs. 2.44/kWh and 2.45/KWh LCOE by ACME Solar Holdings and Japan's SBG Cleantech is not only a finance game but a big game of technology & commercial viability as well. A better way of understanding this through

Sensitivity analysis through Financial Model.:-

Sensitive parameter is CUF %-

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Sensitive parameter is Normative Capital cost Rs Lakh/KW-

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Sensitive parameter is Cost of Debt or After-tax cost of debt or Interest rate in %-

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Sensitive parameter is Market Beta (Ba) or stock's beta or Beta of the asset -

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LCOE = Rs 2.44 KWh; ROE (pre-tax) = 21.2 %; ROE (post-tax) = 15.6%; Earnings yield = 25.7%; Grid parity = 3.16 Rs./KWh; IRR (Equity_Pre-Tax) = 17.3%; IRR (Equity_Post-Tax) = 13.06%; IRR (Project_Pre-Tax) = 10.96%; IRR (Project_Post-Tax) = 9.36%; DSCR = 1.59; WACC = 7.02%

Why the LCOE drop from Rs 4.63 / kWh in November 2015 to Rs. 2.44 / kWh in May12. 2017 can be interpreted as a game of finance? –

We have seen that innovations to reduce capital costs or increase energy yield are the key to bringing solar to coal fired without subsidies. Also note the important role played by the "Weighted average cost of capital (WACC)" or “Cost of capital” or discount rate and term (N). We can say that financial engineering innovations have been a big part of solar companies work to make solar affordable to all. For instance in the western countries like US, Japan, Germany, etc., financial innovations have allowed the “cost of capital” to drop significantly, having a huge impact on affordability of solar as 25% decrease in “cost of capital” reduces the LCOE by more than 5 %. We now need to make similar innovations at the technical and financial levels to enhance the solar penetration and also to bring solar affordably to the emerging markets and the poor.

Why the prevalent emphasis is that the LCOE drop from Rs 4.63 / kWh to Rs 2.44 / kWh is not only a Game of Finance also a Big Game of Technology & Commercial Viability? –

(i) Chinese factor due to which solar PV module, which account for more than 50% of the entire project CAPEX, costs have fallen faster as the “delta decease” is essentially financed by bleeding module makers from China. This Chinese factor has been originated by the temporary overcapacity in China resulting from delayed projects in several key markets. (ii) As with every emerging technology, the prices for solar cells are falling with the increase in series production and technological innovations. Because similar programs to the ones in the USA are also being launched in other countries like Japan, Germany, Spain, Netherlands etc., it can be assumed that the costs for solar power will continue to fall in the coming years. (iii) Moreover, based on the experience curve, it is needless to say that each time the total production quantity has doubled; the prices for solar modules on the world market have fallen by 20 %.

Renewable is the way forward and it will not be early to deduce, on the practical ground, that this revolution in solar power is going to bring dooms day for future coal-fired plant construction in squeezing the voluminous way the coal-fired power plant construction (happened in the past decade in India) in the coming decade -

By 2022, the government wants to raise its renewable energy to 175 GW, as part of the Paris climate change agreement. Currently, India’s Installed Generation capacity is 300 GW and out of 300 GW thermal power accounts for over 65%. Out of 65% i.e. out of 195 GW, coal based alone is 170 GW. So, coal is the main stay of thermal based power generation.

Recently formed SECI, while sitting on the current installed capacity of 10 GW, targeting to reach 100 GW by 2022. And in order to materialize the target set by GOI, companies have been bidding for low tariffs for solar and wind projects to challenge the power generated by fossil fuels in the future.

As a result of this, solar power tariffs have been falling in the last three years due to the GOI's thrust on raising India's green energy footprint and ultimately reducing oil imports by 10% by 2030.

Current Indian scenario vis-a-vis the further expansion of construction of coal fired power plant-

India, where thermal equipment is mostly indigenized and has 30 GW manufacturing capability of Thermal (Coal fired) equipment but the manufacturers are feeling revenue squeeze and crying for orders in India and major ancillary equipment suppliers are idle. And the worst is yet to come in a way that there is no further expansion plan by GOI for coal fired PP which can bring badly needed cheer to Coal Fired Thermal Power Sector.

On the other hand, solar panels are mostly imported. So in an optimistic way, the silver lining is that solar panels indigenized manufacturing boom is imminent and on the anvil.

With a boom in Solar Power, a cascading silver lining paves the way for global players like L&T-MHI, BGR-HITACHI, THERMAX-BABCOCK, BHARAT FORGE-ALSTOM, TOSHIBA-JSW, GB ENGINEERING-ANSALDO who have planned for higher capacity boiler/turbine through their respective JVs.

This silver lining can be the technological revolution of more than 2500-3000 MW Boiler and turbine unit along with SCR / FGD package while simultaneously meeting the commercial viability along with the applicable industry norms and the statutory parameters set by the regulatory authority.

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Source: Edelweiss Research, TechSci Research

Tragedy looming for Coal fired power plant: Grid connected solar PV Plants and subsequent impact on the plant load factor of Conventional Power Plant:-

Grid-connected solar PV (photo voltaic) plants use transmission lines only 20% of the time compared to 70% by traditional plants, which makes it 3.5 times(=70%/20%) costlier to wheel solar power. Moreover, operation of conventional plants will have to be ramped down or up to maintain balance between energy supply and energy demand. This would result in lower plant load factor for conventional power stations, which are expected to drop to 50% levels from current 60%. This in turn would push up the fixed cost component in the average cost of power and push them out of favor with state utilities.

So in a product life cycle what happens to the product after maturity stage? A dying stage evolve and same may hit the expansion of coal fired power plant in India subject to the condition that the advent of the substitute solar power plant is technically and commercially viable and cheaper than coal fired power plant.

So it can be assumed that the consequent tragedy can be culminated in terms of meagerly lower/neglected investment in coal fired power plant in India.




Author: Mr. Ujjwal Kumar Gupta , MBA - XLRI; B.Tech - IIT; Sectorial experience - Infrastructure, Energy, EPC, OEM, Power, Mining, Construction, Steel

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Disclaimer: The author contributed to this article in his personal capacity out of the passion of writing as a hobby and also by doing judicious utilization of available free time. The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views or the official policy or position of the any entity, institution and organization. Assumptions made within the analysis are not reflective of the position of any entity, institution and organization. The author disclaim any liability in connection with the use of this information. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information.



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