Rewa bathes solar sector in new sunshine


Equity IRR seen at 12-13% despite bidding aggression; modules prices a key monitorable

The tendering out of 750 MW (250 x 3 blocks) of capacity at Rewa Ultra Mega Solar Park (RUMSL), a joint venture of Madhya Pradesh Urja Vikas Nigam Ltd and Solar Energy Corporation of India, in Madhya Pradesh on February 10, 2017, saw aggressive bids under Rs 3 per unit.

Up front, this reflects a newfound enthusiasm among the players, though we believe the low quotes can be attributed to the players’ quest for making a significant foray or building a large portfolio. Besides, the PPA is one of its kind in India, as it offsets the construction and operational risks via solar park infrastructure, a three-tier payment safety mechanism, guaranteed offtake of power and 5 paisa p.a. escalation in tariffs (for the first 15 years). Assuming that future PPAs are as sweet or better, and that the optimism sustains, this is good augury for the country.

The government plans to allocate 20 GW of ground-mounted solar-photovoltaic projects under the solar parks scheme, with an eye on faster execution of projects and a reduction in issues related to land availability, power evacuation and other allied infrastructure/utilities. As of January 2017, 34 solar parks had been identified for this across 21 states. Of these, three states with high solar irradiation and a high number of sunny days – Madhya Pradesh (2.7 GW), Andhra Pradesh (4 GW) and Rajasthan (3.3 GW) – are expected to host half, or 10 GW, of capacity.

We have assessed the economics of the bid winners, which have quoted Rs 2.97/unit, Rs 2.979/unit and Rs 2.974/unit, respectively, for the three 250 MW units:

Successful bids in the recent 750 MW allocations in RUMSL


Note: Quoted tariff is for the first year. For the next 15 years, there will be an Rs 0.05 / unit escalation in tariffs.
Source: Industry; CRISIL Research

Despite aggressive bids, CRISIL Research expects an equity IRR of 12 - 13% for the winners

Our view is backed by the expected drop in solar module prices, to $0.25-0.27/Watt Peak (Wp) during January-March 2018, from $0.35/Wp currently. Large players are expected to get a volume discount from manufacturers. Further, the deployment of latest technologies (use of 1500V systems and high efficiency modules) and effective designing (including single axis trackers) lower the levelised cost of energy. Also, such players have access to global markets for funding, resulting in a low interest cost of 9-9.5% (including hedging cost). Additionally, the scheme has several other features – Rs 0.05/unit escalation in tariff for the first 15 years, guaranteed offtake, three-tier payment security and ready solar park infrastructure – that significantly lower the construction and operational risks, lending some support to economics.

Solar tariffs competitive versus coal-based power; grid integration cost a key monitorable

Solar power scores over coal-based power in terms of tariff competitiveness, thanks to the declining module prices, interest cost and the foray of large players. However, while looking at solar tariffs, one should also factor in the grid-integration cost. In the European Union, for instance, the estimated average integration cost (limited to the distribution system) is USD 0.02 per unit for 10% solar PV penetration and USD 0.025 per unit for 18% solar PV penetration.

Power tariffs: Solar versus coal-based


Note: TPP – Thermal power plant; M.P – Madhya Pradesh; NVVN – NTPC Vidhut Vyapar Nigam Ltd;
W.A – Weighted average levellised tariffs; SECI – Solar Energy Corporation of India
Source: Industry; CRISIL Research

Key factors that contributed to the aggressive bidding:

1. Declining module prices and long commissioning timeline

CRISIL Research expects an anticipated dip in capacity addition in China and European nations to beat down module prices. Capacity addition and technological improvements are expected put pressure on solar module prices.

Under the solar park scheme, projects have a commissioning deadline of 18 months after the signing of power-purchase agreements (PPAs) and handing over of 90% of the land to the developer. The PPAs are signed in April 2017 and solar park infrastrucure is on the verge of completion. Considering this, the commissioning timeline for these projects is expected to be around September 2018.

Given the low lead time for procurement of solar equipment (1.5 month, if imported from Asia) and low time required for project commissioning, modules are expected to be procured during January-March 2018. Considering the decline in solar module prices and large volume discounts on the contract prices for developers, the landed cost of solar modules is expected to be USD 0.25-0.27 per watt during January-March 2018.

Prices of solar modules to continue a downward spiral over medium term


Source: Industry; CRISIL Research

2. Cheaper interest rates

Most solar developers with established execution and operational track record tie up funding at a relatively low interest rate of 10% from domestic banks and also have access to low-cost funding from the global markets. They also get the benefit of longer loan tenures, of up to 18-20 years. Indeed, we expect financing available to winners in these bids at 9%, which has supported the remarkably low bid prices.

3. Payment security mechanism

Developers will get a three-tier payment security, significantly lowering the risk. The guarantees are:

a. The procurers of power, i.e., MPPCL and DMRC, will have to open an irrevocable and revolving 12-month letter of credit (LC).
b. RUMSL will set up a payment security fund of Rs 4.8 billion (sufficient to make payment to for 1,500 million units) in favour of the developer. The developer can be paid from this fund if it fails to get payment/gets inadequate payment from the LC.
c. The Madhya Pradesh government has extended the guarantee (approved by its Cabinet) for solar projects in RUMSL.

4. Guaranteed offtake from MPPMCL and DMRC

MPPMCL has agreed to procure 411 million units of solar energy generated from each unit (250 MW) and delivered by the solar power developer (SPD) at the delivery point in each contract year. In case of a purchase shortfall, MPPMCL will compensate the developer within 30 days (after annual reconciliation) at the PPA tariffs for the unpurchased energy.

DMRC has also agreed to procure at least 115 million units of solar power in each contract year. In case its requirement is less than 115 million units in a contract year (after annual reconciliation), it will compensate the developer for the power contracted but not procured at the prevalent-year tariffs. Further, in case of overdrawal by DMRC (if generation exceeds 525 million units), the developer would be compensated at 75% of the price applicable for that year.
Hence, there is a guaranteed offtake of power from the project producing energy at 19% PLF.

5. Ready Infrastructure

Developers will have access to ready solar park infrastructure, but they will have to pay a comprehensive cost (including a project development fee of Rs 7.4 million, to be paid 30 days from the signing of Letter of Award (LoA) for a 250 MW project. The cost staggered as annual fee as opposed to the lumpsum payment for land required, in case the project is set up outside the solar park.
Further, a comprehensive charge of Rs 29-64 million per developer (for a 250 MW unit) has to be paid annually, including charges towards land and transmission infrastructure.



Name of the bidder

Capacity (MW)


(Paise / kwh)


ACME Solar Holdings Pvt. Ltd




Solenergi Power Pvt. Ltd




Mahindra Renewables Pvt. Ltd





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