Record low solar tariffs may affect build quality

A central government agency monitoring the power sector has red-flagged the very low renewable energy tariffs achieved after reverse bids for awarding projects. These extremely low bids affect the quality of project construction according to this agency.

But the Ministry of New and Renewable Energy (MNRE), the nodal ministry for these projects, decided to focus on highlighting lower tariffs as a success of the renewable energy (RE) ecosystem.

Low tariff

According to officials in the know, these issues were raised in June 2019 itself to the Ministry of Power and MNRE by this body in an internal note. Concerns about the viability of extremely low tariff RE projects once again came to fore with ACME Solar Holdings recently withdrawing from a 600 MW project that was awarded at a record low bid of ₹2.44 a unit. In its pleas seeking the exit, ACME has cited Force Majeure amidst COVID-19 lockdown.

“When price of renewable energy was higher than conventional energy, the attention was given to tariff as it would be paid by utilities and ultimate consumers. The effectiveness of a reverse auction was more at initial stage to find correct price when the system was shifted from feed-in-tariff mechanism to competitive market bidding, and there was a step size decrease in price,” the note had said.

Recommendations

In its recommendations, the agency said that the price of RE has come down almost at the level of variable cost of conventional generator. The number of participants in the solar energy sector has also increased. Now due to maturity of competition, the concept of reverse auction may be reviewed. This is to be done while trying to incorporate stricter quality checks to ensure deliverables from projects. The note also said that some part of projects size should be allotted for more efficient solar panels.

The internal commentary by the central agency had followed incidents of solar panels flying off into the air in a storm in Rajasthan, as less steel was used in structure. In a bid to contain costs, project developers were resorting to cost cutting in structures and adding in solar panels so a higher Capacity Utilisation Factor (CUF) was achieved. A higher CUF means that more power will be produced by the solar energy project.

“When the world average is 19 per cent, we were getting 24 per cent to 26 per cent CUF as more than required solar panels were installed by project developers,” an official aware of the developments told BusinessLine.

The project developers do so because RE has a must run status and all power produced needs to be bought by power distribution companies. To make a few extra bucks, the developers focus on generating more power since payments are assured under contracts. But this approach may compromise other critical aspects of quality control that require attention.