Karnataka announced results for its 1,200 MW solar project tender last week. This tender was very unique as it sought bids for up to 20 MW capacity on a taluk-by-taluk basis in 60 taluks in an effort to distribute solar capacity evenly across the state. 100 MW of capacity was reserved for solar cell and module manufacturers located in Karnataka.
The results are very interesting and provide a test case for policy making in the sector – about 800 MW of capacity has been won by bidders in the open category (no module sourcing restrictions) with tariffs of between INR 4.69 – 5.85/kWh. Winning tariffs for domestic module category are INR 5.94 – 6.50/kWh, a tariff premium of INR 1.50 over the open category. 12 taluks did not get any interest from developers presumably because of land acquisition challenges in these taluks. Projects in these taluks will be retendered. Hero Future Energies was the most aggressive bidder and won 180 MW at INR 4.69-4.86/kWh. Other big winners include Renew Power and Aditya Birla Nuvo, winning 180 MW at INR 4.76-5.05/kWh and 60 MW at INR 4.86-4.97/kWh respectively.
- Bidding intensity in the sector remains very high despite huge volumes of projects coming for tender in the last six months with Karnataka being the first state tender to receive bids of less than INR 5.00/kWh
- Distributing solar projects across the state to reduce transmission grid burden will cost about INR 0.70/kWh
- The state is paying an unusually high tariff premium of around INR 1.50/kWh for using locally manufactured modules
Traditionally, projects tendered by central government entities are the most competitive and attract the lowest tariffs. However, Karnataka has seen very intensive bidding with 49 developers bidding for 2,500 MW of projects despite a challenging land acquisition process and small project sizes.
Because of the unique taluk based bidding, some bidders have won projects at very attractive tariffs in excess of INR 5.25/ kWh when many bidders with more aggressive bids lost out because they offered slightly higher tariffs than the most aggressive bidder in their respective Taluk. Example – Aditya Birla offered a tariff of INR 4.76/kWh in Gangavati taluk but did not win because of intense competition in this taluk but Jindal Aluminum was the only bidder in Mayakonda taluk and won a 10 MW project at INR 5.85/kWh. Effectively, this process has resulted in less transparency for the bidders and a relatively higher cost of procurement for the state distribution companies. Many developers who did not win projects despite aggressive bids will feel that they have unfairly lost out.
Similarly, the domestic manufacturers have made most of the preferential status. Only 4 bidders (Emmvee, Tata Power, Swelect and Microsun) qualified under this category and won 100 MW at a tariff premium of about INR 1.50/kWh over the open category.
Karnataka has followed an innovative tender model and raised some important questions. The issues of preference given to domestic manufacturers and tender design are likely to result in an intense debate.