A 500-megawatt solar power plant that would have kick-started India's renewable energy revolution is now unlikely to go ahead, as the operator is struggling to stave off bankruptcy.
The contract to build the Andhra Pradesh solar plant – the first of 32 planned solar mega projects envisioned to clean up India’s power supply – was awarded last year to American solar energy company SunEdison.
The firm beat its competitors by offering a record-low tariff of 4.63 rupees (7 US cents) per kilowatt-hour. However, it has not even broken ground and is, according to some sources, looking to sell about 1GW of its existing assets in the country.
Many industry insiders called SunEdison’s bid unrealistic from the start and describe the situation as a major lesson to be learned for future renewable energy auctions.
"There is always a tradeoff," Upendra Tripathy, secretary at the Ministry of New and Renewable Energy, told Reuters.
"There can be a relaxed condition so that more people can participate and there is another where you can make sure fly-by-night operators can't come in. It's an ongoing process and we are open to suggestions."
SunEdison, which is building several other small plants in India in addition to Andhra Pradesh, is heavily indebted and may soon file for bankruptcy protection.
Indian billionaire Gautam Adani has expressed interest in some of SunEdison’s assets. However, a source close to the magnate told Reuters the low tariff for the Andhra plant would likely put most Indian entrepreneurs off due to the high cost of capital. If no buyer is found, the project could be re-bid, the industry sources said.
India’s Prime Minister Narendra Modi aims for a fivefold increase in India’s renewable energy generation capacity in the next few years. The country is yet to auction the further 31 mega projects of 500MW or more but the SunEdison experience suggests the venture will most likely cost India much more. The whole process is also likely to take longer.
India is an ideal candidate to become a solar super power, with 300 days of sunshine every year. The country currently produces 30 per cent of its electricity from renewable resources and aims to hit the 40 per cent mark by 2030.
However, the developers have to put up with high land acquisition cost, difficulties connecting solar power plants to the grid and weak finances of state distribution companies forced to sell subsidised power.
"Given the energy deficit, need for energy security and sustained economic growth, the potential clearly exists for 100 GW of solar [energy] in India," said Sujoy Ghosh, country head of First Solar. "The question would be on the timelines in which the goal is achieved."
The Indian government is trying to persuade state banks to extend loans to solar projects, but most lenders are saddled with bad loans and unlikely to risk getting exposed to renewable projects with low rates of return.
To avoid projects getting stuck for a lack of backing, India should make it mandatory for solar bidders to get funding assurances from banks at the beginning of an auction to ensure only serious players take part, analysts said. Tripathy, the government secretary, said he could consider the suggestion.
"We'll have to take care that projects don't become unviable," KPMG's Kamath said. "If some projects become unviable then banks will stop lending to new projects and then they get stranded, like we have seen in the power and road sectors in the past."