More than 72GW of wind and solar based power plants have been installed in India today, almost all as utility-scale or pure-play wind and solar projects. However, over the last two years there has been a subtle shift towards technology-neutrality and hybrid projects that has now started to become noticeable.
Currently, nearly 9GW of tech-neutral tenders are notified which require hybrid, round-the-clock (RTC) power, peak power supply, or storage. In comparison, notified tenders for utility-scale wind currently stand at 1.2GW and for utility-scale solar at 11.3GW.
With increasing penetration of wind and solar in India, the government launched a hybrid renewable policy in 2018 focused on addressing the issue of intermittency of renewables on the grid.
The initial response to tenders issued during 2018, and the majority of 2019, was cool with approximately 1.6GW allocated during this time.
The tide turned when a new species of tenders – the 1.2GW peak power supply and 400MW RTC tender – were issued. Both were oversubscribed, with the largest developers in the market showing interest.
The peak supply tender was oversubscribed by 420MW and was won at a price of 6.12 rupees and 6.85 rupees/kWh ($0.08-0.09/kWh) for peak power supply, while off-peak price was guaranteed at 2.8 rupees/kWh.
The first round-the-clock tender yielded even more interesting results with bid of 2.9 rupees/kWh with a provision of 3% escalation until 15 years. Both these prices are higher than the solar and wind bids of 2.55 rupees and 2.8 rupees/kWh, respectively.
3.1GW of peak power and hybrid tenders are notified. Nearly 800MW of storage tenders are under process and 5GW of RTC tenders are notified where ‘cheap’ solar is to combine with spare energy capacity from coal to help provide round the clock power, marking a u-turn from when solar used to be blended with coal prices to ensure offtake.
This shift from a type of renewable to power with certain characteristics is good for growth, as renewables can win by economic logic vis-à-vis coal or gas, which are priced at 4 rupees per kWh. However, it also implies commoditisation of sources of energy going forward, and head-on competition can be expected between solar and wind.
Seeing this trend, the agency which notifies tenders for solar and wind in India is rumoured to have indicated a preference to only do such hybrid tenders in the future.
This shift from type of renewable to power with certain characteristics is good for growth.
It is important to see how open state utilities, which purchase power, are to bringing such projects into their economic planning. In the past, the focus has been on lowest cost of power as compared to system level pricing.
Nevertheless, players must take these indications as a sign of the future. There is a need to build capabilities in power forecasting, system design, and project development to secure projects along with best in class EPC capabilities to earn margins.
This shift is suitable for many international players who have been active in the hydro or power trading businesses in India.
Sidharth Jain is managing director at MEC+