Solar Sector Coverage

TELANGANA SOLAR POWER: SKYPOWER OFFERS LOWEST BID; ACME GROUP

BAGS 446 MW

HYDERABAD, AUG 4:
SkyPower South East Asia has come up with the lowest bid for supplying solar power to Telangana,
with an offer of 5.17 per unit for one project of 50 MW and 5.26 for three projects of 50 MW each.

The ACME Group alone has bagged the mandate for 446 MW in the bid process, accounting for 22
per cent of the 2,000 MW tender.

The Canadian company is among a number of other global solar power majors and wind energy
company Mytrah Energy, to have successfully bid for projects offered under the reverse bidding
process, in which the Government sets a price and bidders are asked to lower their offers. Sun
Edison, Adani Green Energy, Mytrah Energy, Suzlon, Gestamp, Shaapoorji Pallonji, Renew Solar
Power, Enercon Solar, Karvy, Aditya Birla, and Reliance Changer Limited are among other firms that
have won.

Telangana power utilities received a good response for solar bids they invited. While the utilities
invited tenders for 2,000 MW, they received bids for generating 5,998 MW. The price bids, opened
on Monday, had the lowest offer of 5.17 per unit by SkyPower, creating new benchmark. SkyPower
had quoted 5.05 per unit earlier this year in tenders by Madhya Pradesh.

ACME Group won the mandate for 446 MW, out of a total 2000 MW tender at weighted average
tariff of 5.84 per unit.

Manoj Kumar Upadhyay, Founder & Chairman, ACME group said, The success of the largest solar
power tender in India reflects the countrys focus towards solar power. The emergence of ACME
Solar in the bid has further strengthened our position with more than 1 GW projects in the pipeline.

Is Rs5 per kWh the new normal for Indian solar power tariffs?

Solar power tariffs in India are set to hit a new low with the tender for 500 MW of capacity
offered under the national solar mission (NSM) in Andhra Pradesh receiving huge investor
interest last week. In response to tenders for setting up 10 projects of 50 MW each, bids totaling
around 5,500 MW were received.

This has set the stage for aggressive tariffs to be quoted by the developers, with Rs.5 per kWh
tariff becoming the new norm. The National Democratic Alliance (NDA) government has pushed
renewable energy to the top of its energy security agenda and is looking to provide green power
at less than Rs.4.50 per unit.
The development assumes significance given the comparison with conventional sources of
electricity such as coal. Consider, the price of power generated by the state-owned NTPC Ltd,
Indias largest power generation utility. In the last financial year, the average rate of electricity
sold by NTPCs coal-fuelled projects was Rs.3.25 per unit, while the tariff of power from its
other projects ranged between Rs.2 and Rs.4.50 a unit.

NTPC has already articulated its intent to supply electricity from 10,000 MW of solar power
capacity that it is setting up on its own at Rs.3.20 per unit by bundling it with unallocated power
to bring tariffs down. In addition, it plans to sell electricity at around Rs.5 per unit for 15,000
MW that it is buying on behalf of the ministry of new and renewable energy (MNRE) and earn 7
paise per unit in return.

There have been industry murmurs suggesting that the current batch of NSM projects may see
tariffs fall below Rs.5 per kWh. While we believe that would be very aggressive, recent bidding
in Punjab, a state with relatively lower irradiation and higher cost of land, was an eye-opener
with tariffs in the range of Rs.5.09-5.98 per kWh, Bridge to India, a solar energy consulting
firm said in a statement on Monday.

India launched the Jawaharlal Nehru National Solar Mission in 2010, with the aim of adding
20,000MW of grid-connected solar power to thecountrys
energy mix by 2022 in three phases.
While India has a solar generation capacity of 2,900MW, the BJP-led government has
substantially revised an earlier target of achieving 20,000 MW capacity by 2022 to 100,000 MW.
This would require an investment of around Rs.6.5 trillion over five years. Of the total 100,000
MW of solar power capacity planned by 2022, 20,000 MW will come from solar parks and
40,000 MW each from roof-top and distributed generation projects. The government plans to set
up 25 solar power parks.

The downward trend has become a norm, according to analysts.

The solar space has already seen a significant decline in tariffs. Solar tariffs declined
to Rs.7.49-9.44 per kWh in Jawaharlal Nehru National Solar Mission phase I, Batch II during
FY12 from Rs.10.95-12.76 per kWh during FY11. In phase II, Batch I, the concept of VGF was
introduced and the tariffs declined to Rs.5.45 per kWh. However, the current tariffs are even
lower than those offered through VGF. The recent coal-based bids for the purchase of thermal
power by Andhra Pradesh saw tariffs in the range of Rs.4.27-4.98 per kWh, only 1-14% lower
than the solar tariff of Rs.5.05 per kWh bid recently in the MP Power Management Company
power purchase tender, India Ratings and Research, the domestic arm of Fitch Ratings, said in a
22 July report.

India will award contracts for the supply of 15,000 MW this year. In India, the worlds biggest
greenhouse gas emitter after the US and China, renewable energy currently accounts for only
13%, or 36,471 MW, of the total installed power capacity of 2,75,912 MW.

Bids were submitted last week for 10x50 MW of solar PV (photo voltaic) projects under the
new phase of NSM. This is the first round of NSM bids since the new government took office in
May 2014. This is also the first time that bids have been called for projects to be set up in solar
parks being developed under the new Solar Parks Policy. A total of 30 developers have submitted
valid bids totalling 5.5 GW, the Bridge to India statement added.

Analysts say that the solar power tariffs have come down due to the decline in the cost of capital
and equipment.

Kotak Institutional Equities Research in a statement on Monday said that low solar power tariffs
is led by, decline in cost of capital and equipment (modules, inverters, BOPbalance of plant
costs have come down by 15-20% over past 1.5-2 years, and 40-50% over the past 3-4 years),
and return (equity internal rate of returns or IRRs) thresholds may have probably come down
versus usual target of 13-15% for international utilities, 18-20% for PE backed IPPs
(independent power producers) and 20% plus for Indian corporates.

A number of utilities and private equity (PE) firms are trying to get a slice of Indias growing
green energy pie. These include NYSE-listed Brookfield Asset Management, Switzerland-based
PE firm Partners Group AG, infrastructure investment manager I Squared Capital, Dubais PE
firm Abraaj Group and Doha-based Nebras Power QSC. A subsidiary of Singapore-based
Sembcorp Industries Ltd acquired a 60% stake in IDFC Alternatives-backed renewable energy
firm Green Infra Ltd for S$227 million in February. In the same month, Actis Capital committed
$230 million to create an Indian renewable energy platform called Ostro Energy Pvt. Ltd.
SunEdison recently agreed to acquire Continuum Wind Energy Ltd.

However, concerns remain about the payment for this solar power by the state electricity boards
(SEBs), which are weighed down by Rs.3 trillion in accumulated losses.
Weak Discom financials and its correlated issues remain the biggest challenges to the renewable
segment growth. the Kotak statement added.

There has been growing interest from overseas investors in the Indian renewable energy space.
Russias OAO Rosneft, the worlds largest publicly traded oil company, US-based First Solar and
Chinas Trina Solar are among the firms looking for opportunities to participate in Indias solar
energy sector. In June, SoftBank, along with Bharti Enterprises Ltd and Taiwans Foxconn
Technology, proposed to invest at least $20 billion in solar energy projects in India through joint
venture SB Cleantech Ltd.

The investor interest in the current round can be gauged from the fact that, six developers
including SunEdison, Adani, Rattan India, Reliance, SoftBank and Energon have bid for the
entire 500 MW capacity, according to the Bridge to India statement. Also, prominent new
entrants include SoftBank, Trina Solar, Enel, Energon, Solar Arise, Suzlon and Greenko, it
added.

India has a $250 billion investment opportunity in the renewable energy space, said Piyush
Goyal, minister of power, coal and renewable energy, at Mints energy conclave in New Delhi on
28 August.

India plans to award 15,000 MW of solar projects this year

As part of the National Democratic Alliance (NDA) governments green

energy push, India will award contracts for the supply of 15,000 MW this
year.

According to the plan, Solar Energy Corp. of India (SECI) will shortly call for
bids from developers for buying 2,000 MW, a government official said,
requesting anonymity.

The procurement will be done through a reverse bidding process, and it will
provide a purchase guarantee, making such projects bankable and help solar
power eventually cost the same as that purchased from the grid.
Indias plans to install 100,000MW of solar power capacity by 2022 and
needs as much as $200 billion to meet this target. The government aims to
provide green power at less than Rs.4.50 a unit.

The states have already tendered for around 3000 MW. Also, NTPC has
already tendered 2600 MW. We are confident that by 31 March 2016, a
capacity of 15,000 MW will be awarded, said the official quoted above.

Analysts see a lot of potential for solar power in India.

ICRA sees strong demand outlook for solar energy sector in the long run,
aided by favourable regulatory and policy support in place by Central and
State Governments, rating agency ICRA wrote in a 14 July report.

There has been growing interest from overseas investors in the Indian
renewable energy space as well. SoftBank Corp., along with Bharti
Enterprises Ltd and Taiwans Foxconn Technology, in June proposed to invest
at least $20 billion in solar energy projects in India through a joint venture,
SBG Cleantech Ltd. US-based First Solar Inc. and Chinas Trina Solar are
among companies that are planning to set up factories in India.

Queries mailed to the spokesperson of Indias new and renewable energy

ministry and SECI managing director Ashvini Kumar remained unanswered.

While the present installation cost of a solar project is around Rs.6 crore per
MW, economies of scale are expected to drive down the cost to Rs.4.5 crore
per MW. The plan to reduce solar power tariffs comes in the backdrop of
state electricity boards (SEBs) increasingly showing reluctance to buy power
on account of their poor financial health. With a debt of Rs.3.04 trillion and
losses of Rs.2.52 trillion, SEBs are on the brink of financial collapse.

Given that state-owned distribution utilities are key obligated entities, solar
energy projects remain exposed to counter-party credit risks, given that
these utilities in many of the states (having high solar potential) continue to
have stretched financial position. The fundamental improvement in their
financial position remains crucial in the long run, as this would also enable
them to honour the payments in a timely manner, the ICRA report said.

State-owned NTPC Ltd has been calling for bids from solar project developers
for buying 15,000 megawatts on behalf of the ministry of new and renewable
energy. This is in addition to NTPCs plans to set up 10,000 MW of solar
power capacity on its own.

The Narendra Modi-led government has pushed renewable energy to the top
of its energy security agenda, seeking to minimize Indias dependence on
coal-fuelled electricity. Renewable energy accounts for only 35,777MW of
Indias total power generation capacity of 272,503MW.