By Oliver Balch in Kerala

The first phase of India’s national solar mission is expected to see proposals for solar thermal projects well in excess of the initial 500MW allocation when the government officially invites requests for selection in the week beginning August 16.

The high quantity of anticipated bids reflect the potential that developers see in India’s nascent concentrated solar power (CSP) industry, if not wholesale approbation of the bidding guidelines published last month.

“The final guidelines are quite positive in that they give impetus to the development of solar thermal projects … but there are several things that are not good from a developers’ perspective”, states Shiv Shukla, president of solar developer Abengoa Solar India.

Topping the list of concerns is the “not very attractive” designated tariff of Rupees 15.31 per kWh. Under such terms, developers can have little confidence of achieving a return on equity of 19% in the first decade, as the Central Electricity Regulatory Commission (CERC) projects. A tariff of between Rs.17 – 18 per kWh would be more realistic, Shukla maintains.

Developers blame the government regulator CERC for underestimating the capital costs involvement in project development. Experience in more mature CSP markets such as Spain suggest a capital investment of Euro 4.5 - 5 million per MW of capacity, rather than the Euro 3.85 million/MW on which the CERC’s calculations rest.

“There is a huge gap in the capital costs that they have considered … These capital costs are not viable, which is a major challenge”, Shukla continues.

Reverse auction reservations

Added to these concerns is the reverse auction process introduced under the guidelines. If the 500MW capacity cap for total projects is exceeded, as is widely anticipated, developers will be required to propose discounted tariffs. A yet lower tariff would test projects’ commercial viability even more, developers maintain.

The discounted tariff system will hit small-scale developers hardest given their lower production projections and consequent tighter margins, some critics state.

“This clause shouldn’t have been there as smaller developers will lose out. Developers with projects of 50MW to 100MW can afford the discount … so this clause will help the larger developers more”, sates Nitin Phansalker, coordinator of the industry network Desertec-India.

The guidelines requirement to place performance guarantees of two million rupees (US$42,600) per MW could also exclude less well-capitalised players, smaller developers claim.

Caps off mark

In contrast, larger players fear entry barriers have been set too low, opening the door to heavy speculation by less experienced players and the possibility of “serious developers” being pushed out.

A proposal to introduce a minimum capacity cap of 10MW did not find its way into the final guidelines, for instance. At the same time, the 100 MW cap set by the guidelines limits more ambitious commercial projects.

“Many of the bigger developers are saying that they would have liked to go for projects of 200MW or 300MW”, Desertec’s Phansalker observes.

The lack of guarantees coupled with high proposal preparation costs could act as an additional disincentive to large developers. As the Phase One guidelines stand, failed bidders will receive no special preference or priority under the second phase of allocations in 2013.

“The government should have said that they would accommodate all those that are technically qualified in the next phase, maybe for a lower price … Now the serious developer has no such guarantee”, argues Lavleen Singal, founder of solar thermal power producer Acira Solar.

Singal also echoes a general concern within the solar thermal industry around the deadlines set by the guidelines. Developers have 180 days to achieve financial closure and 28 months to complete project construction – both of which are seen as highly ambitious.

“None of the larger projects will hit that target. 50MW projects in Spain typically take three years to complete after financial closure. In India, we cannot do it quicker”, Singal argues.

The guidelines have prompted criticism not only for the conditions they include, but also for those they omit.

One key component for which the solar thermal industry lobbied hard but which was omitted from the guidelines, for instance, is the inclusion of storage or hybridisation projects.

“These are two obvious plus points of solar thermal … but the government remains slightly skeptical about allowing them”, argues Dhruv Batra, director at solar developer Cargo Motor and Infrastructure.

For all the criticisms of the guidelines, developers still see success in the current bidding stage as important for strategic positioning in the market.

Abengoa’s Shukla remains confident: “People have to take a stand and wait and watch, or people have to decide for the sake of strategy that they will enter this market … Any large company will try and get in for first mover advantage.”

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Oliver Balch: obalch@csptoday.com

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