Acme, Inox explore exit from renewable energy projects won at record low tariffs
August, 28th 2017
A rise in prices of Chinese solar modules and shift to tariff-based competitive auctions are affecting solar power and wind power projects in India
Acme Group and Inox Group that bid the country’s lowest solar and wind tariffs respectively this year now plan to exit the projects, said several people aware of the development.
Inox Wind Infrastructure Services Ltd bid Rs3.46 per kilowatt-hour (kWh) to win a 250 megawatt (MW) wind power contract in a 1 gigawatt (GW) tender by state-run Solar Energy Corporation of India (SECI) in February. Acme Solar Holdings Pvt. Ltd placed a winning bid of Rs2.44 per kWh in May to set up 200MW capacity at the Bhadla solar park in Rajasthan in another auction also conducted by SECI.
The National Democratic Alliance (NDA) government has set up an ambitious clean energy target of 175GW by 2022. Of this, 100GW is to come from solar projects and 60GW from wind.
“With Chinese solar module prices firming up, Acme is exploring an exit. Inox is also trying to exit with a sale condition precedent which involves the acquirer to use Inox Group’s wind turbines. These can be structured transactions,” said a person aware of the development requesting anonymity.
Rising prices of Chinese solar modules may arrest the sharp decline in Indian solar power tariffs and also put at risk projects that won licences betting on the continued decline in module prices, Mint reported on 19 July.
Any solar module price increase will impact the internal rate of return (IRR) with the power purchase agreements (PPAs) already being inked. Module prices account for nearly 60% of a solar power project’s total cost and are currently around $0.37 per watt.
The $3 billion Inox Group in March announced the sale of its operating wind power farm assets to Leap Green Energy Pvt. Ltd. Also, Russia’s Rosatom State Atomic Energy Corp. is exploring an investment in Inox Group’s wind turbine manufacturing business with a 1600MW capacity.
While Mytrah Energy (India) Ltd, Green Infra Ltd, and global private equity fund Actis Llp’s platform Ostro Kutch Wind Pvt. Ltd were the others who bid Rs3.46 per kWh to win the wind energy contracts, SBG Cleantech Ltd bid Rs2.45 per kWh to develop 300MW capacity at Bhadla.
“If the deals fructify the acquirer will complete the projects,” said another person aware of the plans requesting anonymity.
Queries emailed to the spokespersons of Acme Group, Inox Group and the ministry of new and renewable energy on Wednesday remained unanswered as of press time on Sunday.
Any deal if concluded will have to meet the tender bid conditions.
“This has not come to our knowledge. Bid guidelines have got explicit timelines which have to be met,” said a person involved in devising and running India’s solar park bid process.
Experts say that India’s changing green energy play has opened up opportunities for investors.
“The dynamics in wind and solar are slightly different. On the wind side—as the sector is transitioning from a FiT (feed-in tariff) regime to tariff-based competitive auctions, there is a complete standstill in addition of new capacities. On solar projects, panel prices for near-term delivery have hardened—as a result, the returns available in the projects won in the last few auctions are diminishing,” said Srishti Ahuja, director at consulting firm EY. Feed-in tariffs ensure a fixed price for wind power producers. Rating agency Crisil cautioned in May that under-construction projects, as part of the feed-in tariff regime, may be put up for auction by the states to further lower tariffs. To make matters worse for Indian solar developers, Chinese module manufacturers are reneging on their contracts and are demanding an upward price revision to supply the equipment already contracted for, Mint reported on Thursday.
“So, on one side, viable green-field opportunities are very few and at the same time, brown-field acquisition opportunities are available at returns akin to or better than greenfield projects. This has resulted in a sudden uptick in M&A (mergers and acquisitions) and we are witnessing strong interest from yield investors and developers,” added Ahuja.