31 Dec 2018

 

MNRE is reportedto have asked states to proactively issue more RE tenders and reduce dependence on central government agencies. MNRE’s advice states that states are better positioned to structure tenders based on their price expectations, offtake requirements and RPO obligations.

As per our tender database, the split between state and central government tenders is almost 50:50 over the past five years although wide variations can be observed on an annual basis.

Figure: Share of central and state government tenders

Source: BRIDGE TO INDIA research

Interestingly, we find that tariffs in state government tenders have been consistently higher than in central government tenders. This is understandable due to higher DISCOM risk perception in comparison to central government agencies. The difference varies from state to state – for example, Gujarat DISCOMs, being highly rated, procure power at same rates as SECI and NTPC, but lower rated DISCOMs (Uttar Pradesh, Tamil Nadu, Madhya Pradesh, amongst others) haver to pay much higher premium for their own tenders. The tariff difference has persisted over the years although it has come down from an average of about 25-35% three years ago to about 12% over time.

 

Figure: Weighted average tariffs in central and state government tenders, INR/ kWh

Despite having to pay a substantial tariff premium in their own tenders, most states have curiously preferred this route over buying power from SECI and NTPC. Rajasthan and Andhra Pradesh are the only exceptions as seen in the chart below. There is no rationale for this behaviour unless the DISCOMs and state governments intend to deliberately delay payments or default on their PPA obligations, not a viable option under central government tenders. The project developers, in contrast, have become more indiscriminate in their choice of tenders as evident from the gradually diminishing tariff premium.

Figure: State-wise share of tenders issued during 2014-18

Source: BRIDGE TO INDIA research

Note: This chart excludes pan-India, inter-state transmission based tenders issued by SECI and NTPC.

So why the unexpected advice from MNRE to states now? We believe that it is an attempt merely to speed up tender issuance by eliminating any possible friction or coordination time between different state and central government agencies. MNRE is focused on achieving the 100 GW target and is keen to expedite issue of tenders.

Source: BRIDGE TO INDIA research

Interestingly, we find that tariffs in state government tenders have been consistently higher than in central government tenders. This is understandable due to higher DISCOM risk perception in comparison to central government agencies. The difference varies from state to state – for example, Gujarat DISCOMs, being highly rated, procure power at same rates as SECI and NTPC, but lower rated DISCOMs (Uttar Pradesh, Tamil Nadu, Madhya Pradesh, amongst others) haver to pay much higher premium for their own tenders. The tariff difference has persisted over the years although it has come down from an average of about 25-35% three years ago to about 12% over time.

Figure: Weighted average tariffs in central and state government tenders, INR/ kWh

Despite having to pay a substantial tariff premium in their own tenders, most states have curiously preferred this route over buying power from SECI and NTPC. Rajasthan and Andhra Pradesh are the only exceptions as seen in the chart below. There is no rationale for this behaviour unless the DISCOMs and state governments intend to deliberately delay payments or default on their PPA obligations, not a viable option under central government tenders. The project developers, in contrast, have become more indiscriminate in their choice of tenders as evident from the gradually diminishing tariff premium.

Figure: State-wise share of tenders issued during 2014-18

Source: BRIDGE TO INDIA research

Note: This chart excludes pan-India, inter-state transmission based tenders issued by SECI and NTPC.

So why the unexpected advice from MNRE to states now? We believe that it is an attempt merely to speed up tender issuance by eliminating any possible friction or coordination time between different state and central government agencies. MNRE is focused on achieving the 100 GW target and is keen to expedite issue of tenders.

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