Indian Government may tweak solar tender linked to manufacturing

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The government may scale down the manufacturing component in manufacturing-linked solar tender to around 3 gigawatts, fearing developers may quote high tariffs that will make it unviable for distribution companies to buy power from these projects, people aware of the development said.

Solar Energy Corporation of India (SECI), the nodal agency to implement National Solar Mission, had earlier this year floated 5 GW manufacturing tender linked with 10 GW power purchase agreement (PPA) in a bid to beef up solar manufacturing capacity in the country.

It is, however, feared that developers may want to make up for margins lost in manufacturing by increasing the PPA tariff, given the cost of manufacturing is higher in India and the components that the manufacturers produce may not be able to compete with cheaper imports from China, sources said.

Hence the move to tweak the tender to ensure that the pilot is successful.

“The size of manufacturing may come down to around 3 GW, while PPA will still remain for 10 GW,” said an official aware of developments.

This is the first manufacturing linked tender, and we want it to be successful,” the official said. Developers had earlier expressed concern over manufacturing linked solar tenders, saying it would force them to venture into manufacturing of solar equipment, a completely different business.

“Developers will find it difficult to bid, because the margins have to come in from some end,” an industry insider said. “Either the government increases the subsidy or reduces the quantum of manufacturing, which will then make a palpable difference in the tariffs quoted in the tender,” the person said. “Once the quantum of manufacturing goes down, more players will be willing to participate in the tender.”

While solar power developers also raise concerns about solar tariffs moving northward after 25% safeguard duty was imposed on solar panels imported from China and Malaysia, the government feels differently.

“The increase in cost of projects due to the safeguard duty can be easily absorbed as the prices of Chinese panels are coming down,” said the official quoted earlier.

Around 90% of solar equipment used in India is imported, and 85% of it come from China. Manufacturing-linked tenders are expected to reduce this import dependence, and create a manufacturing base of solar equipment in the country.

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