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Risk of corruption clouds Andhra Pradesh solar bids

4 Comments
Date:Feb 6, 2013

Industry claims vested interests are likely to take advantage of lax bidding rules for 1,000 MW solar power

The recent bidding guidelines launched by the Andhra Pradesh government for 1,000 MW of solar power projects, leave enough room for corruption. It’s been less than a month since the document has been put out and rumors are already circulating that local politicians have begun taking advantage. The guidelines were released on January 9 and bidding closed on February 7. The 1,000 MW solar power from these projects is enough to give clean electricity to about 1.8 million people in the state where power cuts are an everyday occurrence.

The solar power bids in Andhra Pradesh were eagerly awaited by solar power developers as the state's power utilities are among the few in the country to have surplus money. They generated a surplus of Rs 469 crore in 2011. This assures developers that their payments will be made in time. However, certain lax rules in the bidding guidelines and contracts have made unfair play possible. Local politicians can make use of these loopholes and intimidate developers into not bidding for projects, so that they themselves can bag high tariff payment for the projects (see 'How reverse bidding works') and sell these projects later, much like 2G spectrum. The intention is clearly to make money and not power generation. 

As per the guidelines, each company bids for a certain available capacity per district and electricity sub-station. The lowest bidder per sub-station will get to set up a plant and receive the tariff payment. There are 161 sub-stations where capacity is available.

According to industry sources, local vested interests have started calling prospective bidders telling them not to bid for certain locations, implying that they will make it impossible for any developer to set up project in that area. "There is no transparency and no consistency in this bidding, there are 161 seperate bids and in one place someone could get a tariff of Rs 8 per unit and in the next someone gets Rs 17 per unit! Local strongmen can make life miserable for a developer who bids below them in their area of influence, without taking their consent."

Solar policy safety measures compared
  Andhra Pradesh Centre Karnataka Rajasthan
Benchmark tariff for bids No Yes Yes Yes
Demand on keeping share of project for a certain time No 51 % upto 1 year after commissioning 51 % upto 3 years after commissioning Yes
Net-worth needed to be eligible to bid 1 crore/MW 3 crore/MW 3 crore/MW 3 Crore/MW
Bank Guarantee needed to be deposited 10 lakh/MW 50 lakh/MW + bid bond dependent on bid 20 lakh/MW 20 Lakh/MW
Different Bids for Different sub-stations Yes (161 bids) No (1 bid) No (1 bid) No (1 bid)

 

Measures to check speculation ignored

To limit unscrupulously high bids, the Centre and other states which have launched solar policies have set a benchmark tariff. It works as a ceiling for bids and was set at Rs. 10.39 per kWh in 2012-13 by the Centre, which means no bidder could hand in a bid above Rs. 10.39 per kWh. But in Andhra Pradesh solar policy no such benchmark exists, making it possible to bid as high as they want.

The Centre's, as well as Karnataka's, solar policies go one step further in discouraging wrongdoings. It has a clause that 51 per cent of the shares in a project needs to stay in the hands of the bidder until one year after the project is completed. This is to avoid speculative bids from agents who only aim to make a quick buck from winning the bid and then selling them to developers without adding any value. This clause is also not there in the Andhra Pradesh guidelines.

Absence of these clauses coupled with the fact that politicians can hinder land acquisition and permits needed to set up a plant near a local sub-station, corruption could become rampant in clean energy projects. By threatening to hinder projects this way, politicians can become the only and, thereby, winning bidder even if they bid outrageously high tariffs.

Since project contracts can be directly sold under the Andhra guidelines, the politician can turn around and sell this now highly profitable contract to a real developer while taking a cut, the loser being the state power utility and, in the long run, Andhra's power consumers. Even if this effect only raises prices of the solar power by Rs 1 per kWh on average, it is still a loss of some Rs 166 crore per year for the state.

 

How reverse bidding works
  • A reverse bidding system for providing power works in that the developer that gives the lowest per kWh price, wins the bid and gets to set up the specified amount of power producing capacity and get paid the bid price from the buyer, in this case the state power utility. For example, if company A says it will set up 10 MW of solar power and needs a tariff of Rs 8 per kWh and company B says it will set up 10 MW of solar power and will need only Rs 7 per kWh, then company B wins the bid and gets the contract receiving the tariff they had bid per unit of electricity their solar plant then provides for 20 years.
  • Sub-station: collects and feeds power into the electricity grid as well as distributes it to households. Each sub-station can handle a certain amount of power; however, the rationale for selection of only 161 sub-stations available and the corresponding capacity limits for each one is unclear, with 50 per cent capacity getting bunched up in four to five districts around Hyderabad, most of them with low solar radiation compared to other areas of the state.

 

AddThis

Excellent post. I agree with the views expressed in the article.
The government of Andhra Pradesh announced its solar policy last September .
Here are the highlights of the Solar Policy announced by Andhra Pradesh Government:
The policy does not specify any limit on the total capacity of solar power plants that can be put up under it. It also neither provides for a fixed feed-in tariff (like Gujarat did), nor does it make way for price discovery through a reverse bidding process (as in the case of the National Solar Mission).
However, the policy spells out the state’s stand on issues such as banking of power, wheeling and transmission charges, cross subsidy charges and open access.
In other words, a project developer may put up a project of any size in the State. He can either sell the power to the State’s electricity distribution company at the ‘average pooled purchase cost’ that is determined by the state electricity regulatory commission (which is today Rs 2 per unit), or can sell it to any other consumer directly, whether within or outside the State.
On banking of power (or, injecting power into the grid and drawing it back later), the policy says it allows 100 per cent banking. However, any energy injected into the grid will have to be drawn within that calendar year. No drawing of banked power will be allowed between February and June, and during the peak hours—6.30 pm to 10.30 pm. The developer will have to pay 2 per cent of energy as ‘banking charges’.
Further, if the energy is sold within Andhra Pradesh, the developer is incentivised with exemptions from wheeling and transmission charges and cross-subsidy charges, electricity duty and refund of VAT on inputs purchased for the project and the stamp duty on the registration of land for the project. However, for sales outside the state, wheeling and transmission charges, as determined by the state’s regulatory commission, applies.

Though power generation through wind started in 80s in AP,its progress is very limited.
States Annual Installations (MW) Cumulative Installations (MW) as on March 31,2012
Andhra Pradesh 245.5
Gujarat 2,966.3
Karnataka 1,933.5
Madhya radesh 376.4
Maharashtra 2,733.3
Rajasthan 2,070.7
Tamil Nadu 6,987.6
Total 17,351.6
Source: C-WET, MNRE 2012
State Nodal Agency ,New & Renewable Energy Development Corporation of Andhra Pradesh Ltd should take active part in promoting Renewable Energy in Andhra Pradesh.

For Comparison here is Tamil Nadu Solar Energy Policy:
The Tamil Nadu Solar Policy: An innovative, ambitious plan.
Tamil Nadu has an ambitious 3 GW solar power target till 2015. With its policy announcement in October 2012, Tamil Nadu becomes the seventh Indian state out of 28 to announce an official solar target. No breakup between photovoltaic (PV) and concentrated solar power (CSP) projects has been given as part of the policy.
The highlights are:
• The policy document provides a break up of 1,500 MW of allocation to utility scale projects, 350 MW from rooftop projects and 1,150 MW through the renewable energy certificate mechanism (RECs)
• Tamil Nadu has introduced this policy at a good time given the lull in the market
• The policy has introduced innovative measures such as net metering that have not been implemented under any Indian solar policy so far
• While the policy is innovative and ambitious, implementation challenges need to be tackled for the policy to succeed in achieving its target

The cornerstone of the solar policy announced by the Government of Tamil Nadu on October 20 is that it has created a demand for solar power by imposing obligations on an industry that is already suffering from crippling power cuts and a recent hike in tariffs.
the industry (as well as colleges, residential schools and buildings with built-up area of 20,000 sq. m or more) will have to buy 3 per cent of their electricity consumption from solar power till December 2013 and 6 per cent from January 2014.
As such much demand for solar energy installations is created in Tamil Nadu.
Dr.A.Jagadeesh Nellore(AP),India
E-mail: anumakonda.jagadeesh@gmail.com

10 February 2013
Posted by
Dr.A.Jagadeesh

Excellent analysis, both from authors as well as comment from Dr. Jagadeesh. Thanks

22 February 2013
Posted by
Kamesh Hanumanth

Hello Team,

Great Article. You certainly pointed out the non-technical issues that might spoil the play. I just had one thing to clarify though. There will be a 'Benchmark Price' that would be set in the case of Andhra Pradesh Solar bidding. And it is going to be the same across all the 161 locations. Hence, there is no chance of some bidder winning a bid at Rs.17/unit. However, as per APTRANSCO, this 'Benchmark Price' is going to be arrived at only after the opening of all the financial bids. The methodology for the same is not yet clear and hence everyone has their fingers crossed as to what the Benchmark price will be.

Thanks.

Best Regards,
Pradeep Palelli
EfficientCarbon

25 February 2013
Posted by
Pradeep Palelli

Very good analysis. What I understood from this is that lack of transparency in policy-making leads to corruption and how the politicians, higher officials involved can make a Gateway for corruption.

29 March 2013
Posted by
Venkata Ramaiah. Kasam

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