The Indian government’s drive towards rapidly increasing solar power generation capacity has triggered healthy competition between states. The South Indian state of Karnataka has emerged among the frontrunners to attract investment in this sector with an innovative tender scheme.
In an attempt to ensure a more democratised distribution of solar power across the state, Karnataka rolled out plans to allocate 1,200MW of solar PV projects under a new tender. The cornerstone of the scheme was a reverse bidding process where companies could bid for projects on a taluk or sector basis.
The size of each project could be as small as 3 to 20 MW with no upper limit specified for bids by individual developers and the highest a developer could bid was Rs 6.51/kWh (10 US cents). They were also required to identify and acquire land on their own.
A list of 60 taluks was identified (out of a total of 177 in Karnataka), with each such taluk allowed a maximum capacity of 20 MW. The aim was clearly to disperse solar capacity across different regions rather than creating large concentrated capacity.
This scheme makes Karnataka among the first to distribute solar contracts across the length and breadth of its state. Some of the firms to bag projects in the region include the Hero Group (180 MW), ReNew Power (180 MW) Aditya Birla Group (40 MW), Essel Green Energy (65 MW), Marikal Solar Park (60 MW) and SunEdison (20 MW).
However, because of the unique bidding system, some bidders won projects at very attractive tariffs but many others with more aggressive bids lost out because they offered slightly higher tariffs than the most aggressive bidder in their respective taluk.
Experts point out that this process has resulted in less transparency for the bidders and a relatively higher cost of procurement for the state distribution companies.
However, this should not put off states from taking Karnataka’s lead to experiment with their solar targets. In fact, the state’s experience can almost be used as a test case for many others to follow. It is not reliant on sops like free land allocation but is based on a more sound business model that promises returns.