Understanding The Record Rs 2.36 Bid at SECI’s 2 GW auction. Just Covid 19?

Shortly after we received news of the record low prices or SECI’s 2 GW ISTS tender, we checked with our sources at SECI on the reasons for the low bid. The short answer? ” We are equally surprised”. Solarpack corporacion of Spain was the surprise winner, with its bid at Rs 2.36 for 300 MW. The Spanish major looks set to be a major player in India, with its other recent projects wins effectively sending it on its way to a 1 GW capacity in India by 2022-23. MNRE minister R.K.Singh is as pleased as anyone can be, tweeting about the big news.

Covid-19 fails to halt the aggressive RE growth story, with a historically lowest tariff of Rs.2.36/unit achieved in 2000 MW ISTS( Tranche-IX) solar bid conducted by @SECI_Ltd.

— R. K. Singh (@RajKSinghIndia) June 30, 2020

Informed sources at one of the unsuccessful bidders, which had itself placed bids in the range of Rs 2.40, had an answer. ” Demand destruction due to COVID -19 has led to a supply glut of sorts in all major markets. We expect module prices to stay depressed all through 2020, even 2021. With lead times of up to 3 months, we had anticipated placing orders a little earlier than usual, so the lower price definitely was well planned”. With modules accounting for 60 percent of a typical project cost, that certainly matters.

Global industry researchers, Woodmac (Wood Mackenzie) certainly seem to support those claims, with a projection of a further 20 percent drop in utility-scale solar costs over the coming 5 years. And this is for all components.

Most importantly, China, which has built up massive capacities, saw its leading firms cut prices repeatedly between March and June, as the demand slump hit hard. And some possible cancellations. China dominates global capacity in Modules and cells, with probably over 75 percent of global capacity, which, combined with announced expansion plans, would easily take the total to 100 percent and over for the coming years.

In Ingots and Wafers, its dominance is even more complete presently. Easily over 90 percent of global supply in the case of wafers. During an earlier visit to China last year, it was clear to us that wafer margins are healthier for many of the top manufacturers, leaving the scope for even more reductions on the table this year. With huge capacity expansions already announced or underway, the pressure to keep going will be strong. Quite frankly, there is every chance that the Chinese government itself might step in now to arrest some of the additions until the market stabilises again. Failure to do it might mean consolidation in the industry in China, or at least a few smaller and middle players risk getting squeezed out of the market by the giants like Tongwei, Longi, GCL, etc.

The higher CUF requirements in the newer projects also mean that firms can actually consider more modern tech, especially mono perc modules now, without quite incurring the higher cost as recently as last year. Which explains the interest of foreign firms in the auction. These firms will hope to showcase their ‘better’ installations as one way to convince the government to continue with the policy of encouraging larger projects with fewer restrictions. Already, we have seen how storage plus tenders are moving towards no price ceilings.

With talk of a duty refund on these projects, (if PPA is signed before August 1), although when the refund comes back is anyone’s guess, the maths certainly seems to add up.