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Under-subscription of renewable tenders merely due to low tariff caps

Recent tenders experienced a low participation from developers and investors. To bring the tariff at competitive rates, the tariff caps were priced aggressively by government agencies and were too low to be attractive to investors. MNRE mulls over cause for under subscription of tenders, low tariff caps have stayed away developers from participation in tenders.  Developers have denied bidding at the tariff levels specified by state agencies instead of a market-based auction, where the lowest bid wins. This trend of tender extensions and retenders has also led to a delay in auction activity. Developers are concerned as they believe that an open market-based auction is much beneficial for market to let the markets determine the right tariff based on the risks – openly and transparently. Putting a cap on tariff under-subscribed tenders have failed and slowed the momentum in the solar industry, making it very difficult to meet reach PM Modi’s target of 100 GW of solar by 2022.

MNRE has proposed the removal of tariff caps, which, if it happens, would come as a huge relief to the renewable energy industry. Also MNRE is contemplating the extension of earnest money deposits (EMD) against performance bank guarantee (PBG) requirements of successful bidders which would affect the liquidity of developers as the EMD and PBG used to be blocked for a particular period.