NLC’s solar hybrid project could finally kick-start Make in India for energy storage

The release of the public procurement notice by the Department of Industrial Policy and Promotion (DIPP) in June 2017 would have been lost amidst the uncertainty of the Goods and Services Tax (GST) rollout in India. The clean-tech sector in turn was disappointed with GST as most components were slotted in a higher tax slab. Subsequent clarifications did bring relief, but the solar sector went through another round of uncertainty with the hearing of the anti-dumping case filed by Indian manufacturers. In between all this, NLC India limited closed one solar project bid and scrapped another one. The tender for 709MW of solar projects saw the inclusion of DIPP’s local content clause for the first time in a Renewable Energy (RE) project. However, it was not raised as there was no scope for bidder to match the lowest bid (L1) and add 50% of project value in India. The second tender, for energy storage with solar PV plant was scrapped and retendered this year and as it stands, it will witness the clause being leveraged to win a project in the clean-tech sector for the first time.

Key points from the public procurement policy under Make in India

  • Local supplier is one who guarantees to offer minimum 50% local value add (in terms of total project value) to the project.
  • Among the qualified bidders, if Lowest bidder (L1) is from a local supplier, contract shall be awarded to him.
  • If L1 is not from a local supplier, L2 shall be given a chance to match L1 if he is a local supplier.
  • The difference in price of L1 and L2 has to be within 20%.
  • If L2 fails to match L1, subsequent bidders would be given an option to match L1 if they remain within 20% higher than L1.
SFR_Solar_preview

A solar- storage hybrid project in Australia (Cty:juwi)

The NLC energy storage project

The energy storage project is for a 20MW PV plant to be developed in Andaman and Nicobar islands. The battery capacity is 8MWh (16MW) which is lower than the 28MWh tendered in the previous round last year. As summarised in this article by PV tech, the bidders at the end of reverse auction were as below.

L1 : Mahindra Susten (1,327,938,040 INR) / ($ ~20.291m)

L2 : Pennar (1,337,938,040 INR) / ($~20.44m)

L3 : Larsen and Toubro (L&T) (1,377,938,040 INR) / ($~21.055m)

L4 : Hero Solar Energy (1,407,938,040 INR) / ( $ ~21.513m)

L5 : Bharat Heavy Electricals Limited (BHEL) ( 1,487,938,040 INR) / ($~22.736m)

The bid is currently being evaluated as both Larsen and Toubro (L&T) and BHEL have both opted to meet the local content requirement of the tender and are well within the +20% price margin from the L1 bidder, Mahindra Susten. In all likelihood one of them would win the contract with a high probability of L&T staking claim to the bid. However, I must confess there are other bid criteria which L&T has to fulfill if it has bag this award under the Make in India directive. Under the current market dynamics and the appetite of developers, I personally don’t see why L&T wouldn’t want to take risks and bag the project.

Is the clause a big boost to local manufacturing in India for RE systems?

It’s still early days to evaluate the impact of the clause in other sectors but if L&T manages to win and execute the NLC energy storage project it will be a big boost for domestic manufacturing in the Indian clean-tech sector. Providing impetus to Indian solar manufacturing through Domestic Content Requirement (DCR) in solar bids dint do much in addition to getting into a tangle with WTO for international trade compliance in the pact. If the NLC bid goes to the L1 bidder, the battery system would be completely shipped in containers to the site in addition to importing solar modules. On the contrast if L&T manages to bag the bid under domestic content requirement it would be importing only battery cells and doing the assembly and complete system integration in India. Lithium battery pack assembly is currently happening in India but on a small scale for telecom towers and other back-up applications. If the 8MWh battery system is assembled in India, it would be one of the largest lithium based battery system assembled in India at the moment. For a sector that has been warning against a repeat of battery imports from China (just like solar PV modules); raising issues related to high GST (28%) and no impetus for local manufacturing completing this procurement through a significant value add in India will go a long way before India sees Giga factories for batteries being built.

So, all in all, public procurement agencies in the clean-tech space can definitely learn something from how the NLC bid has unfolded. The make in India policy clause formulated by DIPP can indeed create traction towards local manufacturing. It shouldn’t take long before other state agencies and central agencies like SECI and EESL incorporate this clause in upcoming tenders.

The DIPP’s note on public procurement can be found here.

Images courtesy: juwi

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What the union budget (2018-19) means for Renewable Energy?

As yet another annual budget is presented, its time for a review just like in the previous years (Read more). This time, reviewing the budget from the Indian clean-tech sector’s perspective including a discussion with an expert from top global tax and advisory firm.

Listen to the complete budget discussion on the Emerging Tech Podcast (below).

Key Highlights

  • Renewable Energy budget outlay increased for wind 400 to 750Cr for 4GW target RE capacity expected to contribute to 17% of power generation in 2018-19
    • Decreased outlay for solar 2661Cr to 2045 (10GW grid and 1GW rooftop target)
    • Green Energy Corridor outlay increased from 500 to 600Cr
    • Off grid solar budget increased from 700 to 849Cr
    • DDUGJY outlay decreased from 4814 to 3800Cr although Saubhagya has a separate allocation of 3700Cr
    • Integrated Power Development Scheme has an outlay reduction from 5821Cr to 4935Cr
    • FAME has been allotted 260Cr (Subsidy for 1000 cars and charging infra)
  • Smart Cities : Budget Increased from 9000Cr to 12169Cr
  • Promotion of Manufacturing (though MSIPS and other schemes) increased from 745Cr to 864Cr
  • Budget outlay increased for MNRE from 9466 to 10317Cr with MOP declining from 64318 to 53469Cr with major reduction for NTPC
  • Electrification of railways: 4000kms targeted for commission in FY 18-19
  • Customs duty reduction from 5% to 0% for solar glass
  • Customs duty increase for Complete Knock Down (CKD) of automobile parts from 10% to 15%
  • Customs duty on Lithium ion batteries for mobiles increased from 10 to 20%.
  • Social welfare surcharge of 10% instead of existing 3% on imports.

Renewable Energy in India, 2017: A review

The year 2017 has been yet another landmark year for the Indian energy sector. At a national aggregate level India recorded net surplus energy for the first time. It also turned to be a net exporter of energy.  Renewable Energy capacity addition accounts for more than 50% of the total capacity added in this year.  Starting with national level policies, we had the Goods & Service Tax rollout in July. Although electricity supply has been kept out of the GST purview, its impact is felt considering the project development costs saw a price correction in the market. At a high level, there was a change at the ministry with R K Singh replacing Piyush Goyal as the Power Minister.

A comprehensive National Energy Policy was promised to be out by end of 2017 but we only had the release of draft version in June. The draft policy did receive critical feedback on how the supply and demand scenarios’ were forecasted running up to 2040. In a recent comment, the government has said the policy is close to being finalized.

The year in review was discussed in two parts on the Emerging Tech Radio, a podcast that I host. On the first part, Harsh Thacker joined the conversation.

Similarly, a draft policy on introduction of energy storage systems was proposed and again the industry is eagerly looking forward to the final version on that.

On the projects front, large scale project tenders was the order of the day. Wind power projects which for long has sustained on Feed in Tariffs at state level had to compete on a competitive tariff determined through reverse auctions. Solar tariffs first breached 3 rupee/unit mark in the bid for Rewa solar project in Feb and subsequently saw further bids stay below the mark. (Read more about solar bids)

Renewable Energy projects in India: A year-end discussion with Vish Iyer on the second part of the year-end review.

A big news that brought some cheer in the year was the release of the greening of grid report, a report that concluded that integration of 175GW of RE would be a possibility by 2022. The study was a collaboration between the Indian and US governments through the PACE-D programme. However, the analysis did leave some experts asking for details. For e.g. the report claimed energy storage wouldn’t have a great impact on grid integration and was not considered in planning. In return, grid balancing was mainly considered with hydro, gas and thermal power plants. The analysis expects the thermal power plants to operate below their current minimum requirement of 55% PLF.

The economic survey that precedes the union budget had valuable insights as expected. However, an interesting analysis came in the second part of the report released in the second half of the year. The Chief Economic Adviser in the chapter Climate Change Sustainable Development and Energy highlights the energy trajectory in India like projecting RE would account for a 43% of total grid capacity by 2027. The survey chapter also looks at the costs and benefits of different energy sources. Like for instance, looks at the record low solar tariffs and asks a question on whether there is an opportunity lost in land given for solar if they tend to under-perform etc. However, the report did leave some unanswered questions in terms of showing a low social cost for per unit of electricity from coal in comparison to renewables. (Read more about the analysis)

Forum of Regulators signed MoU with National Association of Regulatory Utility Commissioners (NARUC) the US body that represents the state public service commissioners. The MoU is part of the USAID’s PACE-D project, ‘Greening the Grid’. The partnership also aims to look at sharing experience in market design between the two countries.

So yes, there is optimism in the industry (ME INCLUDED). With a new minister at the helm, there have been some radical steps taken in the last few months which has created a new wave of enthusiasm in the sector. As Vish  mentioned in the podcast a few times (above), the RE industry now sees a transformative phase as India marches on towards an ambitious goal of 175GW of RE by 2022.

On a personal note, wrapping up five years of blogging on this platform (In case you missed my 5 year review as a clean-tech evangelist, here). More to come for sure. Just that it’ll also include integration of my audio blogging platform aka podcast.