India's e-reverse auctions (2017–2018) for allocating renewable energy capacity: An evaluation

What is it about?

In the renewable energy sector of India, the system of Feed-in-Tariff (FIT) is being rapidly replaced by the mechanism of e-reverse auctions to discover the lowest tariff. 23.375 GW of solar, wind and hybrid capacity has been auctioned by central and state agencies during the period 2017–2018. The auctions resulted in historical low bids, due to the expectation of low price of capital goods like solar modules. The highest winning bids in solar auctions were, on an average, 36.49% less than the ongoing solar FIT in the states that held the e-reverse auctions. Consequently, the FIT has been revised downward. While the auctions proved to be cost effective, commissioning of projects remains a suspect. Only 58.6% of solar capacity allocated through the auctions held in 2017 got commissioned by the end of 2018. Project developers face the winner's curse due to increased import price of solar modules. The bids were revised upward in 2018, due to expected cost escalation because of safeguard duty imposed on import of solar panels. 8 GW solar bids got cancelled in FY 2018–19. Deployment of projects got affected as the distribution companies attempted to force winners of auctions to match tariff with lowest bids in subsequent auctions. This article evaluates the e-reverse auctions on account of their impact on price, deployment and financing of projects.

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Why is it important?

India intends to build 100 GB solar capacity by 2022 and switched from a system of FIT to auctions. The experience will give important insights for all emerging economics that wish to allocate renewable capacity through similar auction mechanisms.