SunEdison confident on healthy returns from NTPC project

Cost of funds could be 50 bps lower with NTPC as the offtaker, says SunEdison, which is executing its 500 MW Kurnool project

At a time when SunEdision's bid for NTPC's 500 megawatt (Mw) project in Andhra Pradesh, has raised doubts about the viability among industry sources, the US-based renewable major said that this project is markedly different from the past solar tenders in India.

Last month, SunEdison won the project after it bid with an all-time-low unit tariff of Rs 4.63 per kWh, beating Japan-based SoftBank Group's quote of Rs 4.80 per kWh. SunEdison will set up the plant in an NTPC-developed solar park at Kurnool district in Andhra Pradesh.

Many questioned viability of the project as they believe it would be tough for SunEdison to raise finance and implement the project at the tariff it has quoted. They added that in the past too a few projects were quoted so low, but implementation became tough.

Pashupathy Gopalan, who heads SunEdison's Asia Pacific operations told Business Standard that solar industry has come a long way in the past 6-7 years with rapid fall in prices.

Prices of solar panels that contribute 70 per cent to the cost of solar plants have come down from $3-3.5/W in 2008 to 52-55 cents/W in 2015 and the prices are continuously falling.

The NTPC's project is to be built in 2016 second half and will be commissioned by early 2017.

"The other industry players who bid along with us in the live auction for the project were also not too far away in their final bidding prices, which clearly show that the LCOE for solar has come down making solar at par with grid parity," said Gopalan.

He added that the NTPC bid has set a new benchmark for the solar prices in India.

"This project (NTPC's) also has a very credible off-taker, NTPC which has a AAA rating. Investors are sometimes not comfortable with the off-takers of the project i.e. the discoms and hence either shy away from lending to developers or lend at a higher cost of capital," said Gopalan.

He added that with NTPC being a credible off-taker, the company assume that the cost of capital for this project will be lower, thus further lowering the cost of energy.

"Cost of funds could be 50 bps lower with NTPC as the offtaker," said Gopalan.

The project is also significantly de-risked with the government providing land and evacuation thus reducing company's risk-to-return expectations.

"This project is different from the past solar tenders in India in many ways and hence we are confident to make healthy returns in the project," said Gopalan.

It may be noted, SunEdison Inc, and TerraForm Global Inc, a diversified owner and operator of clean energy projects, last week announced that they have entered into an agreement for SunEdison to sell TerraForm Global a series of projects located in India for the aggregate equity consideration of $231 million subject to purchase price adjustments.

TerraForm Global, Inc., is emerging markets yieldco vehicle of SunEdison

The projects will generate 425 megawatts of capacity in aggregate. SunEdison utilised a portion of the proceeds from the sale to partially pay down its margin loan.