Renewable energy developers need to prioritise bidding in auctions with higher returns to ensure robust cash flow visibility, essential for maintaining premium valuations. This strategy is particularly important amid delays of up to 12 months in power purchase agreements.
This is where Firm and Dispatchable Renewable Energy, or FDRE, tenders come into play. It is an emerging and preferred model for future renewable energy development, according to industry experts.
What Are FDRE Tenders?
FDRE tenders require developers to provide power on demand at any time of day. One of the key components of this tender is mandatory provision of energy storage systems. This helps ensure consistent and reliable supply of renewable power.
Since the start of FY24, 12.46 GW of such tenders have been awarded or contracted.
Growth Drivers For FDRE Projects
As per ICRA Research, FDRE projects have several key drivers working in favour:
Growing demand from power distribution companies, commercials and industrial customers
Discovery of highly competitive tariffs
Bidding guidelines notified by the Ministry of Power
Improving economics for battery energy storage systems
Solar module prices trading at an all time low
However, it is key to know that some challenges do remain in the area, such as execution challenges, lack of track record, and exposure to capital costs. Despite, the ICRA Research believes that projects remain strong from FDRE.
Better Returns For Project Developers
One of the more compelling factors for power developers to participate in the FDRE auctions is higher returns. Motilal Oswal notes that firm power segments can be expected to have internal rate of returns in the high teens versus the low to mid teen rates seen in the other segment.
Key Driver: Highly Competitive Tariffs
Recent FDRE tenders have revealed competitive tariffs, stabilising between Rs 4.4 and Rs 4.7 per unit of peak power, fixed for the entire power purchase agreement. ICRA Research notes that these tariffs have an edge over thermal projects, where tariffs are expected to exceed Rs 5.5 per unit. As a result, these projects are likely to attract interest from power distribution companies, which have delayed signing agreements for conventional solar or wind projects.
Company Placed Well To Win FDRE Tenders
Motilal Oswal notes that having an established track record in installing and operating wind assets is crucial for successfully executing FDRE tenders. In the renewable project developing space, Motilal Oswal mainly notes three players who fit this parameter: JSW Energy, Adani Green Energy, NTPC Green.
Out of these companies, 28% of JSW Energy's total operational capacity is from wind, while Adani Green's and NTPC Green's stands at 15% and 3%.
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