According to Vibhuti Garg, co-author of the study by IEEFA and JMK Research & Analytics and energy economist at IEEFA, as per present market conditions, tariffs below Rs 2.50 per kWh are economically not viable in India’s solar sector
May 22, 2020. By News Bureau
The present solar tariffs in India, which are between Rs 2.50-2.87 per kilowatt hour (kWh), have stabilized at rates 20-30 per cent below the cost of current thermal power in India and up to half the price of new coal-fired power, as per a latest study.
It added that these prices would provide massive opportunities to capitalize in the solar industry.
According to Vibhuti Garg, co-author of the study by IEEFA and JMK Research & Analytics and energy economist at IEEFA, as per present market conditions, tariffs below Rs 2.50 per kWh are economically not viable in India’s solar sector.
“Developers have already reduced their return expectations from 14 per cent to 12 per cent, with tariffs being achieved as low as Rs 2.5 per kWh,” she said.
Garg added that while this rate is very competitive compared to thermal plant tariffs, and lucrative for power distribution companies entering long-term power purchase agreements, this was a floor for developers if they want to make money.
SECI and NTPC played a key role in building international investor interest, according to the report titled ‘Developers and Global Investors Snap Up India’s Solar Power Tenders - Decoding Tariffs Vs Returns for Solar Projects in India’.
It added that contractual certainty was in place with counterparty and payment risk assurance from these central government agencies.
According to Jyoti Gulia of JMK Research and co-author of the study, conditions in India are very different to other energy markets.
“We found a number of competing concerns in our analysis. Interest rates, module costs, and capacity utilisation factors in particular have a major impact on solar tariffs and project returns,” said Gulia.
She added that the cost of financing was a big element in determining tariffs and returns. Significantly higher interest rates in India compared to other leading renewable energy countries was one of the reasons for higher domestic tariffs. The zero indexation for the 25-year period is also a key value for India that is not explicit in the year one tariff.
“Finally, capacity utilisation factors (CUF) differ across states in India, given significantly different solar resource qualities. Any drop in utilisation rates has a significant impact on project returns. As per our report findings, a 3% drop in CUF results in over 7 per cent fall in equity returns,” said Gulia.
Garg said that to earn rational returns on project investments, it was critical for project developers to factor in the risks and fairly estimate the costs of every component.
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