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New Delhi: India may include the Japanese yen in the basket of currencies it is considering for a foreign currency-denominated tariff plan for solar energy.

The move is aimed at attracting foreign investors to India’s solar energy sector by reducing the foreign exchange risk involved.

The plan to include the yen may have been prompted by suggestions from Japan’s SoftBank Group that has announced big plans for India’s solar energy sector.

“A basket of currencies is being looked at. SoftBank suggested looking at the yen as part of this. The ministry of new and renewable energy (MNRE) will be framing guidelines," said a government official who spoke on condition of anonymity.

Japan’s SoftBank, in partnership with Bharti Enterprises Ltd and Taiwan’s Foxconn Technology Group, plans to invest at least $20 billion in solar energy projects in India through a joint venture called SB Cleantech Ltd.

Spokespersons for SoftBank and Bharti Enterprises declined comment.

“A basket of major currencies is being considered from the target countries to attract investments in our solar energy sector. Currently, they are US dollar, euro and yen. Rather than converting from Indian rupee to US dollar, or to euro or yen, it will be better what they get paid a portion in their own currency," said a second government official who too asked not to be identified.

India has been considering a dollar-denominated tariff plan for solar energy for some time.

The National Democratic Alliance government has pushed renewable energy to the top of its energy security agenda and is looking to provide green power at less than 4.50 per unit. It comes in the backdrop of aggressive tariffs being quoted by developers, with 5 per kilowatt-hour (kWh) tariff becoming the new norm.

Initial calculations show a foreign-currency denomiated tariff plan could see rates go down to even 4.37 a unit.

This foreign-currency denominated tariff plan may involve bundling with unallocated thermal power as a back-stop arrangement, in the event of the rupee depreciating beyond a particular level.

In a 27 August report, CARE Ratings wrote: “Dollar-denominated tariff would work provided interest cost work out to be ~ 4-5% p.a. with a repayment period of at least 15 years. The project developer in this case stands to make equity IRR (internal rate of return) of ~13%. Setting up these plants on large scale would provide economies of scale. As per CARE Ratings, dollar-denominated tariff could be ~ 7 cents/kWh, where the INR equivalent tariff would be ~ 4.5/kWh (INR/USD @ 65)."

“Currency depreciation, in this case rupee depreciation, is the biggest risk for such a mechanism," it added.

NTPC Ltd, India’s largest power generation utility, has already wants to supply electricity from 10,000 megawatts (MW) of solar power capacity and is setting up on its own at 3.20 per unit by bundling it with unallocated power to bring down tariffs. In addition, it plans to sell electricity at around 5 per unit for 15,000MW that it is buying on behalf of MNRE and earn 7 paise per unit in return.

Both state-owned NTPC and Power Trading Corp. Ltd (PTC) plan to implement the scheme for foreign currency equivalent tariff on a pilot basis for 1,000MW each. PTC is partly owned by the government.

“The policy is evolving. The procurers want to earn around 7 paise per unit margin. There also has to be some risk coverage," said an PTC executive who asked not to be identified.

Spokespersons for NTPC and MNRE didn’t respond to queries.

The plan to reduce solar power tariffs comes in the backdrop of state electricity boards (SEBs) increasingly showing a reluctance to buy power on account of their poor financial health. With a debt of 3.04 trillion and losses of 2.52 trillion, SEBs are on the brink of financial collapse.

India launched the Jawaharlal Nehru National Solar Mission in 2010 with the aim of adding 20,000MW of grid-connected solar power to the country’s energy mix by 2022 in three phases. While India has a solar generation capacity of 2,900MW, the Bharatiya Janata Party-led government has substantially revised an earlier target of achieving 20,000MW capacity by 2022 to 100,000MW. This would require an investment of around 6.5 trillion over five years.

Of the total 100,000MW of solar power capacity planned by 2022, 20,000MW will come from solar parks and 40,000MW each from roof-top and distributed generation projects. The government plans to set up 25 solar power parks.

Renewable energy currently accounts for only 13%, or 36,471MW, of India’s total installed power capacity of 2,75,912MW.

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