Analysts believe that the solar power tariffs have come down due to the decline in the cost of capital and equipment
New Delhi: Solar power tariffs in India are set to hit a new low with the tender for 500 MW of capacity offered under the national solar mission (NSM) in Andhra Pradesh receiving huge investor interest last week. In response to tenders for setting up 10 projects of 50 MW each, bids totalling around 5,500 MW were received.
This has set the stage for aggressive tariffs to be quoted by the developers, with ₹ 5 per kWh tariff becoming the new norm. The National Democratic Alliance (NDA) 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.
The development assumes significance given the comparison with conventional sources of electricity such as coal. Consider, the price of power generated by the state-owned NTPC Ltd, India’s largest power generation utility. In the last financial year, the average rate of electricity sold by NTPC’s coal-fuelled projects was ₹ 3.25 per unit, while the tariff of power from its other projects ranged between ₹ 2 and ₹ 4.50 a unit.
NTPC has already articulated its intent to supply electricity from 10,000 MW of solar power capacity that it is setting up on its own at ₹ 3.20 per unit by bundling it with unallocated power to bring tariffs down. In addition, it plans to sell electricity at around ₹ 5 per unit for 15,000 MW that it is buying on behalf of the ministry of new and renewable energy (MNRE) and earn 7 paise per unit in return.
“There have been industry murmurs suggesting that the current batch of NSM projects may see tariffs fall below ₹ 5 per kWh. While we believe that would be very aggressive, recent bidding in Punjab, a state with relatively lower irradiation and higher cost of land, was an eye-opener with tariffs in the range of ₹ 5.09-5.98 per kWh," Bridge to India, a solar energy consulting firm said in a statement on Monday.
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 BJP-led government has substantially revised an earlier target of achieving 20,000 MW capacity by 2022 to 100,000 MW. This would require an investment of around ₹ 6.5 trillion over five years. Of the total 100,000 MW of solar power capacity planned by 2022, 20,000 MW will come from solar parks and 40,000 MW each from roof-top and distributed generation projects. The government plans to set up 25 solar power parks.
The downward trend has become a norm, according to analysts.
“The solar space has already seen a significant decline in tariffs. Solar tariffs declined to ₹ 7.49-9.44 per kWh in Jawaharlal Nehru National Solar Mission phase I, Batch II during FY12 from ₹ 10.95-12.76 per kWh during FY11. In phase II, Batch I, the concept of VGF was introduced and the tariffs declined to ₹ 5.45 per kWh. However, the current tariffs are even lower than those offered through VGF. The recent coal-based bids for the purchase of thermal power by Andhra Pradesh saw tariffs in the range of ₹ 4.27-4.98 per kWh, only 1-14% lower than the solar tariff of ₹ 5.05 per kWh bid recently in the MP Power Management Company power purchase tender," India Ratings and Research, the domestic arm of Fitch Ratings, said in a 22 July report.
India will award contracts for the supply of 15,000 MW this year. In India, the world’s biggest greenhouse gas emitter after the US and China, renewable energy currently accounts for only 13%, or 36,471 MW, of the total installed power capacity of 2,75,912 MW.
“Bids were submitted last week for 10x50 MW of solar PV (photo voltaic) projects under the new phase of NSM. This is the first round of NSM bids since the new government took office in May 2014. This is also the first time that bids have been called for projects to be set up in solar parks being developed under the new Solar Parks Policy. A total of 30 developers have submitted valid bids totalling 5.5 GW," the Bridge to India statement added.
Analysts say that the solar power tariffs have come down due to the decline in the cost of capital and equipment.
Kotak Institutional Equities Research in a statement on Monday said that low solar power tariffs is led by, “decline in cost of capital and equipment (modules, inverters, BOP—balance of plant costs have come down by 15-20% over past 1.5-2 years, and 40-50% over the past 3-4 years)", and “return (equity internal rate of returns or IRRs) thresholds may have probably come down versus usual target of 13-15% for international utilities, 18-20% for PE backed IPPs (independent power producers) and 20% plus for Indian corporates".
A number of utilities and private equity (PE) firms are trying to get a slice of India’s growing green energy pie. These include NYSE-listed Brookfield Asset Management, Switzerland-based PE firm Partners Group AG, infrastructure investment manager I Squared Capital, Dubai’s PE firm Abraaj Group and Doha-based Nebras Power QSC. A subsidiary of Singapore-based Sembcorp Industries Ltd acquired a 60% stake in IDFC Alternatives-backed renewable energy firm Green Infra Ltd for S$227 million in February. In the same month, Actis Capital committed $230 million to create an Indian renewable energy platform called Ostro Energy Pvt. Ltd. SunEdison recently agreed to acquire Continuum Wind Energy Ltd.
However, concerns remain about the payment for this solar power by the state electricity boards (SEBs), which are weighed down by ₹ 3 trillion in accumulated losses.
“Weak Discom financials and its correlated issues remain the biggest challenges to the renewable segment growth." the Kotak statement added.
There has been growing interest from overseas investors in the Indian renewable energy space. Russia’s OAO Rosneft, the world’s largest publicly traded oil company, US-based First Solar and China’s Trina Solar are among the firms looking for opportunities to participate in India’s solar energy sector. In June, SoftBank, along with Bharti Enterprises Ltd and Taiwan’s Foxconn Technology, proposed to invest at least $20 billion in solar energy projects in India through joint venture SB Cleantech Ltd.
The investor interest in the current round can be gauged from the fact that, “six developers including SunEdison, Adani, Rattan India, Reliance, SoftBank and Energon have bid for the entire 500 MW capacity," according to the Bridge to India statement. Also, “prominent new entrants include SoftBank, Trina Solar, Enel, Energon, Solar Arise, Suzlon and Greenko", it added.
India has a $250 billion investment opportunity in the renewable energy space, said Piyush Goyal, minister of power, coal and renewable energy, at Mint’s energy conclave in New Delhi on 28 August.