Intense competition in reverse auctions for solar projects due to limited supply of projects has pushed companies to bid lower, said the Mercom report
Mumbai: Average solar tariffs in India have fallen by about 73% since 2010, almost in line with Chinese spot module prices, which have also fallen by about 80% in the same period, Mercom Capital Group said in a report on Friday.
Intense competition in reverse auctions for solar projects due to limited supply of projects has pushed companies to bid lower, sacrificing margins, in order to gain market share, the report said.
“Highly competitive reverse auctions, falling module and component prices, the introduction of solar parks, lower borrowing costs, and the entry of large power conglomerates with strong balance sheets and access to cheaper capital have all contributed to the dramatic fall in bids," it said.
In 2010, the first 150 megawatt (MW) of solar project was tendered at an average tariff bid of Rs12.16 per kilowatt-hour (kWh) under the Jawaharlal Nehru National Solar Mission (JNNSM), the Mercom report said.
In February, solar tariffs in India fell to a record low of a levelized tariff (the value financially equivalent to different annual tariffs over the period of the power purchase agreement) of Rs3.30 per unit in a reverse auction at the Rewa solar park. This is about 24% lower than the previous low of Rs4.34 quoted by Finnish firm Fortum last year.
In a reverse auction, the role of the buyer and the seller is reversed and a business bid is won by quoting prices downwards.
India, which has an ambitious target of setting up 100GW of solar power capacity by 2022, saw its installed capacity cross 9GW in December. It is expected to double capacity to 18GW by the end of 2017 and is joining the ranks of nations such as China, the US and Japan in terms of capacity.
Module prices, which make up for about 60% of a solar project’s total costs, have fallen by 26% in 2016 alone and are expected to fall another 20% this year, giving possibility to tariffs falling further, Mint reported on 16 March.
An increase in lending to the solar sector by Indian Renewable Energy Development Agency, the World Bank, the Asian Development Bank and other development banks has helped project developers with cheaper loans, giving them confidence to bid at low tariffs, Mercom said. In the last two years, average domestic borrowing rates have declined by about 14%, it said for solar projects.
“The government is extremely pleased with these record low bids; the question is—can developers and investors make attractive returns at these levels? There is no margin for error," the report said.