NEW DELHI:India’s solar power tariffs are starting to rebound from the record lows of last December, lifted by factors such as higher commodity prices and an increase in imported solar equipment cost from next year, two people aware of the matter said.
Auctions held recently showed developers are accounting for comparatively lower solar irradiance in some regions while placing their bids. Lower solar irradiance increases the cost of generating electricity. Also, rising commodity costs and a 40% basic customs duty on solar modules and 25% on solar cells to be imposed from April 2022 is influencing the keenly-contested auction rounds, with developers calibrating these new realities while placing bids.
For instance, the auction for the 550 megawatts (MW) Agar solar park called by Rewa Ultra Mega Solar Ltd (RUMSL), a joint venture between state-run Solar Energy Corp. of India (SECI) and Madhya Pradesh UrjaVikas Nigam Ltd, saw winning bids of ₹2.44 per kWh for 350MW and ₹2.45 per kWh for 200MW quoted by O2 Power Pvt. Ltd and Avaada Energy Pvt. Ltd, respectively.
Also, an auction called by the Maharashtra State Electricity Distribution Co. Ltd (MSEDCL) for 500MW saw winning bids of ₹2.42 per kWh for 300MW and ₹2.43 per kWh for 200MW by Acme Solar Holdings Ltd and ReNew Power Ventures Pvt. Ltd, respectively.
The trend continued for bids called for 450MW at RUMSL’s Shajapur solar park, wherein the winning bids of ₹2.35 per unit for 105MW and ₹2.33 per kWh for 220MW were quoted by state-run NTPC Renewable Energy Ltd. Also, SolarArise India Projects Pvt. Ltd bid ₹2.33 per kWh to land a 125MW deal.
The bids are part of one of the largest tranches of 9 gigawatts (GW) of clean energy contracts being offered currently. These contracts, entailing an investment of more than $4 billion, are being offered after a long lull and are for setting up solar, hybrid and wind energy projects, as reported by Mint earlier. While 6.68GW capacity is being auctioned by SECI, MSEDCL and RUMSL are bidding for contracts for 1GW and 1.5GW, respectively.
Industry experts predict tariffs to stay firm from hereon.
“While the tariffs are firming up, the returns are stable. The current bids in Maharashtra and Madhya Pradesh reflect that once you move out of solar radiation-rich areas such as Fatehgarh, the tariffs quoted by developers increase due to a lower radiation intensity. Also, commodity prices being at an all-time high has impacted the cost of structures and other BO (balance of system) items," said Peeyush Mohit, chief operating officer at O2 Power Pvt. Ltd.
A high solar module price of 25 cents per kWh may not only reduce returns on bid-out projects by 200 basis points but may also increase solar power tariffs by 10-15 paise per unit in future bids, Crisil Ratings said in a recent statement. India’s solar power tariffs hit a record low of ₹1.99 per unit in December 2020 at an auction conducted by Gujarat Urja Vikas Nigam Ltd. “Along with these factors, the notification of basic customs duty on solar modules and cells issued by the government is also reflecting in the recently quoted tariffs," said Mohit of O2 Power which is backed by Singapore’s Temasek Holdings and Stockholm-based alternative asset manager EQT Partners.
The recovery in solar tariffs assumes significance given India is running the world’s largest clean energy programme. India, which has a solar generation capacity of 41.09GW, plans to increase it to 100GW next year. Meanwhile, domestic manufacturing capacity is only 3GW for solar cells and 15GW for solar modules. “The increase in recent solar tariffs is a reflection of the increased customs duty that will come into force in April. This is probably the new normal for solar tariffs as the era of cheap imports comes to an end. While this will lead to an increase in electricity tariffs for consumers, it helps companies to manufacture solar modules under Make in India initiative," said Sanjeev Aggarwal, founder and managing director of Amplus, owned by Malaysia’s state-run oil and gas firm, Petroliam Nasional Bhd.
This comes at a time when the Indian government is turning the screws on Chinese solar equipment makers, keeping on hold approvals to feature in the approved list of solar photovoltaic models and manufacturers as reported by Mint on Friday.
“Surely everyone would have their logic for the quoted tariff and have a process of tariff approval within their system. Also, this is dependent on how much is the bid MW part of total portfolio and helps move the needle in the scheme of things," said Sanjay Aggarwal, MD of Fortum India Pvt. Ltd and global head for solar at Fortum.
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