Solar power tariff falls 80% in 6 years to Rs 2.44 a unit

In two days, solar tariff has fallen to Rs 2.44 a unit from Rs 2.62 a unit, and by 80 per cent in the past six years. Such a massive fall is unprecedented in the history of solar power across the world.

In a bidding held for the 500-Mw Bhadla solar power park in Rajasthan, domestic company ACME won the top slot by quoting Rs 2.44 a unit for 200 Mw. It was closely followed by SoftBank Energy with Rs 2.45 for 500 Mw. As the tender followed a bucket-filling method, ACME will build 200 Mw and SBG Energy 300 Mw. The park is being developed by IL&FS.

Government officials pointed out this rate was lower than the average coal-based price and the grid parity price for solar to match with coal. This rate was closer to spot power price as well.

Two days ago, for a 250-Mw segment of the park developed by Adani Power, South African company Phelgan Energy Group and Avaada Power Group, promoted by Vineet Mittal’s Welspun Energy, quoted Rs 2.62 a unit. Japan’s SoftBank Energy was a tad below at Rs 2.63 a unit.

The tariff in Bhadla has been fixed for 25 years with no escalation and the bidders have sought no viability gap funding from the government, officials said.

"Some of the main contributing factors are the 7-8 per cent higher yield in Rajasthan due to better solar radiation conditions, a drop in module prices in the international market, and strengthening of the rupee against the US dollar," said Ashwini Kumar, managing director at Solar Energy Corporation of India (SECI).

SECI is a wholly owned public sector undertaking under the ministry of new and renewable energy (MNRE) that executes solar bidding."

"There are multiple drivers. One, the project level risks in terms of timely availability of land, transmission as part of solar park scheme, and counter party  risk in terms of payment timelines is mitigated appropriately in the structuring of the project by making NTPC/SECI has the counterparty. Second, this risk mitigation structure have unlocked relatively cheaper source of capital in the market especially from the foreign investors'" said Vivek Sharma, Senior Director, Infrastructure Advisory, CRISIL

Lack of any mega tenders, the large size of the park capacity, and an influx of cheap financing and capital options were also cited as the reasons for such low bids."

Since too much capital is chasing too few projects, this in turn is leading to competition and a much lower return expectation of 8% to 10% than a typical expectation of 14% to 16%.. Also, there are players in the market who are purely looking to unlock the value through an IPO, therefore, for them to show a growth in top-line is critical than overall risk return matrix," said Sharma.