Solar sector to see capacity addition of 5.7 GW in FY17: Icra

The country's solar sector is expected to see capacity addition of 5.7 GW in the current fiscal, even though aggressive tariff bids may cast a shadow on profitability of producers, rating agency Icra said today.
"Going by the project awards and tenders floated as on date, about 5.7 GW capacity addition is expected to happen in FY17. But actual capacity addition will hinge on timeliness in the award of projects under state and central policies and the subsequent signing of PPAs," Icra Senior Vice-President Sabyasachi Majumdar said.
The rating outfit estimated that assuming a 7 per cent annual demand growth, an extra 78 GW in solar energy capacity would be required over the seven-year period (FY16-FY22) to hit the revised solar RPO (renewable purchase obligation) target of 8 per cent by 2021-22.

Icra, in a report, however, warned that the tariffs being quoted by successful bidders are very aggressive and the viability of such competitive bids hinges on keeping cost of modules and financing within budgeted levels.
Amendments in the solar RPO norm from 3 to 8 per cent by FY22 in the national tariff policy is a key positive for the solar energy sector, it said.
"This should facilitate capacity addition in line with the revised capacity target of 100 GW by FY22 (earlier 22 GW) under the National Solar Mission (NSM)," it said.

Recently, Union Power Minister Piyush Goyal said the country already achieved 19,000 MW solar capacity by 2015-16, five years ahead of the original target, and the 20,000-MW target will be achieved by the end of this fiscal.

Tariff competitiveness has significantly improved with state-owned power utilities and the nodal agency under the NSM adopting the competitive bidding route in 2015.
Tariffs quoted by solar producers over the past six months have been low, ranging between Rs 4.34 and Rs 5.1 per kWh, and are at a significant discount to the normative solar tariff of Rs 7.01 stipulated by the regulator CERC for FY16.
"As these competitively bid tariffs remain aggressive from credit perspective, viability of such competitive tariff bids hinges on structuring of debt with longer tenures, competitive funding costs, and the ability of IPPs to keep the cost of modules within the budgeted levels," warned Majumdar.

According to Icra, with tariff at Rs 5/kWh, project cost at Rs 5.5 crore/MW, cost of debt funding at 11.5 per cent over 12 years, and PLF at 19 per cent, the project IRR for a solar project will remain below 10 per cent.
From a regulatory perspective, the report warned that the sector continues to face major regulatory challenges, particularly on meeting the new RPO norms.