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Cap on solar tariffs could dim prospects for future auctions, caution developers

ksenia kondratieva Mumbai | Updated on September 05, 2018 Published on September 05, 2018

The Ministry of New and Renewable Energy last week directed Solar Energy Corporation of India to bring future solar bids in lot size of 1200 MW with no upper cap and minimum bid size of 50 MW while fixing the maximum permissible tariff at ₹2.68 per unit.   -  KVS Giri

The MNRE has fixed the maximum permissible tariff at ₹2.68 per unit

Solar developers warn that introducing the cap on solar tariff proposed by the Ministry of New and Renewable Energy at a time when the rupee is at an all-time low against the US dollar may hamper capacity addition as new auctions would see no takers. Moreover, such a move sends the wrong message to State distribution companies (Discoms).

The Ministry last week directed the Solar Energy Corporation of India (SECI) to bring future solar bids in lot size of 1200 MW with no upper cap and minimum bid size of 50 MW while fixing the maximum permissible tariff at ₹2.68 per unit.

This tariff, according to the letter to SECI MD signed by National Solar Mission advisor Dillip Nigam (reviewed by BusinessLine), includes the safeguard duty on imported PV modules. If the duty was not paid by the bidder, the letter says, the bid solar power tariff will be reduced by 18 paise to ₹2.5 per unit with “no pass through benefit” allowed for the developer.

The letter notes that the Ministry had reviewed the issue related to future solar bids and based on discussions have approved the cap for solar tariff.

Industry players are not yet sure about the outcomes of this proposal as no new tenders have been conducted, but if SECI follows the proposal, the new auction may find no participants, they say.

“This proposal is not acceptable by the industry considering current macroeconomic conditions, the dollar is at all-time high, the interest rates are high, even though the PV module prices have come down, the dollar (exchange rate) has taken away all the benefits,” Sunil Jain, CEO of Hero Future Energies told BusinessLine.

A developer who did not wish to be quoted said the proposal for tariff cap would “kill the market” considering the rupee nearing an all-time low of 72 against US dollar. He added that the projects bagged at ₹2.44 last year are already suffering as shipments of PV modules ordered for those projects have to be cleared now, at an effective exchange rate.

Wrong message

What worries developers the most is that MNRE’s move sends a wrong message to the Discoms that would now see ₹2.5 per unit as “an ideal”. In the past five months, auctions for at least 3,900 MW were scrapped as bidders quoted higher tariffs compared with minimum tariffs quoted in past auctions, India Ratings said. The weighted average bid tariff till August 2018, according to analysts, stood at ₹2.7 per unit. However, the tariffs are always higher in case of State bids, developers note, as Discoms, unlike SECI, are not ‘AAA’ rated.

According to ICRA, SECI is expected to tender up to 8,000 MW of solar power capacity over the next few months. “The progress on the bidding programme would depend on multiple factors such as availability of transmission infrastructure, availability and cost of funding, PV module prices including clarity on safeguard duty and tariff trends,” Sabyasachi Majumdar, Group Head - Corporate ratings, ICRA Ltd, said.

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Published on September 05, 2018
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