Solar Tariffs Likely to Rise in Near Term: ICRA

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Solar tariffs likely to rise in near term, though remaining cost competitive for the off-takers; further, timely signing of PPAs and PSAs remains critical.

Solar power tariffs are likely to rise in near term due to the impact of basic custom duty on equipment, though they would remain cost competitive for the off-takers.
Policy support and tariff competitiveness will likely continue to drive investments in the renewable energy sector but delays in signing of power purchase agreements and power sale agreements are key downside risks said ICRA Ratings.

The Covid-19 pandemic induced lockdown restrictions had slowed down the RE capacity addition during the initial months of FY2021. Nonetheless, the capacity addition picked up from October 2020, driven by the easing of lockdown restrictions and supply chain challenges.

The sector added 5.9 GW in the first 11 months of FY21, which was expected to increase to 7.5 GW to 8.0 GW by March 2021. The solar power segment remains the key driver of capacity addition in the RE sector and has surpassed the wind power capacity for the first time in January 2021, it stated.

Further, it said that the resolution of pending tariff issue for the renewable projects in the state of Andhra Pradesh remains a key monitorable.

Icra has a stable outlook for the renewable energy sector due to factors such as continued policy support from the government, strong growth potential, presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness.

“About 20 GW capacity tendered by the central intermediate procurers such as the SECI and NTPC Ltd is yet to tie up PPAs/PSAs,” said Girishkumar Kadam, Co-Group Head, ICRA ratings.

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