Analysing The Falling Solar Tariffs In India

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In order to achieve its renewable energy goals, India must increase its solar energy potential. Besides the policy commitments, the competitiveness of the cost of the tariffs of these renewal energies aids the adoption of the same. The Indian administration is taking up several measures to speed the process up. Moreover, the government also highlights that they are “greening the economy.” There have been a series of latest changes that took place with regards to the state’s solar energy sector, continue reading to get to know of the same.

Low Solar Tariffs And Current Auctions

In the recent Solar Energy Corporation of India (SECI) auction on November 23, 2020, India set a new record low solar power tariff of ₹2/kWh. The tariff-based bidding process was used to select solar power developers for the construction of 1,070 megawatts (MW) of grid-connected solar PV projects in Rajasthan on a “build-own-operate” (BOO) basis. In the recent Gujarat auction, the solar power tariff continued to fall to a new all-time low of ₹1.99 or  ₹2 per kWh. Market recession in the months leading up to two auctions, an influx of major capital into the market, declining cost of capital, competitive offers by PSUs, and positive expectations about the use of new technology and equipment prices all contributed to the low bids.  

According to the list of bidders published, 14 bidders submitted bids for 4,350 MW of projects on the bidding platform. This made the tender oversubscribed by 3,280 MW. Just five of the bidders offered rates less than ₹2.10 ($0.0284) per kWh. The remaining bids, mostly from the large existing developers ranged from ₹2.2 ($0.0297) to ₹2.43 ($0.0328) per kWh. This indicated that the majority of serious players were unable to accept tariffs as low as ₹2 ($0.0270)/kWh. These amounts, according to developers, are higher than they would normally quote. Since tariffs below ₹2.39 ($0.03228) per kWh appeared risky and unfeasible, the majority of the bigger domestic players on the bidders’ list were not willing to press as hard as the foreign players.

Reasons 

The low tariff was primarily due to a combination of factors, including foreign players’ eagerness to join the Indian solar market, low borrowing costs, and expectations for future module prices to fall. Due to foreign financing, the two international developers have an exceptionally low cost of debt that made them aggressively bid so low. Another explanation for the low tariff was that due to a clause in the Rajasthan Solar Policy 2019, developers will be able to save on overhead costs. According to the provision, developers are required to pay ₹200,000 ($2,701) per MW per year for the life of the project as a contribution to the Rajasthan Renewable Energy Development Fund. However, this is only payable if the power generated from the solar projects is sold to distribution companies (DISCOMs) outside the state.

Future Outlook 

The rapidly evolving green economy has become India’s calling card on climate change, with solar power tariffs reaching a new low of ₹2 per unit. Solar tariffs in the country had previously been as low as ₹2.36 per unit. As part of its global climate change commitments, India is running what will become the world’s largest renewable energy initiative, with the aim of providing 175 GW of clean energy potential by 2022. Solar projects will provide 100GW of this total. It is believed that the tariffs will continue to be reduced in the state country. 

This is particularly because India has chosen to green its economy in a variety of ways, including cooking, mobility, and now green hydrogen for steel manufacturing and green ammonia to help meet the country’s fertilizer needs. As per the government, India is on track to meet its climate goals and is one of the few countries to have done so. The state has been rapidly increasing its renewable energy ability at low costs, and it is on track to meet or exceed its Paris Agreement goals.

Conclusion

Only time will tell whether a ₹2/kWh solar power tariff is viable, but the bidding has clearly demonstrated investor confidence in India’s solar market irrespective of the pandemic. It not only sets yet another high bar for the entire sector, but it also highlights cost-cutting opportunities for India as it works to create a more sustainable, domestic-based energy infrastructure as part of its goal of zero emissions.

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