The key drivers of lower LCOE (Levelized Cost of Electricity) of solar power is the result of combination of factors and the most important being:-

Cost Driver / Factor # 1 - Favorable Policy of GOI –

Decision by GOI to cover solar power by SECI under the ambit of Tripartite Agreement for payment security against defaults by State distribution companies. This has helped to eliminate the so called inherent risk associated with liquidity generated from power sale by the developers during the entire tenure of 25 Years mentioned in Financial Model

Cost Driver / Factor # 2 - Energy Yield –

Superior energy yield (eg: better solar resource at the site, and operational efficiencies) owing to approximately 7-10% higher yield in Rajasthan due to better solar radiation conditions. Rajasthan happens to be an excellent solar location, with high fraction of DNI (direct normal irradiance). Perhaps the use of mature single-axis tracker technologies that can tilt for a greater angle (e.g.: 55-60 degrees instead of 45 degrees) could enhance yield further. Lower ground coverage ratio (GCR), i.e. more land per MW Peak (MWp) could be additional factors. Use of shorter strings in the inverters could be a factor as well. Another possibility is the use of DC-optimizers in the architecture which would reduce balancing losses.

Cost Driver / Factor # 3 - CAPEX –


Lower cost of CAPEX owing to drop in module prices in the international markets. Solar module (or photo voltaic panel) costs account for more than 50% of the entire project CAPEX costs in India. The CAPEX segregation mentioned here shows the relative costs estimate of Rs. 400 lakh / MWp. Note that all the non-module costs (Land, Civil & General Works, Mounting structure, Power conditioning unit, Evacuation lines & equipment, power electronics, cabling) are single digit or close to 10 %.

And if we compare this CAPEX segregation with that of many of the western countries then we find that module CAPEX is only about 25-30% of total CAPEX due to their higher standard of living cost and higher commodity cost leading to higher supply chain cost and human installation costs.

Needless to mention here the Chinese factor due to which solar PV module costs have fallen faster. This Chinese factor has been originated by the temporary overcapacity in China resulting from delayed projects in several key markets.

As with every emerging technology, the prices for solar cells are falling with the increase in series production and technological innovations. Because similar programs to the ones in the USA are also being launched in other countries like Japan, Germany, Spain, Netherlands etc., it can be assumed that the costs for solar power will continue to fall in the coming years.

Moreover, based on the experience curve, it can be concluded and interpreted that each time the total production quantity has doubled; the prices for solar modules on the world market have fallen by 20 %.

So the CAPEX factor can be concluded that the ACME and SBG auction at Bhadla Solar Park phase III (Which allows 11 months for the project to be built) allows locking in some of these price-declines, and hedging to capture future price declines over 11 month period. Therefore, it is interpreted that the decline of 40-47% e.g. Rs 4.63 / KWh to Rs 2.44/KWh, essentially financed by bleeding module makers from China.

We can see that innovations to reduce capital costs or increase energy yield are the key to bringing solar to coal fired without subsidies. Also note the important role played by the "Weighted average cost of capital (WACC)" or “Cost of capital” or discount rate and term (N). We can say that financial engineering innovations have been a big part of solar companies work to make solar affordable to all. For instance in the western countries like US, Japan, Germany, etc., financial innovations have allowed the “cost of capital” to drop significantly, having a huge impact on affordability of solar as 25% decrease in “cost of capital” reduces the LCOE by more than 5 %. We now need to make similar innovations at the technical and financial levels to enhance the solar penetration and also to bring solar affordably to the emerging markets and the poor.

Capital Cost as per the Draft CERC (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2017( Dated: 16th February 2017)-

Capital Cost Norms (February 2017) - The Commission shall determine only project specific capital cost and tariff based on prevailing market trends for Solar PV project.

Capital cost as per the Central Electricity Regulatory Commission (CERC)’s proposal on Overall capital cost dated 23rd April 2016 –

Capital Cost Norms (April 2016) -


Central Electricity Regulatory Commission (CERC)’s Norms on Overall capital cost during Financial Year 2014-2015. The table below indicates CERC determined benchmark cost for Financial Year 2014-15.

Capital Cost Norms (FY 2014-2015) -


Cost Driver / Factor # 4 - OPEX –

OPEX is not likely to be significantly lower unlike CAPEX, though newly gained capabilities like robotic cleaning, drone-based image analytics (to catch quality/operational issues) are starting to be actively implemented at the commercial level that could reduce costs and revenue losses due to inconsistent operations quality.

In The Financial Model I have estimated OPEX improvement at 5.72% over last year. Also sunk CAPEX dominates OPEX in solar farms especially with high interest rates.

Accelerated Depreciation (AD) rules on CAPEX have tightened up in India since last year (allowing only 40% depreciation per year, down from 80%). This is a modest negative factor relative to 2016 and 2015.

As per the Financial Model, from an LCOE perspective, a net CAPEX drop of 40-47% (aggressive) will lead to a linear drop in LCOE of 40-47% from Rs 4.63/KWh to Rs 2.44/KWh

Cost Driver / Factor # 5 – Debt Equity Ratio (Leverage factor), Hedging Risk, Risk during tenure, Interest Rate, Debt Tenure –

Strengthening of Indian Rupee against US dollar amalgamated with Economies of scale is also a factor as it is a 200 MW / 300 MW plant.

The park capacity, cheap financing / capital options and the lack of any big tender are some of the other contributing factors.

Cheap credit owing to lower Interest rates, lower weighted average cost of capital, including lower risk premium, and longer loan tenure are important factor and this amalgamated with lower risk and higher leverage (i.e. debt-to-equity ratio) matters a lot in reducing the LCOE

As mentioned in my earlier article "Financial Model of 200 MW Solar Park" , A 8-10% decrease in after-tax cost of debt, reduces the LCOE from 2.6 to 3.0%

In the recent past, Infra projects IDC (Interest during construction) is squeezing because of decline of after-tax cost of debt.

Here in India, the long term interest rates for 12-25 year financing are higher than the short term rates and this can be substantiated by the MCLR of 7.5-8.5% by several nationalized and private banks of India.

Many argue on the point that overseas loan offered by Government financial institutions from Japan, Europe and by the World Bank are cheaper and therefore the financing should be sourced from that overseas financial institutions and banks. In spite of minimal interest rate (almost close to zero) associated to overseas funding, we should be aware that these money from overseas sources have the inherent currency risk owing to devaluing Indian currency and subsequent costs of hedging. And there are chances that the bidders have not fully hedged their exposures over the entire tenure of the financing. Therefore, bidders may have inherent risk through currency risks for their un-hedged exposures which will bleed them later unless these bidders and competent enough to be smart currency traders.

If the leverage ratios assumed to have increased beyond the industry standard of 70% debt / 30% equity to 85 % debt / 15% equity then the risk-adjusted interest rates derived from Weighted Average Cost of Capital (WACC) shall drop from 8.36 % to 7.15% under the condition that (i) Loan tenure is 25 years (ii) Beta is 1 (Assuming that in Rajasthan the sun rises every day and the yearly irradiance averages are relatively stable and solar PV equipment is relatively long lived) (iii) the risk free rate of return is 1.5% (iv) the expected market return is 14% and (v) after-tax cost of debt is 9%. All these has been estimated in the Financial Model

Cost Driver / Factor # 6 - Grid integration-

Grid connected solar power plant is a big hidden cost of renewables that is being absorbed by the government today. Currently we are more focused on decreasing LCOE (Rs/KWh) and now-a-days constantly decreasing quoted LCOE is considered a milestone for India. On the brighter side for the perspective of GOI, in future, we can see the movement from LCOE to balancing cost where this hidden cost shall be borne by developers.

Line Graph perception is that the solar power price has gone down by half since Q1 2016:-



About Author: Ujjwal Kumar Gupta, MBA - XLRI; B.Tech - IIT; Sectorial experience - Infrastructure, Energy, EPC, OEM, Power, Mining, Construction, Steel

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Disclaimer: The author contributed to this article in his personal capacity out of the passion of writing as a hobby and also by doing judicious utilization of available free time. The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views or the official policy or position of the any entity, institution and organization. Assumptions made within the analysis are not reflective of the position of any entity, institution and organization. The author disclaim any liability in connection with the use of this information. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information.

Indian solar tariffs are in a state of free fall. New record lows are created in the recent round of auctions of 500MW solar projects.


ACME Solar emerged as the lowest bidder followed by SBG Cleantech. The auction was a very tightly fought one with Hero Solar Energy and Renew Power missing out by 0.02 paise and 0.03 paise respectively.

Here are the details


Bidder's Name Tariff Bidders Quantity
ACME Solar Holdings Private Ltd 2.44 200
SBG Cleantech One Ltd 2.45 500
Hero Solar Energy Pvt. Ltd. 2.46 300
Renew Solar Power Pvt. Ltd. 2.47 500
Awaada Power Pvt. Ltd. 2.6 200
Shhapoorji Pallonji Infrastructure Capital Company Pvt. Ltd. 2.65 400
RatanIndia Solar 3 Pvt Ltd.  2.87 100
Duroc Solar 2.88 100
Orange Renewable Power Pvt. Ltd. 2.95 200
Lightsource Renewable Energy Holdings Ltd. 2.98 100
Solairedirect Energy India Pvt. Ltd. 3.08 300
Mahoba Solar (UP) Pvt. Ltd. 3.14 300
Aditya Birla Renewables Ltd. 3.18 200


History is created today, as the record low tariffs achieved in the auction concluded on 09.05.2017 for Bhadla Phase-IV Solar Park, Rajasthan has been broken, with even lower tariff of Rs. 2.44 per unit discovered in the auction carried out by Solar Energy Corporation of India Limited (SECI) for 500 MW capacity in Bhadla Phase-III Solar Park, Rajasthan. The park is being set up by M/s Saurya Urja Company of Rajasthan Limited, a joint venture between the Govt. of Rajasthan and M/s IL&FS Energy Development Company Limited. This tariff is fixed for 25 years with no escalation and the bidders have sought no VGF from the Government. The winners are M/s ACME Solar Holdings Pvt. Ltd. (200 MW) at a tariff of Rs. 2.44 per unit and M/s SBG Cleantech One Ltd. (300 MW), quoting a tariff of Rs. 2.45 per unit.

The entire solar power will be consumed in the State of Rajasthan and power sale agreement with the State Distribution Companies is already tied up. The developers are responsible to connect to the pooling sub-station of solar park. The developers will be paying solar park charges of Rs.45.2 lakh per megawatt towards land, connectivity (from pooling substation to state network) and other infrastructural facilities. The projects are likely to be completed in about 12-13 months.

The earlier lowest tariff of Rs. 2.62 per kWh, was discovered recently in the auction conducted by SECI for 250 MW Bhadla Phase-IV Solar Park in Rajasthan.

It is understood that this fall in solar tariffs is the result of combination of various factors, most important being the decision of the Government of India to cover solar power by SECI under the ambit of Tripartite Agreement for payment security against defaults by State distribution companies. Other factors contributing are about 7-8% higher yield in Rajasthan due to better solar radiation conditions, drop in module prices in International market, and strengthening of Indian rupee against US dollar.

For the present bid, the bids were submitted by 24 bidders for a capacity of 5500 MW which is 11 times of the bid capacity. Bid received overwhelming global response including developers from Finland, France, Saudi Arabia, Singapore and Japan. This became possible only due to constant endeavor at SECI to streamline the bidding process with highest level of transparency and integrity under the guidance of Ministry of New and Renewable Energy.

The strong payment security mechanism from the counterparty in the recently concluded auctions for 750 MW of solar projects in Rewa Solar Park, Madhya Pradesh, will enable fund raising at competitive rates, says India Ratings and Research (India Ratings). The agency believes that the reduced risk from the counterparty because of payment security mechanisms is one of the levers for the steep fall in tariffs quoted by the bidders.

The new payment security mechanism includes the state government payment guarantee, payment security fund (about 35-40% of revenue at plant load factor of 22%) and a deemed generation compensation for the grid unavailability, in addition to the regular letter of credit. Low tariff will also incentivise the offtakers to pay on-time. Notwithstanding the new payment structure, in the event of the tariffs not being commensurate with the capital cost - reminiscent to the aggressive bids seen in the road sector – will stress the coverage ratios of these projects. Thus the cost of funding and lower solar panel prices (fallen by ~28% yoy) are critical factors for the sharp fall in solar bids.

While the state guarantee and payment security fund (PSF) provides a cushion,however it is imperative to know the terms for invocation of the guarantee and the replenishment of PSF. In the event of guarantee invocation or tapping of PSF after a substantial delay in payments – beyond 60 days – the players could be forced to avail working capital facilities and bear the related financial costs.

In another development, Solar Energy Corporation of India (SECI) is now included as a beneficiary in the tripartite agreement with the Reserve Bank of India, Government of India and the states. This development will allow withholding of central assistance to states in case of a default to SECI. As a result, SECI’s future bids are likely to fall to lower tariffs than earlier. The reduced counterparty risk will aid in curtailing the borrowing costs for these projects.

Evolving Security Mechanism A Positive

Though solar projects relatively enjoy stable receivable days from most counterparties, the underlying risk from the weak financial profile of most distribution utilities remain. Certain distributionutilities however exhibit different payment days for different generation assets (thermal and wind) and this pattern among discoms provides limited comfort in assessing the reliability of the offtakers. Thus the inclusion of SECI as a beneficiary in the tripartite agreement gains significance in providing reliability of collections.

Threat of Grid Uncertainty Partially Addressed

In light of grid curtailment faced by wind projects in few states and also by solar projects in Tamil Nadu, the development of providing deemed generation benefits for grid non-availability is a positive development. India Ratings had highlighted this in the report ‘Market Wire: Grid Curtailment Contagion Puts Pressure on Credit Profiles of Renewable Energy Projects’.

However, Ind-Ra believes that it may be unsustainable for the off-takers to carry this risk as the distribution utilities do not operate the grid. The responsibility of grid operation lies with the loaddespatch centres within the constraints posed by the transmission infrastructure and load-generation balancing. Thus, the onus of enabling evacuation also lies with the open access provider and network operator. Clarity in responsibilities and contractual incentives and penalties will ensure that all the stakeholders (including off-takers, open access providers and network operators) are aligned towards the goal of uninterrupted evacuation for renewable power.

Bids Reach New Lows

Auction for implementing 750MW in Rewa Solar Park was concluded at INR2.970-/kWh, INR2.979 and INR2.974 for three units of 250MW each, with 5 paise per year escalation for first 15 years. Offtakers are Delhi Metro Rail Corporation and Madhya Pradesh Power Management Corporation Ltd. The previous low in terms of tariffs of INR4.34/kWh was offered by Fortum of Finland was exactly a year ago in January 2016. Rewa Ultra Mega Solar Limited, which is developing the Rewa solar park, is a joint venture of SECI and Madhya Pradesh Urja Vikas Nigam Limited. Land acquisition and evacuation are the responsibility of the solar park, thus mitigating significant risks for the project developers. The low tariffs discovered makes the solar projects highly competitive in merit order, as the variable charges of marginal power for most states lie above INR3.5/kWh. - Contributed By ICRA

Insights Form Solar Marketplace: More Quotes Result In Greater Purchase Probability

Latest analysis of EnergySage Solar Marketplace data reveals accelerating decrease in solar prices, and how more quotes results in a greater probability of purchase. EnergySage published its fourth semiannual Solar Marketplace Intel Report™, providing a comprehensive analysis of consumer behavior, demographics, and preferences, as well as a complete account of industry trends in the U.S. residential solar market in 2016.

This latest edition of the industry-leading report presents several new datasets and analyses including an expanded list of new states, a review of the community solar landscape, and greater insights into solar shopper demographics. According to EnergySage data, the typical solar shopper is a mid-career male in his mid-40s with interests in real estate, financial services, and home services in addition to solar energy.

This most recent report also features a new section analyzing residential solar data by utility territory. EnergySage compared the levelized cost of energy (LCOE) of solar to today’s electricity rates in territories served by Commonwealth Edison Co., Consolidated Edison (ConEd), Dominion Power, Florida Power & Light Co., Southern California Edison, and Xcel Energy. In all service areas, the LCOE of solar is lower than the 2016 residential electricity rate offered by the utility, affirming the comparative benefits of solar as a low-cost energy source.

Profile of the Typical Solar Shopper

EnergySage compiled Solar Marketplace demographic data and user preferences to develop a profile of the solar-interested consumers in 2016. The typical solar shopper is a mid-career homeowner and is interested in a variety of real estate products & home services. More than three-quarters of solar shoppers are male.

Typical EnergySage solar shopper is a mid-career homeowner, interested in financial and home services 71% of solar shoppers on the EnergySage Solar Marketplace in 2016 were between the ages of 25 and 54. In addition to the solar category, users were also in-market for a variety of products and services, including financial and investment services, residential real estate, home improvement products, and home appliances – revealing a customer segment that is extremely valuable to a range of industries.

Three out of every four solar shoppers are male 77% of 2016 users were male, a significant disparity indicating that the solar product category, while growing rapidly, still has a ways to go before it can reach true mass-market appeal in the United States.


Solar prices are falling at accelerating rate

Between H1 2016 and H2 2016, gross cost per watt on EnergySage dropped by 6.25%. That is more than triple the rate of decline from the first EnergySage Solar Marketplace Intel Report from July 2014 to June 2015, and the greatest rate of decline measured in any of the reports to date. This trend may reflect improved operational efficiencies at solar companies, lower customer acquisition costs via online channels like EnergySage, increased competition, and the low cost of solar panels and inverters.




More quotes result in more sales

Consumers who receive offers from multiple solar installers are significantly more likely to complete a solar purchase. EnergySage users who received 5+ quotes in 2016 were nearly eight times more likely to buy than those who received only one quote. These results offer a clear message: quotes from multiple installers will increase consumer confidence, and solar shoppers should be encouraged to seek multiple quotes.


Solar shoppers are mostly male

EnergySage used Solar Marketplace demographic data to develop a profile of today’s solar-interested consumers, and found that three out of every four solar shoppers (77%) are male. This gender imbalance presents an opportunity for the solar industry to develop new messaging and outreach strategies to attract more female shoppers, and expand the product category to achieve true mass-market appeal.

“This latest report speaks to the importance of transparency and comparison-shopping in residential solar,” said EnergySage CEO and founder Vikram Aggarwal. “For the consumer, getting more quotes empowers them to make better-informed decisions. For the installer, more quotes results in increased consumer confidence, which in turn results in a higher likelihood of purchase. Comparison-shopping platforms like EnergySage make win-win situations like this possible.”

EnergySage is a leading online comparison-shopping marketplace for rooftop solar, community solar, and solar financing, and is uniquely positioned to share solar market insights. This report furthers EnergySage’s mission to support the healthy growth of the solar industry via consumer education and empowerment, price transparency, and greater information sharing among all stakeholders.

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