Low PV Tariffs Cause Uncertainty In India

• Lower solar power tariffs in auctions do not provide enough financial buffers to developers, Warns Rating Agency Ind-Ra  
• Developers are becoming vulnerable to challenges of cost overrun, increased interest rates and counterparty delays
• Rupee bonds are preferred less than USD bonds for financing with investors not sure of long-term sustainability of these projects
• Rooftop solar power capacity still lagging behind utility scale projects
• Compliance with renewable purchase obligations along with a smooth pace of solar power auctions is critical for the success of the sector

Indian solar power project tariffs have been on a steep downhill trip for quite some time, but PPA levels that have gone as low as 2.44 INR should give little reason to project developers to be happy about. Such low power supply prices cause disruption in the power sector, as developers have little financial buffers to face challenges of cost overrun, increased interest rate and counterparty delays.

In an analysis of low tariffs in solar power projects, credit rating agency India Ratings and Research (Ind-Ra) says tariffs of 2.44 INR per kWh could have an equity internal rate of return of only 10%. 2.44 INR ($0.037) per kWh is the latest record-low tariff for ground-mounted PV system in India that was won by ACME Solar in the Bhadla Solar Park Phase III tender, announced in May 2017 (see ACME Wins 200 MW At 2.44 INR Record).

With increased competition and falling module prices, project developers in India are going the whole hog to quote lower tariffs. Tenders, especially those launched by the Solar Energy Corporation of India (SECI) and the National Thermal Power Corporation (NTPC), have witnessed low bids 'because of the comfort derived from their credit profiles'.

"Developers seem to be favouring USD bonds for financing because of ease of placing large issuances, while rupee bonds for renewable projects have taken a backseat owing investor perception of fast-changing dynamics and doubts about long-term sustainability," said Ind-Ra Senior Analyst Divya Charen C.

While fast capacity growth in utility scale solar power projects seems in line with the Ministry of Power's targets, the pace of solar auctions and ensuring compliance with renewable purchase obligations is critical. Rooftop solar is still lagging behind. A Parliamentary panel recently suggested the government to take a relook at the 40 GW target for rooftop solar calling it 'unrealistic' (see Govt Panel Finds Rooftop Target 'Unrealistic').   

But with distribution companies delayed with their payments to solar IPPs  in several states, adverse financial conditions, renegotiation of power purchase costs and termination of PPAs can derail renewable energy projects, warns Ind-Ra. In addition, developers are likely to face more issues of grid curtailment.

Utilities are also increasingly not willing to sign PPAs with developers and try to renegotiate tariffs to lower levels retroactively (see TANGEDCO Wants Retroactive Solar Tariff Cuts). Recently, the Indian Banks Association has appealed to the Ministry of Power to intervene and stop states from forcing clean energy developers to renegotiate electricity supply tariffs (see Indian Banks Against Retroactive Tariff Cuts).