Here’s why solar tariffs touched all-time low of Rs 2.44 again

Chinese decision to slap deployment caps and reduce feed-in-tariffs for solar projects may lead to a further plunge in module prices.

Solar tariffs hit the lowest level of Rs 2.44 per unit for the second time in the latest 2000 MW auction conducted by the Solar Corporation of India (SECI), Economic Times reported.

Solar tariff had dropped to Rs 2.44 per unit during an SECI auction for projects at the Bhadla Solar Park in May 2017. In subsequent auctions, it peaked at Rs 3.54 per unit.

Solar panel prices have fallen by nearly 85 percent over the last five years.

Here’s why solar tariffs touched all-time low of Rs 2.44:

Developments in China

Recent developments in China including the non-approval of solar projects and bringing down of subsidies for its solar developers resulted in a weak demand in its domestic market. This left Chinese manufacturers with no option but to export, increasing supply in the international market.

China exports over 80 percent of the solar panels and modules used in Indian solar projects.

The increased supply weakened solar panel prices in the international market pulling down domestic prices.

India accounted for 30.9 percent of China’s solar exports in 2017, according to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products.

Chinese decision to slap deployment caps and reduce feed-in-tariffs for solar projects may lead to a further plunge in module prices, which in turn is likely to result in a further reduction in solar bid tariffs, says experts.

Solar advisory firm Gensol co- founder Anmol Jaggi said solar bids will become more competitive going forward.

“The tariffs, which will be discovered in the next rounds of inter-state transmission system bidding, could hit a new low. It may even breach the Rs 2.44 a unit pricing that was discovered during the Bhadla phase-IV bidding,” he said.

Jaggi further said the Chinese module price, which s averaging at 33 cents a watt now, is likely to decline to 28- 29 cents after this announcement.

> Security to bidders

There have been more structural issues that has led to the sharp drop in power tariff. Top of the list is the decision of the government to provide security to bidders that the solar power generated will be bought by the government and payment will be ensured.

This has been done by setting up the Solar Energy Corporation of India (SECI) under the ambit of the Tripartite Agreement for payment security against defaults by state distribution companies.

This single move has transformed solar power from a power sector play to a financial one. Investments are based on how much internal rate of return (IRR) the project can generate. Many investment companies and banks are partnering with companies who understand the solar sector to invest in India as the risk has been taken care of by the government, making the project as good as a financial instrument with visible cash flows.

Easier land acquisition

The government has allowed companies who specialize in land acquisition, and state governments, to allocate land which can be leased out to parties interested in setting up units. This has smoothen one of the biggest hurdles — land acquisition — of the solar companies in setting up solar power plants.

Source: moneycontrol