Going along with the massive collapse in solar PV tariff bids seen in the recent months, the Indian government has reduced the fixed tariff on offer for a 2 GW tender.
The Ministry of New and Renewable Energy has announced that the fixed tariff of Rs 5.43 per kWh (US¢8.35 per kWh) has been reduced to Rs 4.43 per kWh (US¢6.82 per kWh) for a 2 GW solar PV tender, the bidding for which is expected to take place in early 2016.
Project developers will not be bidding for tariffs under this, but for the lowest capital cost support they will require to set up each MW of solar PV project. The maximum support the government will provide is Rs 1 crore per MW.
Initially, the 2 GW tender had an escalating tariff structure. In the first year the developer would have received Rs 5.43 per kWh (US¢8.35 per kWh). The tariff would have increased by Rs 0.05 per kWh (US¢0.08 per kWh) every year for 20 years, reaching Rs 6.43 per kWh (US¢9.9 per kWh) at the start of the 21st year. The MNRE subsequently removed the escalating tariff regime, instead settling for a fixed tariff regime of Rs 5.43 per kWh (US¢8.35 per kWh).
The 2 GW capacity will be spread across a number of states, and the tender will be allocated by the Solar Energy Corporation of India, which will also procure power from the developers before selling it to utilities and other power consumers. SECI will charge a margin of Rs 0.07 per kWh (US¢0.11 per kWh).
Record-low Bids In Recent Auctions
The latest decline in tariffs comes weeks after SBG Cleantech and SunEdison submitted the lowest-ever bids of Rs 4.63 per kWh. These projects are not expected to receive any additional concessions or incentives apart from what are already implemented for the entire power sector.
Sharp Correction In Capital Cost Expected
The decision by MNRE may also have been influenced by the latest proposal of the Central Electricity Regulatory Commission that reduced the capital cost of solar PV projects from Rs 6.05 crore (US$0.93 million) per MW to Rs 5.01 crore (US$0.77 million) per MW. The proposal is currently open for comments and suggestions from stakeholders.
The maximum viability gap funding under the tender of Rs 1 crore (US$0.15 million) per MW is now in-line with the regulations that require a 20:80 equity to debt ratio for solar power projects in India. As per the conditions of the tender, project developers will be able to decide whether to use the funding support as equity investment or to retire debt.
Of the 2 GW capacity that will be on offer, 250 MW will be auctioned under the Domestic Content Requirement clause, wherein developers will be obligated to use solar panels assembled in India. For the balance of 1.75 GW in capacity, developers will be free to use any panels.