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Major Indian power producers find low solar tariffs puzzling; unable to make decent returns

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Low Solar Tariffs a challenge for Indian producers

The massive competition in the Indian solar power sector has led to extremely low tariffs being bid during recent solar auctions. The Rs.5/kWh rate has made it extremely tough for the large mainstream utilities to bid, given that these companies do not have solar energy as their focus area. The solar developers have bid extremely aggressively as they look to grow their business and build a portfolio. They are also looking to cut costs by sourcing cheap funds as well as looking to economies of scale in order to lower costs. The bigger utilities and IPPs such as CLP India, with their normal hurdle rates are finding it impossible to get a foothold in the solar energy markets. With solar energy becoming competitive with coal based tariffs in India, it has become important for every power producer to add solar energy into their portfolio. These companies are finding it hard to change and lower their return profiles.


Solar energy will become the main source of energy in the coming years and even the Indian government has said that 40% of its total capacity by 2030 should come from renewable energy. This means that a large portion of the capacity that will be added in the coming years will come from solar energy. Gas based electricity production capacity will not be added, given domestic gas production is not increasing and many gas plants are stranded. Nuclear energy capacity has also lost steam, with too many issues related to nuclear power plant constraint such as getting land, finding fuel and massive protests by local people (NIMBY). Hydro power plants too face huge time issues leading to huge cost escalations. Environmental issues are also plaguing the large hydro power plants with related issues of rehabilitation of large groups of people. Solar energy is the only major viable source of energy that can be constructed quickly without major issues cropping up.

I think that the issues facing the solar energy sector are temporary in nature and will not last long. Once the exuberance (in some ways irrational) goes away, the serious players will remain and the power tariffs will reflect the costs and the risks. The Indian infra sector is peculiar in the fact that irrational bidding is seen in almost every sector be it roads, power, mining etc. Most of the times they lead to a complete sector standstill, when the developers are not able to build the projects economically and then look to the government for bailouts. While I don’t think there will be a major issue in the current round of solar bids in AP, Telangana and other places, there might be some minor issues with some of the projects. Given the short time in which these projects are built, the chances of things going wrong are lower than the long gestation projects such as roads, thermal power plants etc.


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

2 Responses so far | Have Your Say!

  1. Radhakrishnan Mundoli

    These bids are for very large projects. The project economics does change for very large projects with the bargaining power improving for very large purchases. Many of the bidders are companies of global standing who are in a better position to bargain with the equipment suppliers. with the Chinese module manufacturing segment in doldrums, one can expect to source modules from Chinese companies at very low prices like 45c and invertor manufacturer will be more than eager to reduce their prices also for such large orders.
    With cheap external funding also available and the possibility of sale to Yieldcos, the entire economics take a different turn.
    However this does put a lot of strain on the quality aspect ans one can expect substandard projects being put up

  2. seshadri akella

    It is really not about big vs small.I think it is big myth to think that the big guys in India somehow ensure quality and reliability by procuring modules,inverters from reputed manufacturers.It is all about selecting the right kind and right quality of modules and inverters after a proper INDEPENDENT design(not guided by the vendors which is very important), and inspecting them against stringent global standards,which unfortunately is not happening in most cases that I have read or come across in India.I am wary of equipment driven EPC contractors(most of them in Indian condition are), because the equipment guys are more interested in selling their equipment than ensuring that the right kind of equipment are selected for the given site and weather conditions.HENCE THERE IS A STRONG NEED FOR INDEPENDENT VERIFICATION OF DESIGNS AND TECHNOLOGIES.We saw this happening in thermal power plants where we have highly experienced consulting firms ensuring proper designs and selection of equipment,thereby protecting the client’s interests.We need such a system in India.