SBI opposes Gujarat’s cut in Solar Feed-in-Tariffs

The State Bank of India (SBI) which is India’s largest bank is worried about the effects of a retroactive cut in solar feed in tariffs by Gujarat. The bank has lent to almost 10% of the total solar capacity built in the state under a solar subsidy policy. The state now wants to cut the tariff by 30%, as it feels that the developers are making too much money. The state wants to decrease the burden of the high tariffs of nearly 1000 MW of plants built in the last 2-3 years. The solar electricity generated gets a normalized tariff of roughly 20c/KwH compared to the 8c/KwH for electricity from other sources. The states stable political regime and decent returns has made Gujarat the rock star of India’s solar energy industry. The state has more than 50% of the entire Indian solar energy capacity. The state’s target of 500 MW by 2014-15 has been far exceeded.

Lenders have a big issue as debt forms almost 70% of the capital of the solar plant and any problems in making profits will lead to big NPAs. Solar energy being a new industry has got problems in raising debt and the new cuts will make the bankers super cautious. This will raise the lending rates, making the solar energy cost much higher. Solar subsidies have always been a big problem area for countries around the world. Spain, Czech, Italy etc. have seen huge solar bubble which ended in spectacular busts. It remains to be seen how the Gujarat Energy regulator treats the petition by GUVNL to reduce the solar tariffs. If it accepts the request then it will set the cat amongst the pigeons.

Read on GWI Gujarat trailblazes solar energy growth in India with over 65% capacity. 

Why does the Indian state of Gujarat want to reduce Solar Feed-in-tariffs

The government is now feeling the blues as it installed much more capacity than it wanted and is paying a high price for the solar electricity. The state utility GUVNL now wants the tariff to be reduced by 30% as it feels that the solar developers are making huge profits at the expense of the customers. Note the solar panel prices crashed in the last few years, which made the cost estimates of the solar power plants come down sharply. The solar developers paid much less for the plants, that was estimated leading to big profits. The government’s argument is that since the thermal power developers are being paid higher tariffs as they are making losses, the solar developers should be paid lower tariffs because they are making huge profits.