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Another eye popping decline in Indian solar tariffs to less than 6 cents/kwh sets cat amongst the pigeons

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Indian Solar Tariffs on a declining spree

The Indian solar tariffs discovered during recent reverse auctions have defied belief, and led to many industry analysts and consultants question the viability of the solar power plants being built at tariffs below INR 5/kWh. It has been calculated that the ROE on solar plants being built will lead to single digit returns. This ROE can easily go into the negative territory, if any of the risks such as a sharp rupee depreciation or higher global equipment prices materialize. Many of the big utilities such as CLP have decided to stay away from such solar auctions, given the lack of economic viability.

However the recent AP bid in which SunEdison and Softbank had won at INR 4.63 a unit, shows that the competition in the solar market in India remains immense and companies are willing to go for high risks in winning these projects from the government. The drop has been sharp and sudden in the solar tariffs. People were wondering how Sky Power which had won bids for INR 5 a unit, would manage to build the solar plants. Now they are scratching their chins on how companies like Rising Sun, Fortum and Yarrow Infrastructure will get any returns after winning Rajasthan solar projects for 420 MW at just INR 4.34 /kWh (6 cents/kWh). Industry watchers are disturbed as such low tariffs might dissuade serious players from deploying capital in the Indian solar market.

Once the sentiment gets adverse, then it might take a long time for private investors to get in. Note the returns on solar projects are better in other markets in SE Asia and Europe. At INR 4.34/kWh and a capital cost of INR 5.5 -6 crores/MW, it seems almost impossible to make any viable returns. Even with a low cost of capital and low risks (as the power will be bought by NTPC), these bids seem to make little sense. The policy makers and ministers are obviously very happy, as these prices are making solar energy competitive with even thermal power electricity. Gas and wind power prices are now much higher than solar power prices at these tariffs. India’s target of 10,000 MW installed in 2017 looks viable, given the huge competition and low prices.

Read how the Indian government looks to lower Capital Costs for Solar Energy.

However, if most of these projects get stalled if there is a risk materialization, then all of these plans might go bust. Renewable Energy is a highly volatile market. SunEdison which is the world’s largest renewable energy developer found it the hard way, as the debt market for energy companies suddenly reversed leading to liquidity issues. India might also find itself in a pickle, if solar module prices shoot up or some other black swan event happens. It might make sense to bring some rationality back into the Indian solar tariffs, otherwise the whole industry might come under risk.

 “Solar tariffs in India have fallen to a new low after Finnish firm Fortum Finnsurya Energy won a 70-MW project with a bid of INR 4.34 (USD 0.064/EUR 0.059) per kWh, The Hindu Business Line reported on Tuesday.

The company is one of the winners in a tender by Indian power producer NTPC Ltd (BOM:532555) for the development of six projects of 70 MW each, or a total of 420 MW, for the Bhadla Phase II solar complex in the state of Rajasthan. Rising Sun Energy Pvt Ltd won two projects in the tender, offering INR 4.35 per kWh, Solairedirect also won two projects with the same price of INR 4.35 and Yarrow Infrastructure got one project with INR 4.36 per kWh, according to the article.”


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

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