Solar Rooftop – Karnataka

India’s southern state of Karnataka had come out with very attractive feed in tariffs for rooftop solar projects, offering more than 13 cents/kWh for rooftop solar projects. This has made the IRR very high, given the low equipment and project installation costs of solar projects in India. The INR 9.56/kWh tariff has led to a number of projects being installed in Bangalore. However, given the sharp reduction in solar capital costs over the last few years where the reference price for grid project is now INR 5 crores/ MW, the regulator has also gone for reduction in the feed in tariff to be paid to solar rooftop owners. The tariffs have been lowered by 25-45% depending on the size of the installation. While the 1-10 KW solar projects will get INR 7/kWh, the larger ones such as more than 500 KW will only get INR 5.2/kWh.

Read about Solar Rooftop boom in Delhi.

I think it is a good move on the part of the regulator to reduce the solar prices, given the sharp reduction in equipment costs. Giving higher subsidies will only lead to supernormal profits for some investors who manage to corner the limited capacity, while not meeting the government objectives of increasing the overall solar capacity. These reduced tariffs are in-line with the new reference solar costs and will only allow normal ROE and ROCE on solar projects. I think these tariffs can also be adopted by other Indian states, given that their step down nature seems quite sensible. Offering higher subsidies for lower sizes makes more sense while higher sizes should be offered very little subsidy.

The tariffs will apply for 3 years from 2016 to 2018 and will allow solar rooftop project developers some time to plan and executive their projects. However, given that solar equipment prices are falling each year, it would be better for KERC to introduce a yearly decline in solar prices as it would make more sense for developer to install more projects at the end of the period i.e 2018. Germany which was the pioneer in introducing FIT for solar had a yearly digression rate. When the solar prices started falling at an accelerated pace, the country also introduced a half yearly digression rate and also made changes contingent on meeting capacity targets.

Credit: KERC

Credit: KERC