India Solar to see new lows

India’s solar auctions are seeing lower and lower prices being bid for solar power sales with each passing year. The latest giant 2000 MW auction by one of the states Telangana saw solar prices being bid in the 8.5-9.5c/kWh range. There were 184 bidders for the 2000 MW auction and it saw stiff competitors between foreign solar developers, Indian solar developers, conglomerates and specialist green energy utilities.

India green energy focused utilities such as Mytrah, Acme saw large wins in the hundreds of megawatts range, while others such as SunEdison, SunPower, Skypower too won big projects by bidding aggressively. Most firms are bidding in the Rs 5.5-6/kWh range, which means that profitability will be severely challenging for most firms given that interest costs in India are in the 12% range. Though equipment prices in India for solar farms have fallen sharply, the interest costs remain quite high. This means that solar prices cannot go down as rapidly as in USA and Middle East, where the interest costs are in the 4-6% range or even lower for the large state owned financial institutions and utilities.

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The last tender in MP set a new low benchmark for electricity prices from solar projects and this has continued for the Telangana project as well. Solar auctions are being done dime to the dozen by the central and state government and their companies. NPTC and SECI are also coming out with large project auctions soon.

The main concern is that whether these developers will be able to build these projects given these aggressive prices. The Indian political and regulatory landscape is quite volatile, while the global energy prices are extremely volatile as well due to the commodity massacre taking place. Some of these projects may face issue in financial closure in my views, given that the IRR cannot be too high. I am also not sure whether these developers have done their risks mitigation strategy in place.