The Indian solar prices hit an all-time record low of INR 2.44/kWh or around 3.8 cents last month for a solar park in the desert state of Rajasthan. This brought a major paradigm change for India’s energy sector, as solar has become much cheaper than all other sources of energy even coal. A lot of the power producers have come under stress with many going to the bankruptcy courts as they will not be able to revive their mothballed gas power plants even in the long run.

Even coal-run power plants without a long-term sales agreement seem to be in doubt as power buyers do not want to lock themselves into a long-term contract with the power prices falling to a new low every day. Coal India stock price has been hitting new lows every day, despite the fact that the Indian stock market remains buoyant. India’s monopoly producer has been facing dark days due to the onslaught of renewable energy as its future growth prospects become suspectable.

Also, read Will Solar Displace Coal In Becoming The Undisputed Power King

A new tender in the southern state of Tamil Nadu saw median winning prices of 5.5 cents/kWh which is much higher than that which was discovered in the Bhadla solar park tender. The reason for the higher price is that the land, transmission security is not that great. Also the biggest risk in that of the buying entity TANGEDCO which is known to routinely delay payments to sellers of power especially wind power producers in that state. I am pretty sure that the prices would have been more near the 4.5 cents mark if the conditions of the land, transmission and buyer were better for the solar developers.

Most of the developers that won the bids were local state specific corporates rather than the large PE backed solar developers that have been winning the central government sponsored tenders in the recent times. The reason that these large MNC developers do not participate much in the state-backed tenders is the lack of security of land, payments etc. The risk is much higher for these state solar auctions making them leery. State level corporates have a much deeper connect politically in these states, making it much easier for them to do business as the risks are better managed by them.

Surprisingly, India lignite producer Neyveli Lignite was the biggest winner in this auction with more than 400 MW of capacity won by them. Though they bid quite high at 6 cents, they had bid for the entire capacity of 1500 MW which was the largest amongst all bidders. I think that NLC might have a good chance to earn decent returns from this kind of quote.