Solar tariffs in India these days stand true to the idiom ‘one man’s loss is another man’s gain’. Low solar tariffs are hurting the solar developers and obviously gaining the buyers. Therefore solar developers have started to look beyond the Indian market (Read). Even though India holds an enormous opportunity for the developers to grow their portfolio aggressive bidding have diminished their returns.
This is how the solar tariffs have fallen over the years in India:
These tariffs yield an IRR of 9-10% as against what industry considers normal returns- between 17-18%. In fact, until 2015 the solar industry would quote such tariffs that guaranteed them the returns above 15%. Things changed when GOI started awarding projects to the developers through reverse auction basis. Solar developers from across the globe seized the moment by quoting highly aggressive tariffs. In 2015 when global companies such as Sky Power Global & Sun Edison quoted solar tariffs below Rs.6, it was the first record-breaking tariff for the Indian solar industry. In the subsequent tenders, solar tariffs continued to breach the levels until it hit the lowest at INR 2.44. Fall in the cost of solar panels globally has brought the tariffs down.
The developers for long had been quoting low tariffs relying on information of consistent fall in the cost of the solar panel. This indeed happened but the recently the developments have seen a remarkable deviation. India is overly-dependent on China make solar panels. Supplies to overseas were disrupted as the demand for panels shot up in Chinese market itself. As a result, solar tariffs were higher than INR 2.44 in the subsequent auctions. Nonetheless, the developers were still aggressive!
While the solar market has become a buyer’s market, developers have been operating on a very thin margin due to low solar tariffs. As such when ex-post-facto rules are imposed on the developers, the margins aggravate. In general, DISCOMS either manage to get the solar developers reduce their prices or refuse to purchase the power (Read). This is more problematic than the thin margin.
Section 61: tariff regulations of Electricity Act, 2003, notifies encouraging competition as well as protecting consumer’s interest. Section 62 of the act determines tariff by bidding process. As mentioned earlier GOI started reverse bidding to bring down the solar tariffs in India. It goes without saying that the government has achieved its purpose, but somehow it did not look into solar developers’ interests.
Solar developers sensing no returns have started looking for opportunities outside India. Due to uncertainty on GST rates, the current fiscal was slow on tenders. The ability of DISCOMS to renegotiate solar tariffs have also hampered the growth prospects. GOI should step up to protect the solar developer’s interest as well otherwise India will be reduced to merely a portfolio building destinations for the developers.