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Will low tariffs eclipse India’s solar run?

Will low tariffs eclipse India’s solar run?

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New Delhi: From boom to gloom, the narrative is fast changing for India’s solar sector. Even as the record low tariffs of Rs2.44 per unit in May stamped India’s moment under the sun, states are now looking to renege on their offtake commitments for projects awarded at a comparatively higher tariff.

Experts say that this trend, if left unchecked, will precipitate a crisis in the Indian green energy space which has been attracting investors in droves. Foreign investment holds a special import as the lower cost of foreign capital and the size of the market has helped script India’s solar story.

“There is a problem,” said a person involved in designing and running India’s solar bid process, requesting anonymity.

A case in point being Andhra Pradesh which has refused to sign a power purchase agreement (PPAs) with state-owned NTPC Ltd’s 250 mega watt (MW) project at Kadapa in south-central Andhra Pradesh, which was awarded to French clean energy firm Engie’s subsidiary Solairedirect SA for Rs3.15 per unit.

“There is a unique situation developing in the Indian solar space where the procurers believe that the next tender will further bring down the tariffs and are now averse to ink the agreement at the tariffs for which the plants were awarded. The expectations are perhaps to get electricity for free,” said a senior NTPC executive, who also didn’t wish to be named.

Experts termed it “a disturbing trend”.

“We are seeing that the states are holding out. They are of the view that with prices expected to fall further there is no urgency to sign PPAs to buy electricity at a higher tariff,” said a partner at one of the big four consulting firms, requesting anonymity, citing commercial considerations.

“What is a low price? How low is low? What if the Bhadla tariffs are breached? Till the time that the realistic prices are not arrived at, there will always be a tendency to attempt to reopen the tariffs accepted earlier. The attempt to renegotiate tariff is worrying everybody,” said India’s former power secretary P. Uma Shankar.

India’s solar power tariffs hit a new low of Rs2.44 per unit in May at the auction of 500MW of capacity at the Bhadla solar park in Rajasthan.

The Economic Times reported about NTPC’s quandary on 24 July.

Andhra Pradesh energy secretary Ajay Jain told Mint in a telephone interview that the state doesn’t want to buy power from the Kadapa project. “We are surplus in power. We have given a letter to NTPC to sell this power to someone else. We were yet to sign the PPA,” said Jain.

“We are trying to resolve the issue,” countered the NTPC executive quoted above.

Consulting firm Bridge to India in March warned that “inadequate risk pricing poses a severe viability challenge for the sector”.

The problem also has the potential to derail India’s emerging solar ecosystem such as a much needed job market. According to government think tank Niti Aayog, India’s 100 gigawatt (GW) solar energy drive by 2022 has the potential to create as many as 1 million full-time equivalent jobs.

While an Engie spokesperson in an emailed response said, “ENGIE does not comment on any market rumors,” queries emailed to the spokespersons of India’s ministry of new and renewable energy and NTPC on Tuesday remained unanswered.

India’s solar story has also helped the country emerge as a clean energy champion with investors seeing enormous opportunity in India’s emerging green economy. According to the BP Energy Outlook released in January, India’s demand for green energy is expected to grow by seven times in 2035.

India’s renewable play has also impacted other electricity sources.

The warning bells for coal-fuelled projects have started ringing with the second volume of the Economic Survey 2016-17, released on Friday, stating that India’s focus on increasing its renewable energy capacity may further exacerbate banks’ bad loan woes.

“In our estimates, these stranded assets are estimated as the lost revenues due to the suboptimal utilization of coal-based power generation assets as a result of shift to renewables,” the Survey said.

The conventional projects fuelled by coal operating below the threshold level due to muted demand on account of shift towards renewable are also evaluating a strategy rethink given the technical limitations of operating below the threshold plant load factor (PLF) of 55%.

Meanwhile, technological challenges for solar remain.

“Cloud movement is highly unpredictable. This makes the output from a solar plant as uncertain. Cloud cover can result in very rapid changes in the output of individual PV (photo voltaic) systems,” Central Electricity Authority (CEA), India’s apex power sector planning body, said in its draft national electricity plan.

The sector has a lot to offer, given India’s unique energy needs.

Solar energy offers an opportunity for around 304 million Indians who don’t have electricity access. India has a 750 gigawatt (GW) potential on account of enjoying 300 sunny days a year with an average solar radiation range of 4-7 per kilowatt-hour (kWh).

Source: livemint
Anand Gupta Editor - EQ Int'l Media Network

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