With the solar tariffs falling to Rs 3.3 per unit for a 25-year PPA for the 750 MW Rewa Ultra Mega Solar project in Madhya Pradesh, rating agency ICRA said the cost competitiveness of solar against both alternate renewable as well as conventional energy sources has improved.
“This is the lowest discovered tariff through a reverse auction based bidding route for grid connected utility scale solar PV project in India. This signifies a major improvement in the cost competitiveness of solar energy against both alternate renewable as well as conventional energy sources,” ICRA Ratings Senior Vice President and Group Head Sabyasachi Majumdar said.
The Rewa project is a 50:50 JV between Madhya Pradesh Urja Vikash Nigam and Solar Energy Corp of India (SECI).
“Viability of such tariff for project developer from its credit perspective will be critically dependent upon the availability of long tenure debt (of upto 18-20 year post project completion date) at cost competitive rate as well as more importantly, its ability to keep the cost of PV modules within the budgeted levels,” he said.
Based on an assumption of a capital cost of Rs 4.6 crore per MW and PLF of 21 per cent, ICRA estimates cumulative average debt service coverage ratio (DSCR) over debt tenure of 18 year at 1.25 times and project IRR at below 10 per cent, for a project with a levellised bid tariff of Rs 3.3 per unit.
“Thus, any deviation in project parameters and cost assumptions may have an adverse impact on project returns and debt service ratios,” Majumdar said.
With competitive bidding route adopted for award of solar projects and fall in PV module price levels, cost competitiveness of bid tariff has thus significantly improved as evident in decline from Rs 6.5 per unit in 2014 to Rs 5 in 2016, and further to Rs 3.3.
Against this, average feed-in tariff for wind energy and competitively bid thermal tariff (last 24 month period) remains at Rs 4.8 per unit and Rs 4?5 per cent, respectively.
“With policy focus on promotion of solar capacity and improved cost competitiveness, the Rewa project bidding will provide impetus on pace of awards by nodal agencies in solar park mode in other states, given the favorable tariff for the procurers who may be either distribution utilities or bulk/open access consumers,” he said.
Majumdar said while deemed generation clause for grid non-availability has been considered in the Rewa project bid for the first time, any similar measure at policy level if approved by the government so as to provide a compensation against loss of generation due to back-down/grid availability constraints, would remain a positive development for the wind and solar energy sector, given the incidences of back-down seen in a few states in the recent past.