In order to address the renewable energy sector’s anxiety stemming from low tariffs discovered in the recent auctions, seen by many as unviable, more flexibility should be introduced in market design, tariff structuring and regulatory environment, experts have said.
In order to address the renewable energy sector’s anxiety stemming from low tariffs discovered in the recent auctions, seen by many as unviable, more flexibility should be introduced in market design, tariff structuring and regulatory environment, experts have said. Improvement in payment discipline and other contractual obligations by the power distribution companies (discoms) would open the sector to lucrative investors such as bankers, insurers and pension funds through the bond market, panellists at a discussion on renewable energy and the country’s energy transition conducted by Brookings India pointed out.
Admitting to rising risks of profit margins shrinking due to the devaluation of the rupee and costs of funds getting higher through stricter monetary policies, Gagan Sidhu, independent consultant and former CFO, GMR Renewable Energy, said such risks can be mitigated by potential access to bond markets. “When the term loans of renewable energy projects receive an ‘AA’ rating, as they are already moving into the A-rated category, banks and insurers would be taking them up in the bond market,” Sidhu said.
Though disapproving the government’s decision to cap ceiling tariffs at as low as `2.53 per unit in the recent auctions held by the Solar Energy Corporation of India (SECI), Tim Buckley, director, Energy Finance Studies, Institute of Energy Economics and Financial Analysis of Australia, said renewable energy would never meet the fate of the huge capacities of the currently stressed coal-based power plants because of lower risks due to significantly lower cost volatility.
On the issue of states not agreeing to buy intermittent solar power even when tariffs discovered in auctions being much lower than thermal electricity, Kanika Chawla, senior programme lead, Council on Energy, Environment and Water, said, by doing that, the very principle of reverse auctions are being violated.
As FE reported earlier this month, power minister RK Singh has pointed out this predicament to the finance ministry. States effectively end up paying a much higher price for every unit of solar electricity due to the mandatory payment of fixed charges to thermal power plants, even if they don’t offtake any electricity from the latter. The quality of data on renewable energy usage should also improve and the financial credibility of the discoms warrants deeper assessment, the panellists concurred.