Covid 19 and falling solar tariffs… How does this pandamic affect the solar tariffs ?

The COVID-19 had significantly affected the energy sector value chain. The international price for oil and gas has come down to a record low which we have seen in early 1995. The electricity demand has also come down by 20 to 30% due to reduced economic activities during this pandemic period. As the solar PPAs are fixed priced long term PPAs, this has led to an increased share of the renewables in the grid. The reduced electricity demand and increasing share of renewables in the grid has led to a threat to the electricity companies to maintain the grid stability.
The indo-chinese geo political face off has also led to the trade restrictions and the new capacity additions of solar projects has come down significantly. India imports almost 80% of its solar equipments from China and the trade war and imposition of safeguard duties and custom duties uncertainities has led to a halt in the new capacity additions in the nearterm. Now the challenge is to integrate the solar and wind with reduced electricity demand scenario. Though situations are getting normal and our energy requirement has reached t par with the daily energy requirement of corresponding previous year (around 3700 Million Units per day).
The Covid 19 will impact the solar LCOE in the short term, until things becomes new normal. The LCOE in solar is function of project cost as well as the interest on debt. Though the overall project may get increased due to the Covid 19, but it will be nullified by the reduced interest on debt. Recently RBI has reduced the repo rate and the interest on debt may come down and will nullify the impact. The recent SECI solar tariff discovered has seen the new low in the solar tariffs to the tune of INR 2.36/kWh, is a signal that market has considered the Covid 19 as a short term event and now things are getting normal. Comparing the Indian tariff trends with global tariff trends we still believe that there is a significant headroom for further reduction in Indian solar tariffs. For example The tariff discovered in recent UAE solar project was US Cents 1.69/ KWh Which is about 30% lower than the Indian solar tariffs.
There are uncertainties regarding the safeguard duties on solar components imported from China and other countries which forces developers to keep a buffer to absorb these uncertainties. There are also urgent uncertainties to the developers in terms of renegotiating the tariffs by the of taker. We have seen the examples in Gujarat and Andhra Pradesh where in state governments initiated renegotiation of solar tariffs with the developers. These uncertainties are accounted by the developers while quoting in the bids and we still get a higher price as compare to the global international price of solar tariff. The technological developments and reduced interest rates will still be the key factors to bring the solar tariffs down in the Indian market.