India all set to introduce cap on solar power tariffs

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Mumbai: The ministry of new and renewable energy is set to cap India’s solar power tariffsat  ₹ 2.5 and  ₹ 2.68 per unit for developers using domestic, and imported solar cells and modules, respectively, according to an internal note reviewed by Mint. In the letter dated 24 August, Dilip Nigam, an adviser with National Solar Mission, has suggested that the Solar Energy Corp. of India (SECI) must adhere to the “maximum permissible tariff, including safeguard duty, to be fixed at  ₹ 2.68″. 

The internal note goes on to say that if it was found that the safeguard duty on imports was not paid by the bidder, then the bid solar power tariff will be reduced by  ₹ 0.18, and the “pass through benefits will not be available to the developer”.

The letter also said that SECI’s future bids should be in lot sizes of 1,200 MW, with no upper cap, and the minimum bid should be for 50MW, adding that the minster has approved the changes following a discussion on 13 August.

The suggestions could be a source of worry for solar power developers, given that maximum proposed solar tariffs are far lower than what was achieved through the reverse bidding process conducted by both SECI and state governments.

For instance, earlier this month, SECI cancelled a 300MW solar tender awarded to Adani Green Energy because the tariffs were relatively high. In July, Uttar Pradesh’s renewable energy department also scrapped tenders for 1,000MW of grid-connected solar projects because the lowest bid was at  ₹ 3.48 a unit. Higher bids also forced SECI to cancel another 950 MW tender in July.

Solar power tariffs in India plunged to a record low of  ₹ 2.44 per unit in July, but the lowest bid in recent times was at  ₹ 2.9 a unit.

Nigam recommended that SECI should immediately introduce a tender for 1,200 MW (with no upper cap) to take advantage of the low tariffs. The letter referred to a recent bid conducted by NTPC Ltd where tariffs were finalized at  ₹ 2.59/2.60 a unit, which included safeguard duty.

On 30 July, the government ordered safeguard duty of 25% on solar panels and modules imported from China and Malaysia to protect domestic manufacturers and to encourage solar project developers to buy units locally. However, faced with mounting pressure from solar power developers, the duty has been temporarily lifted. About 90% of the solar cells and modules used in India are imported from China and Malaysia, according to industry estimates.

India is the world’s third-largest energy consumer after the US and China. India has set itself an ambitious target of achieving 100GW of solar power by 2022, with the current capacity at about 24GW.

In a 13 August interview, Rahul Prithiani, director of Crisil Research, said “the government must live with the outcome of the auction process; it should go ahead with these projects even if tariffs are higher than what they like. It’s hard to say which tariff is unreasonable; it’s hard to predict whether module prices will go up or down in the future. If bids are scrapped, you’ll further delay the overall programme.”

Source: Live Mint