MNRE to set cap for India’s solar tariff at ₹ 2.5 and ₹ 2.68

The ministry of New and Renewable Energy is set to put a ceiling on India’s solar power tariffs at ₹ 2.5 without safeguard duty and ₹ 2.68 per unit with safeguard duty for developers.

Quite simply, if a builder is found not to have paid any duties, then automatically, the peak rate available will be Rs 2.50.

Making the changes palatable are a few sops, which seem designed to favour the larger players now.  Like volumes. The note recommends that SECI’s future bids should be in lot sizes of 1,200 MW, with no upper cap, and the minimum bid should sized at 50MW. It seeks to float 1,200 MW tender without delay to take advantage of the low tariffs.

Solar power tariffs in India plunged to a record low of ₹ 2.44 per unit in July, but the lowest bid in recent times plummeted to ₹ 1.58 a unit in MPUVNL RESCO tender. Of course this one comes with the caveat of a 3% escalation each year, which will take the price in year 25 to Rs 3.23 effectively.  Plus, these are for really ideal, trouble free sites of central, state and public institutions. Which would imply a degree of ‘prestige’ bidding too.

It should be noted that the minister 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 states. The falling bids now at dismal 1.58 and  a cap at the other end may suffocate competition in the Indian solar market. Solar developers may loose out their edge in competitive market and with SECI’s latest chart-out calendar to float tenders may force the hands of the solar developers to make groups to stay competitive.

Recently, SECI had to cancel a 300MW solar tender awarded to Adani Green Energy because the tariffs were 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.

Coming on top of the safeguard duty imbroglio and now this, the solar sector, the critical part of the government’s plan to achieve its renewable targets, must be feeling a little whipped. The players increasingly find themselves squeezed from every end, and with the drastic drop in rates, categories like rooftops have a tougher selling job to do.  Imagine a rooftop major trying to convince an industrial client about why they should pay say, Rs 4.00 per unit even as headline rates seem to be Rs 1.75 now.

While the ministry’s ‘obsession’ with lower rates is understandable, considering the low per capita energy consumption, primarily due to power costs, the ‘control’ it is seeking could also take away some of the benefits of renewables. By forcing out smaller players for instance, jobs creation will be hit. Larger players might even cartelise eventually to stay close to the new ‘high’ allowed, even in the future when costs could drop further. With fewer players, the price control trick has only so much power in it.

In a year where Hydro and Wind power, the other two components of the renewables main troika, have had a poor year, this is a huge risk.