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New low solar tariff keep developers on tight rope
Viability of new low tariffs committed by solar power developers will critically depend on the availability of 18-20 year debt at competitive rates, their ability to keep cost of solar modules within budgeted levels and completion of the project in time.
Bids for solar tariffs touched a new low of Rs 3.15 per unit for NTPC’s 250 mw solar plant at Kadapa Solar Park in Andhra Pradesh, on Wednesday. This implies a tariff drop of 4.5% over the previous bid of Rs 3.33 per unit for Rewa Solar Project in Madhya Pradesh during February 2017.
It signifies a further improvement in the cost competitiveness of solar energy against both alternate renewable as well as conventional energy sources, in ICRA’s view.
Sabyasachi Majumdar, senior vice president & group head at ICRA Ratings said; “Viability of such tariff for project developer from credit perspective will be critically dependent upon the availability of long tenure debt at cost competitive rates as well as its ability to keep costs of modules within budgeted levels. Project execution in a time-bound manner also assumes immense importance.”
With declining module price levels and the bidding process adopted, tariff competitiveness for solar projects has been showing an improvement in the last three years. Solar tariffs fell from an average Rs 6.79 per unit in 2014 to Rs 5.01 per unit in 2016. An improving tariff competitiveness of solar power thus remains favourable for the distribution utilities, in ICRA’s view.
Assuming capital costs of Rs 4.5 crore per megawatt and capacity utilisation of around 21%, ICRA estimates cumulative average DSCR over debt tenure of 18 year at 1.20 time and rate of return below 10%, for a project with a levellised bid tariff of Rs 3.15 per unit.
Any deviation in project parameters and cost assumptions may have an adverse impact on project returns and debt service ratios.
“On the other hand however, project developers may have an incremental upside arising out of their ability to improve capacity utilisation using trackers or by a further downward movement in equipment prices over the execution period” adds, Majumdar. Kris Versteeg Authentic Jersey
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