Dubai set a global record last month by announcing that an 800 MW solar power project would generate electricity at Rs 2.2 per unit (2.99 cents).
However, there’s no case for achieving such low prices in India, at least not with the current set of technologies, mainly due to the high cost of finance and expectations of higher returns from investment.
The lowest bid that India has attracted for a solar project was Rs 4.34 per unit by Finnish company Fortum Energy in January for a 70 MW project in Rajasthan. Although experts said prices may drop by a few notches, they are unlikely to reach levels of Rs 2.2 per unit.
Tariffs for the Dubai Electricity & Water Authority project cannot be compared like-for-like with projects in India because the risk factors and costs are completely different for the two locations, according to Sujoy Ghosh, country head of India at First Solar. “The dirham is pegged to the US dollar and hence eliminates the need to hedge dollar-denominated investments into the project.Land and evacuation infrastructure has been provided by DEWA who seek a 10% return on their investment which is relatively low compared to India,” Ghosh said. B Bandopadhyay, former advisor to the Ministry of New and Renewable Energy, said: “Indian businesses seek returns ranging from 18% to 20%, while foreign businesses seek a much lower returns. This plays a pivotal role in reducing the cost of generation of such solar power plants.”
According to Ghosh, the cost of long-term debt is lower for projects in Dubai, given the low credit risk. Project investments in the United Arab Emirates enjoy a long-term income tax holiday, which is not available in India, with exemptions under Section 80-AI slated to be withdrawn from April 2017. All these contribute to lower cost of capital at a lower risk profile, resulting in a lower tariff. “Cost of finance in India has been hovering around 12%, while cost of finance in Dubai is just half, at 6%,” Bandopadhyay said.
SP Gon Choudhury, Chairman of Renewable Energy College in Kolkata, said: “The sun’s rays are far more intense in Dubai. A 1 MW solar plant can generate 20 lakh units of power in Dubai, which on an average in India is about 16 lakh units. Lower generation leads to lower capacity utilisation and higher cost of generation.”
“We may be able to generate 20 lakh units from 1 MW in the deserts of Rajasthan, but lack of evacuation facilities would lead to increased costs again,” he said. Jannik Hansen JerseyShare This