• Strong pipeline of solar projects aided by policy support; but regulatory challenges persist: ICRA

    The solar project pipeline in the country remains strong supported by policies but regulatory challenges persist arising out of factors such as non-enforcement of renewable purchase obligations (RPOs) and likelihood of more stringent scheduling and forecasting norms, research agency ICRA said in report.

    About 6,100 Megawatt capacity of solar projects were awarded during the 8-month period of CY2016 (January – August), supported by policies at both the Central and the state level.

    “About 2,520 MW capacity of solar PV projects, awarded in CY2016 so far (January till August 2016), have a tariff of less than Rs. 5/kWh, which could face challenges in achieving financial closure. Viability of such tariffs hinges on structuring of debt with longer tenures, competitive funding costs and the ability of the project developers concerned to keep the cost of modules within the budgeted levels,” said Sabyasachi Majumdar, Senior Vice President, ICRA.

    Simultaneously, however, a fall in solar module prices coupled with aggressive bidding by developers leading to declining solar PV bid level has resulted in an improved tariff competitiveness of solar PV projects. This in turn remains beneficial for the state distribution utilities which are key off-takers. Weighted average competitively bid solar PV tariff has declined to Rs. 5.0/kWh for CY2016 (till August 2016) from Rs. 6.5/kWh for CY2014.

    ICRA further takes note of the recently reported concerns of solar project developers on the forced back-down by the state utility in Tamil Nadu. While the solar generation project is supposed to operate on the “must run” principle basis under the grid code, any forced back down by the state, on the grounds of inadequate transmission capacity and/or grid stability, remains a concern for solar projects, in ICRA’s view, given the absence of any deemed generation clause in the tariff structure.

    Notwithstanding a positive demand outlook, the solar sector continues to face several challenges like regulatory challenges arising out of inconsistency in RPO norms; and poor compliance with RPO norms by the obligated entities and weak enforcement of such norms by the State Electricity Regulatory Commissions (SERC).

    “Despite the revision in solar RPO to 8% from 3% till FY2022 in the National Tariff Policy in January 2016, the SERCs in majority of the states are yet to re-align their solar RPO norms and trajectory in line with the revised target,” Majumdar said.

    Further, solar PV projects remain exposed to regulatory challenges arising from requirement of scheduling and forecasting framework, which is likely to be approved by SERCs, subsequent to CERC’s framework, which has been effective since August 2015.

    The Karnataka Electricity Regulatory Commission (KERC) in May 2016 had approved similar regulations and similarly, SERCs in a few other states have put in place draft regulations. For the solar projects in Karnataka, the forecasting framework would thus have a negative impact on cash flows and project IRR, particularly if the actual overall deviation (mix of over-generation and under-injection) exceeds 30% of the scheduled generation, though the extent of the impact for solar energy generation projects is likely to be relatively lower due to lesser variability in solar generation, as compared with that for wind energy projects. Ryan Braun Jersey

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