Solar power bids unsustainable: Bridge to India

Solar power bids unsustainable: Bridge to India

Consulting firm Bridge to India has termed the recent low winning bids for solar power projects in India “unsustainable” and warned that “inadequate risk pricing poses a severe viability challenge for the sector”.

The warning comes after solar power developers last month bid as low as Rs2.97 per kilowatt hour (kWh) for a 750-megawatt (MW) project at Rewa in Madhya Pradesh. The winning bid offered a so-called levelized tariff—the value financially equivalent to different annual tariffs over the period of the power purchase agreement (PPA)—of around Rs3.30 per unit.

In a note titled Bidding behavior in the Indian solar sector not sustainable, Bridge to India noted that India allocated 12.6 gigawatt s from July 2015 to December 2016 to winners through a bid process. The tenders saw tariffs falling from Rs5.50-6.00 per kWh in mid-2015 to Rs3.29 per kWh in 2017.

“The average harmonized tariff of Rs4.31 (¢ 6.3)/kWh gives us an equity IRR (internal rate of return) of 14.20%, significantly below the benchmark expectation of 18%,” the report released on Monday said.

“This is a clear demonstration of aggressive bidding in the sector and we believe the developers are bridging the gap in two ways. First, by focusing relentlessly on optimization of technical and financial project parameters, they can push up IRR by 200-300 basis points. Second, the developers are making speculative favourable assumptions on future equipment prices, land sale values, debt refinancing, salvage value, etc., to defend project returns,” the report added. Read More…

 

Credit By : livemint.com

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