With the steep fall in solar tariffs in the last two years, the ministry of new and renewable energy (MNRE) has written to all states to ensure that solar developers do not get “undue benefits” from the development by insisting that solar projects meet the deadlines initially set for them without any extensions.
Tariffs have fallen from Rs 7-8 per unit in mid 2015 to Rs 2.50-3.50 per unit at present. The lowest tariff was Rs 2.44 per unit at a solar auction conducted for projects at the Bhadla Solar Park, Rajasthan. The fall is largely due to the lowering of prices of solar cells and modules in the global market, especially in China, which has seen considerable overproduction.
The MNRE is concerned that developers who signed power purchase agreements (PPAs) at fairly high tariffs while solar equipment prices were also high, could earn a windfall over the next 25 years – most solar PPAs are for 25 years – if they delayed buying their requirements and did so after prices had dropped.
“One of the reasons of falling tariff is lowering of prices of solar cells/modules internationally,” said a letter from Dilip Nigam, adviser, National Solar Mission in the MNRE, to principal secretaries (energy) of all states. “Falling prices may give undue benefits to developers at the cost of the government if project duration is extended.”
Developers take a completely different view. “When a developer is putting in a bid, certain assumptions about panel prices are made months in advance,” said one of them, not wanting to be named. “If that’s the way the MNRE wants it, it should allow developers to bid without considering panel cost and then add it later. You can’t have the cake and eat it too. If panel costs fall, developers will obviously want to take advantage of it.”
Others feared the letter could be used by state distribution companies as a pretext to renegotiate earlier contracts at tariffs lower than already signed for. Recently, Uttar Pradesh reworked contracts it had signed with developers following an auction in September 2015 at prices between Rs 7.02 and Rs 8.60 per unit. It insisted that, since solar tariffs had fallen, all of them should sign fresh contracts at the lowest tariff reached during that auction ie. Rs 7.02 per unit. “The letter doesn’t say so, but states might take a cue from it and start renegotiating the way UP has,” said another developer.
The construction period usually allowed for a solar plant can vary between 13 and 18 months, with stiff penalties for delays. But given the difficulties of locating suitable land, and other impediments, projects are often delayed and extensions usually allowed.
“It is important that already awarded projects are commissioned on time,” the July 3 letter added.