Govt to benchmark solar tariff lower

Bidding for viability gap funding, major projects lined up

Closing the pricing gap with conventional power, the Union government is planning to benchmark solar tariff at Rs 4.5 a unit. This would be the reference price for solar power projects, over and above which companies would bid for viability gap funding (VGF) from the government.

GAINING MOMENTUM

• Falling solar rates pushes govt to benchmark tariff at historic low of Rs 4.5 per unit
• Solar project developers to compete for VGF amount
• Source of VGF is yet to be decided
• Move comes in the wake of constantly falling solar tariffs
• Lowest bid was Rs 4.63 per unit

The move comes in the wake of constantly falling tariffs in competitive bidding for solar power projects. The last bidding for solar power park of 500 megawatt (Mw) in Andhra Pradesh witnessed the lowest bid of Rs 4.63 per unit by US solar company SunEdison. Japan's SoftBank through its joint venture in India SBG Cleantech won 350 Mw solar power project in the same state at the same tariff.

Upendra Tripathy, secretary, ministry of new and renewable energy, confirmed the development but did not divulge more details. The Central Electricity Regulatory Commission (CERC) would clear the benchmarking of tariff. The new norm would provide buyers a stable tariff regime.

 

Solar power project developers would bid for VGF requirement and the bidder with minimum VGF requirement would be selected.

A similar move was taken in 2012 during the second phase of Jawaharlal Nehru National Solar Mission with benchmark Rs 5.5 per unit. It was, however, restricted to 750 Mw of solar photovoltaic projects in 2013-14 and 770 Mw in 2014-15. Solar thermal projects worth 1,080 Mw were also funded through VGF. The VGF, then, was sourced from the National Clean Energy Fund and international funds under the United Nations Framework Convention on Climate Change.

This time around, the government is planning to award majority of projects through the VGF mode to stabilise the market, said officials. Modalities on the funding are yet to be worked out.

"Given the recent bid outcomes in Andhra Pradesh and Madhya Pradesh, and the new norms for capex that CERC announced recently, the benchmark revision of tariff under VGF was on the cards. However, it may be worth-while to contemplate if we should have one tariff regime or multiple schemes for a longer-term perspective," said Rupesh Agarwal, partner, BDO India LLP.

A recent CERC order estimated capital costs including the cost of equipment, construction, land, transmission and pre-operative expenses of solar PV projects for the upcoming financial year at Rs 5.1 crore a Mw, which is 17 per cent lower than the current capex.