Solar sector continues to face regulatory challenges: ICRA

Despite a positive demand outlook, the solar sector continues to face regulatory challenges arising out of inconsistency in RPO norms and likelihood of more stringent scheduling and forecasting rules, says ICRA.

According to a study by ICRA, the solar project pipeline remains strong with about 6,100 MW capacity of solar projects awarded during the 8-month period of 2016 (January-August), supported by policies at both the Central and the state levels.

"However, 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," ICRA Senior Vice President Sabyasachi Majumdar said in a statement issued here today.
 

About 2,520 MW capacity of solar PV projects, awarded in 2016 so far, have a tariff of less than Rs 5 per unit, which could face challenges in achieving financial closure, he said.

"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," Majumdar said.

He further said 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," Majumdar said.

Average competitively bid solar PV tariff has declined to Rs 5 per unit for 2016 (till August) from Rs 6.5 per unit in 2014.

"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, given the absence of any deemed generation clause in the tariff structure," Majumdar added.

He further said that despite the revision in solar RPO to 8 per cent from 3 per cent 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.