Is India right in capping its solar power tariffs?
As the third largest energy consumer in the world, India is determined to achieve 100GW solar power by 2022. It has a long way to go, considering its current capacity of 24GW. Nevertheless, it is quite ironical that the biggest obstacle to this has been brought in by the Ministry of New and Renewable Energy (MNRE) itself, by making a decision to cap solar power tariffs.
According to market sources, the solar power tariff is likely to be capped at ₹ 2.68 per unit for the solar power developers who are using imported solar cells and modules and at ₹ 2.50 per unit for the developers who are into domestic manufacturing of solar panels and modules. The importers are going to be badly affected by this decision.
As of now, about 90% of the equipment that solar power developers use in India is imported. Of this, 85% of the imports are from China. A recent levy of 25% safeguard duty on the imports of solar panels and modules could make capping solar power tariffs, an absolutely misguided move on the part of MNRE.
The safeguard duty might cut down cheap imports and protect the interests of the domestic solar manufacturing industry. But it will surely increase the solar power tariffs by at least ₹ 0.40 per unit.
At a time when the developers are struggling with raising the additional costs for their modules, the cap on solar power tariff can only further dampen their spirits and negatively affect the viability of solar development projects.
₹ 2.9 per unit has been the lowest bid in the recent times, which is far higher than the cap that is set for solar power tariffs. During the last few months, high bidding has caused SECI to cancel a number of tenders including the 300MW that was awarded to Adani Green Energy. Uttar Pradesh’s renewable energy department canceled tenders for about 1000MW of grid-connected solar development projects because of high bidding. In July tenders worth 950 MW were canceled by SECI because of high bids.
In order to take advantage of the low solar power tariffs, National Solar Mission (NSM) has suggested SECI to immediately introduce a tender for 1200 MW without any upper cap. This way every solar power developer can bid for a 50 MW project without worrying about any upper cap.
The prices of modules have been falling sharply over the last five months. However, solar power developers are still finding it difficult to manage their additional costs owing to the increasing cost of borrowing and currency fluctuations.
The government has made it possible for solar power developers to pass on additional costs to distribution companies. Nevertheless, this is quite a cumbersome process according to many officials and industry experts. This involves approaching the Central Electricity Regulatory Commission. The process involves a lot of back and forth between the Regulator, distributors and the developers, causing many delays and a lot of capital logging.
Exemption of solar development projects is the best thing MNRE can think of, in such a situation. Nevertheless, the question is will the ministry of finance be sympathetic to this request?