What is the issue?
Solar Photovoltaic (PV) projects have witnessed rapidly declining prices in India over the past two years.
What are the issues with of solar power tenders?
- PPAs signed in the recently concluded solar park tenders that have mutual negotiation clauses and are under scrutiny.
- There is a price difference of almost 23% in a agreement between Kadapa and Bhadla solar plants in Andrapradesh and Rajasthan respectively.
- There is an aggressive trend of bidding to get the tenders at throw away prices.
- These sensitive PPAs (Power Purchase Agreements) and solar projects need to be addressed on a case-by-case basis.
What is the reason for this fall?
- The winning companies have credited the low rates to the sharp fall in global PV module price.
- Low cost of finance from foreign investments and low risk hedging because of the offtake guarantees provided by NTPC.
- Discoms who buy power from National Thermal Power Corporation or from solar developers directly are trying to renegotiate their commitments.
- Discoms demands developers with existing power purchase agreements (PPAs) of solar projects to reduce the PPA rate based on auctions.
What are the impacts of this fall?
- The cost reductions led to the capital costs falling to Rs 11-13 crores/Mw.
- The sustainability of solar sector is questionable.
- Investors are suspicious about Indian solar sector in the near future and hinder the growth by drying up access to finance.
- Developers with these PPAs face the risk of bankruptcy because the electricity generated will not be sold.
How this issue can be addressed?
- The central and state governments need to take a stand and ask developers to revise their rates.
- For upcoming tenders, developers need to hedge their risk and bid competitively instead of aggressively in order to gain entry into the immensely promising Indian solar market.
- There is a need to arrive at stable prices with sustainable business strategies for the overall solar sector to continue growing in India.
- Retendering can be thought of an option if the price difference is too high.
Source: Business Standard
