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IEEFA update: Despite low tariffs, global capital continues to support India’s solar ambitions

May 22, 2020

22 May 2020 (IEEFA India) – A new study revealing that current tariffs in the Indian solar sector (hovering at Rs2.50-2.87/kWh) have stabilised at rates about 20-30% below the cost of existing thermal power in India, and up to half the price of new coal-fired power, concludes that the lucrative prices provide enormous opportunities to invest in clean, zero-emissions energy.

Tariffs below Rs2.50/ kWh are financially not viable in the Indian solar sector

The study undertaken by IEEFA and JMK Research & Analytics compared domestic tariffs and the conditions enabling project returns, with the results juxtaposed against solar developer expectations.

Their findings are published today in a new report: Developers and Global Investors Snap Up India’s Solar Power Tenders – Decoding Tariffs vs. Returns for Solar Projects in India.

Co-author Vibhuti Garg, IEEFA energy economist, says their modelling found that as per current market conditions, tariffs:

DEVELOPERS HAVE ALREADY REDUCED THEIR RETURN EXPECTATIONS FROM 14% TO 12%, with tariffs being achieved as low as Rs.2.5/kWh.”

Conditions in India are very different from other energy markets

“While this rate is very competitive compared to thermal plant tariffs, and lucrative for power distribution companies entering long-term power purchase agreements, this is a floor for developers if they want to make money,” Garg says.

The authors found Solar Energy Corporation of India (SECI) and national power company NTPC also played a key role in building international investor interest. Contractual certainty is in place with counter-party and payment risk assurance from these central government agencies.

Co-author Jyoti Gulia of JMK Research says conditions in India are very different from other energy markets.

“We found a number of competing concerns in our analysis,” says Gulia. “Interest rates, module costs, and capacity utilisation factors (CUF) in particular, have a major impact on solar tariffs and project returns.”

THE COST OF FINANCING IS A BIG ELEMENT IN DETERMINING TARIFFS AND RETURNS, according to the report. Significantly higher interest rates in India compared to other leading renewable energy countries is one of the reasons for higher domestic tariffs. The zero indexation for the 25-year period is also a key value for India that is not explicit in the Year-1 tariff.

Capacity utilisation factors (CUF) differ across states in India

“The landed cost of imported modules at a time of currency devaluation is also adversely affecting tariffs, however, this might be compensated by the falling module prices.

Finally, the authors found that capacity utilisation factors differ across states in India, in light of significant variations in solar resource quality.

“Any drop in utilisation rates has a significant impact on project returns. As per our report findings, a 3% drop in CUF results in over 7% fall in equity returns.”

Garg says developers must be mindful of all the parameters impacting tariffs when bidding.

“To earn reasonable returns on project investments, it is crucial for project developers to factor in the risks and rightfully estimate the costs of every component,” says Garg.

Read the report: Developers and Global Investors Snap Up India’s Solar Power Tenders – Decoding Tariffs vs. Returns for Solar Projects in India

Media Contact

Kate Finlayson ([email protected]) +61 418 254 237

Author Contacts

Vibhuti Garg ([email protected]) +91 98100 94248

Jyoti Gulia ([email protected]) +91 99718 00454

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

About JMK Research & Analytics: JMK Research & Analytics mission is to provide in-depth and quality research services across renewables, e-mobility and battery storage markets. (

Vibhuti Garg

Vibhuti Garg is Director, South Asia, at IEEFA. Vibhuti’s focus is on promoting sustainable development through influencing policy intervention on energy pricing, adoption of new technologies, subsidy reforms, enhancing clean energy access, access to capital and private participation in various areas of the energy sector.

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