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Low solar tariff estimates may create problems for renewable developers

November 30, 2020

Financial Express:

Even though the current environment of lower interest rates, expectations of further decline in solar panel prices and having an assured buyer have been attributed to solar tariffs falling to the record low level of Rs 2/unit in the latest SECI auction, experts warn that solar developers quoting such low rates are walking a tightrope. The equity internal rates of return (IRRs) for the projects could slip significantly to single digits if cost assumptions do not hold true, they opine.

“Access to debt at rates 200-250 bps lower and a $0.03-0.04 per wattpeak (wp) drop in module pricing would enable maintenance of equity IRRs of 12-13% at the new tariff of Rs 2/unit,” Hetal Gandhi, director — industry research at Crisil, told FE. However, Gandhi cautioned that if module prices do not fall and utilisation levels of the plants are below 23%, IRRs can drop sharply to single digits, adding that, “we clearly believe that these tariffs are one-off and may not sustain”.

According to a recent joint study conducted by JMK Research & Analytics and The Institute for Energy Economics and Financial Analysis, equity IRR for a 250 MW solar project in Rajasthan selling power at Rs 2.55/unit comes to 12.9%. The analysis took into consideration interest cost of 10%-12% and capacity utilisation factor of 19.5%. “Earlier equity IRR of more than 14% was considered good, but now with falling tariffs and increasing competition, most developers are estimated to be getting equity returns of 12-13%, leaving very little margin for error if there are unplanned project delays or curtailments,” analysts said in this report. 

[Anupam Chatterjee]

More: Experts feel record-low solar tariff one-off and may not sustain

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