State guarantee helps private firm bid 3.3 a unit for Madhya Pradesh plant Solar tariff crashes below grid power cost

Solar power tariff is likely to come down closer to the cost of conventional power sources due to technological advancement and increase efficiency.

Recently, Rewa Ultra Mega Solar Ltd (RUMSL) has bid a record low tariff of `3.3/kwh — levelised over power purchase agreement PPA period of 25 years — for a 750 MW plant through a reverseauction.

Solar power prices have been coming down over the years from `6.5 per kilowatt hour (kwh) or a unit in 2014 to `5/kwh in 2016.

As against this, the average feed-in tariff for wind energy and competitively bid thermal tariff (in the last 24 months) remains at `4.8/kwh and `45/kwh respectively.

According to ICRA, solar photovoltaic (PV) projects are also more attractive with their relatively shorter construction periods within the renewable energy segment, while conventional thermal projects face much higher execution risks because of the possible delays in acquiring land and statutory clearances.

However, this competitiveness was predicated on the state government’s guarantee for the contracted capacity by power utility in the Madhya Pradesh and provision for providing compensation for the deemed generation in case of non-availability of grid which in turn provide a mitigation against counterparty credit risk and the risk of grid back down to a large extent, respectively.

This coupled with a 30 per cent drop in the solar photovoltaic module price level and scale benefits arising from location in a solar park with relatively lower execution risk profile favour project developers.

Private developers will have to depend on timely long tenure debt (up to 18-20 year after the project completion date) at cost-competitive rates as well as their ability to keep the cost of PV modules within the budgeted levels to achieve the `3.3/kwh and improve the plant load factor level, says ICRA.