THE SOLAR OPPORTUNITY

THE RISING SOLAR CAPACITY WILL REDUCE THE CARBON FOOTPRINT, BUT FACES MANY CHALLENGES

WHEN DELHI-BASED renewable energy company Acme Solar bid a record low `2.44 per unit to bag the 500 MW Bhadla Solar Park in mid-May, it did not surprise anyone. Solar tariffs in India have been on the slide for some time now; every bid for a solar park brings it down further. The tariffs have fallen almost 80 per cent from `12.16 for the first 150 MW solar park under the National Solar Mission ( NSM) Batch-I in 2010.

Thanks to falling solar tariffs, the gap between renewable and coal-based power generation is narrowing, making renewable power a preferred source in many regions. This is happening despite the fact that power, coal and renewable energy minister, Piyush Goyal, has continued efforts to reduce tariffs for thermal power generation as well. In the last fiscal, NTPC recorded an average tariff of `1.94 a unit, down from `3.25 a unit two years ago, largely because of improved coal quality and efficient logistics. “This is also reducing our carbon footprint,” the minister remarked.

There are multiple reasons behind the dip in solar tariffs. These are cheaper solar panel imports from China, reduction in construction costs, fall in capital costs and assured offtake from government agencies. The cost of debt financing, which in the first quarter of 2016 was around 11.50 per cent, is today 10.50 per cent. Second, during the same period, capital expenditure per MW has fallen from `5.53 crore to `4.33 crore as the cost of panels is coming down sharply.

In February this year, India tried reverse bidding for wind power projects too. Projects of one GW were split between the windiest states of Tamil Nadu and Gujarat. That saw aggressive bids at `3.46 a unit. “We will auction 1 GW more soon,” says Goyal.

But solar projects are fraught with risk. Those investing are doing so on two assumptions: the price of solar panels will continue to fall and China will continue export

subsidies. Second, the currency will either appreciate or stay stable. Both calls can go wrong. China has overcapacity in solar panel manufacturing and US and EU markets are squeezed because of anti-dumping duties and other import discouraging regimes. “There is a limit to which Chinese players can stretch. The solar story is here to stay, but not with this song and drama (of gradually dipping prices),” says a top banker. He added, “We are asking most promoters of such projects to pump in more equity.”

Goyal doesn’t believe the projects are risky, but says this is the only way to accelerate solar capacity addition. “I’m not holding the bid buttons for these companies. There is a completely transparent reverse bidding process. They bid according to their own calculations,” Goyal told Business Today.

Fortunately for Goyal and India, too much capital is chasing too few projects. This means fierce competition in bids, and cut in the return expectations. The ROI in most projects is in the range of 8-10 per cent rather than the typical 14-16 per cent. Most financial experts believe many players may not be looking at the bottom line but a surge in top line to fuel prospects in future initial public offers. “We are deliberately staying away from solar bids. The margins are too low, and probably some projects are unviable,” says Ratul Puri, Chairman, Hindustan Powerprojects.

In the last fiscal, India added 6.8 GW of solar and 5.5 GW of wind capacity. In the process, for the first time, India added more renewable capacity than conventional. The target was 12 GW, but projects in states and rooftop solar are not taking off at the same velocity.

India’s commitment is to raise the share of nonfossil fuel share in the energy mix to 40 per cent by 2030 from 30 per cent (in June 2015). Between 2002 and 2015, the renewable grid capacity increased six times, from 3.9 GW (2 per cent) to 36 GW (13 per cent), and todrisay it has already crossed 58 GW (18 per cent). The mix includes solar, wind, small hydro, biomass, cogeneration, waste to power, et al. Goyal, who also heads the power ministry, says India might not require greenfield coal-based power plants in the near future. He cities a recent Central Electricity Authority report, which suggested that in the midterm, coal-based units may run at cumulative plant load factor of less than 60 per cent. India expects to retire 32 GW capacity (both thermal and hydro) by 2022, while 11 GW thermal plants would be renovated.

Thanks to the speed at which Indian renewables are growing, the target of achieving 40 per cent nonfossil blend may be met by 2022 itself. ~