Indian solar cos eye projects offering $ tariffs in SE Asia
Given the record-low tariffs and offtake uncertainties in India’s solar energy sector, domestic developers are scouting for opportunities in the immediate neighbourhood and SouthEast Asia. One attraction: The dollar-denominated electricity tariffs they stand to earn there.
Some countries offer dollardenominated tariffs in solar project power purchase agreements (PPAs), freeing the developers from foreign exchange risks. This is important given that the cost of finance represents around 70% of the cost of developing a solar project in India.
“Indian developers are looking out for projects in the Asian markets because of the domestic market becoming too competitive and increasing uncertainties. Some of the attractive markets are Bangladesh, which offers dollar-denominated tariff, and Vietnam, where tariffs are linked to the dollar,” said Sunil Jain, CEO of Hero Future Energies Pvt Ltd.
The company promoted by the Munjal family of Hero Group is planning to put up one large gridconnected solar plant of up to 100 megawatts (MW) capacity in South-East Asia, apart from expanding in Africa and India.
“As far as dollar-based tariffs are concerned, it makes it (projects) safer. It also attracts lower equity investors because they can more accurately forecast dollar return vis-à-vis return in local currency. It makes fundraising easier,” added Varun Jairath, director, investments, Rays Power Infra Pvt Ltd, which is focussing on projects in South Asia. Developers have been fretful that electricity distribution companies may not honour PPAs with solar projects awarded at tariffs that were as high as ₹10.95-12.76 per kWh in 2010-11. The tariffs have dropped steeply this year, hitting a new low of ₹2.44 per unit at the auction of 500MW of capacity at the Bhadla solar park in Rajasthan in May. These concerns have been deepened with Andhra Pradesh and Karnataka renegotiating or scrapping PPAs for wind energy projects.
“Seeking re-negotiation of existing renewable energy PPAs by distribution utilities is a very disturbing trend. This, along with backing down of renewable energy generation and inordinate delays in payment, is making investors in the sector very nervous,” said Debasish Mishra, partner at Deloitte Touché Tohmatsu India Llp.
Solar power tariffs have declined because of plunging prices of solar modules. Also, overseas developers with deep pockets have made a bet on the Indian solar space, driven by its scale and their own expectations of a benign interest rate regime.
“Along with expanding our solar projects in the Indian market we are aiming at exploring the solar market in certain countries of SouthEast Asia and particularly the ones neighbouring India,” said Ashish Agrawal, director at Vivaan Solar Pvt Ltd.
India had earlier explored awarding projects on dollar-denominated tariff but later abandoned the idea.