Under the Sun I While tariffs are being quoted below Rs 5 per unit, experts said low prices will be be good news only if they are sustainable; Project viability will be crucial for solar projects
There is a lot of excitement among solar power producers and users on tariffs tumbling to below Rs 5 kilowatt-hour (kwh) in the recent bidding wars for government projects, but this bit of news has not enthused investors as much.
While every dip in the prices of energy produced from the Sun may be making it more competitive it is also putting a fresh question mark on its sustainability.
Kushagra Nandan, president and chief operating officer (COO), SunSource Energy, says quoting low tariff is "not the end of the story" for solar companies, post that tying up finances was equally crucial for a project's unsustainable.
"People (solar power producers) are realising that quoting low (tariff) is not the end of the story. You have to eventually get the financing. Banks are also now more active in understanding how the numbers play out and they are not financing the projects so easily unless they are convinced it will be commercially viable. There is lot of money out there but for the right project and at the right tariff," he told dna.
That is what happened with debt-ridden US-based SunEdison, which has 2.4 gigawatt (gw) of planned and operating solar electricity projects in the country. It won several solar energy projects through aggressive bidding but has now put them on the block as it is finding it difficult to raise finance.
Like SunEdison, there are many other players in the clean energy segment that are looking for buyers for their projects.
A senior executive with a leading solar power company, who spoke off-the-record as he is not allowed to speak to the media, said, "While there is trepidation over sustainability of some projects, overall investors are gung-ho about India. We have seen investors offering fairly good terms for solar projects," he said.
In recent times, most government mega and ultra-mega projects that were put up for bidding received bids below Rs 5 per kwh.
Gaurav Mathur, CEO of Trina Solar India Pvt Ltd, says irrational pricing and undeveloped ecosystem in India have seen many companies go bust in the past but now almost everyone was turning their attention to India because of its improving economics and scale.
"Now, what is happening is most solar markets (around the world) are stagnant while we are seeing a lot of growth in India. Since India is a big market, you cannot ignore it," he said.
According to the UK-based magazine The Economist, global solar-energy capacity rose by 26% in 2015. In addition, the cost of solar panels has declined by 80% since 2010, which has helped making solar power cheaper compared with clean energies like wind, biogas and others.
At present, solar power makes up for only 1.5% of total power generated in India and about 12% of renewable power. The government is targeting 100 gw of solar power by 2022, of which 40% will be generated from rooftop solar system.
Piyush Goyal, minister of state with independent charge for power, coal, new and renewable energy, is also lending all support that he can to drive this revolution that has already been set into motion.
The minister recently claimed solar plants have become more cost-effective than coal-based plants and that by 2020, solar tariffs can drop below coal by as much as 10%. He has even gone ahead and offered to allow hard-currency pricing for solar power.
This will help in getting in lenders, who have till now been hesitant because of the currency risk involved in Indian projects due to the weakening rupee.
Mathur believes this move of the Goyal's will be a "game-changer" for India's solar energy sector; "That (hard-currency pricing) would be a good move by the government because it will help developers facing financing issue.
The cost of funding will go down as foreign lenders will be more eager to lend as currency risk will be removed. It is going to be a game-changer".
With all of these positive developments coming together, SunSource Energy's Nandan is now feeling more confident to go out in the market and raise debt.
"Last year, the market was so unstable that we decided to hold (back our fundraising exercise) because we were not sure where the market was going. There is a lot of investor interest today," he said.
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