‘Low solar tariff viability depends on cost of debt’

Fri 17 Feb 2017


Solar panels atop a building.  

The viability of solar projects at the historically low tariffs of about Rs. 3 realised recently would critically depend on the cost of long-term debt, and also the continuance of low prices of solar modules, according to a report by the rating agency ICRA.

The recently-concluded bid for three 250 MW units in the Rewa plant in Madhya Pradesh saw tariffs falling below Rs. 3 per unit, sparking some concern in the industry that tariffs were becoming unviably low.

“This signifies a major improvement in the cost competitiveness of solar energy against both alternate renewable as well as conventional energy sources,” according to the report.

“Viability of such tariff for project developer from its credit perspective will be critically dependent upon the availability of long tenure debt (up to 18-20 year post project completion date) at cost competitive rate as well as more importantly, its ability to keep the cost of PV (photovoltaic) modules within the budgeted levels,” Sabyasachi Majumdar, senior vice president and group head at ICRA Ratings said.

Debt service ratio

Any deviation in project parameters and cost assumptions could have an adverse impact on project returns and debt service ratios, according to the ICRA report.

“On the other hand, however, project developers may have an incremental upside arising out of their ability to improve the PLF level using trackers or by a further downward movement in equipment prices over the execution period,” Girishkumar Kadam, Vice President and Sector Head at ICRA Ratings said.

The report noted that such low tariffs in Madhya Pradesh were enabled by a few favourable and unique structures in the project power purchase agreements such as a State government guarantee for the contracted capacity by the utility as well as a compensation for deemed generation in case of non-availability of the grid.

[source:TheHindu]

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