Revolutionizing India: The Solar Way

By Sachit Modi

India is endowed with a landscape that could easily generate 5000 trillion kWhr of solar energy. Even then, since its inception, the National Solar Mission has been termed as an “over-ambitious” project. The project would require a capital outlay of Rs. 6 lakh crore and the government has already bailed out Rs 5036 crore in the latest budget. But along with this, support from the foreign players is a must in order to achieve the target of 100MW. In line with this, Finland’s Fortum Finnsurya Energy recently quoted the lowest ever solar bid of Rs. 4.34/kWhr, leaving most in the industry scratching their heads about the viability of the tariff.

The economics behind the falling bids

The solar bids have seen a decline of over 50% in the last 5 years and each year the bids appear to be more profitable than the previous ones. The analysts are predicting an IRR of 10.7% on the latest bid. The major factor leading the fall in bids has been the decreasing cost of the PV panels, which contribute to around 60% of the total cost of solar plant. Other factors have been the high Capacity Utilization Factor of the plants, declining cost of debt and the dipping land prices. Companies like ACME Solar, Solairedirect and others have been involved in fierce bidding, each staying on its toes trying to develop solar power at the lowest prices.

Policy measures taken by the government

In order to attract investors, government has already subsidized the PV by 40% and increased the rooftop subsidy outlay to Rs 50bn. It is planning to build an INR 430bn Green Energy Corridor and giving away financial aid of Rs 2mn/MW under the Solar Park Policy. The government has also provided an option of using Viability Gap Funding and Capital Subsidy Model along with accelerated depreciation to the bidders.

India, as a member of the International Solar Alliance, is on the right track to bring in a solar revolution. The government is supporting it and we have been able to attract the investors from around the world.  But at the same time we need to be cautious about the negative surprises (fluctuations in the INR rate, land cost and cost of debt) that may creep in anytime.