The industry thinks the project cost could be lowered if suppliers are charged at 5% even as the erection of inverters and panels and the labour work invite a rate of 18%.
Aiming to provide regular power to farmers through agricultural feeders, the Maharashtra government has issued a tender inviting bids for 2 MW-10 MW capacity solar projects totalling 1,000 MW under the Mukhyamantri Saur Krushi Vahini Yojana . Although termed a good initiative that would boost agricultural output, the decision to fix ceiling tariff at Rs 3.30/unit under the scheme has seen questions being raised about its viability. May 22nd is the last date for submission of technical and financial bids which would be opened the next day. The Maharashtra State Electricity Distribution Corporation Ltd (MSEDCL) is the nodal agency for the project. The ground-mounted solar projects would be set up in 218 talukas of 20 districts, with MSEDCL signing power purchase agreements (PPAs) with the winning bidders for a period of 25 years.
Feeder separation allows supply of electricity to agricultural and non-agricultural consumers through dedicated feeders. States like Gujarat and Andhra Pradesh have already separated agri feeders from non-agri feeders. The Maharashtra government’s solar agri feeder scheme would allow the power produced to be supplied to the grid and used locally for agricultural purposes. This would reduce distribution losses as well. Prashant Khankhoje, director, Global Energy Pvt Ltd, an energy portfolio management firm, says while a lot of small developers with barren land in rural areas are interested in bidding, they face the issue of finding investors to fund the projects. On average, a MW of solar power would require 4 acres of land at a cost of Rs 1.5-2 lakh an acre. As the cost of setting up a MW of solar power is Rs 4-4.5 crore, a developer for a 2-MW project would need at least Rs 9 crore. Interest in the project has been evinced from places like Beed, Solapur, Akola, and Jalgaon, besides others with barren land that can be used for setting up ground- mounted solar projects.
“The viability of the project will depend on the total project cost and the finance cost. Given the current cost of project and the ceiling tariff fixed by MSEDCL at Rs 3.30 per unit, investors and developers will have to think twice before investing. Given the longer break-even period of 8-9 years, a change in terms is needed to make the projects viable. We expect bids for at least a few hundred MWs to come up in this round of bidding; 1,000 MW requires at least Rs 4,000 crore, which would be difficult to raise,” Khankhoje holds. One reason for the high project cost is the GST on EPC, which has been hiked to 18% under composite works contract from 5% charged earlier. The industry thinks the project cost could be lowered if suppliers are charged at 5% even as the erection of inverters and panels and the labour work invite a rate of 18%.
Developers also want the MSEDCL to take care of project and grid connectivity approval, besides the metering arrangement. A Mumbai-based analyst says the ceiling tariff of Rs 3.3/unit seems unviable for investors as the return on investment will not be more than 10%. While the projects’ break-even period is 8-9 years, depreciation, maintenance and repair work would start from the fifth year itself, he points out.