Telangana solar projects: Bids point to bright future as tariffs drop

By: | Updated: August 5, 2015 9:50 AM

Tariffs quoted for 2,000 MW of grid-connected solar power sought by Telangana have averaged below R6 per unit in an indication that these continue to decline.

Solar powerTariffs quoted for 2,000 MW of grid-connected solar power sought by Telangana have averaged below R6 per unit in an indication that these continue to decline. (Reuters)

Tariffs quoted for 2,000 MW of grid-connected solar power sought by Telangana have averaged below R6 per unit in an indication that these continue to decline. The bidding process was intensely competitive and between them domestic and foreign producers of solar power had offered to set up nearly 5,000 MW, more than twice the quantum tendered by the Telangana government.

While the weighted average tariff stood at R5.73 per unit, the lowest bid came in at R5.17 a unit and was submitted by Canadian developer Skypower Global. Last month, Skypower had submitted the lowest tariff bid of R5.05 per unit for tenders in Madhya Pradesh. This tariff is the lowest ever grid-connected solar tariff witnessed in the country.

“We are on our way to achieving a tariff of R5 per unit mainly because banks are now lending to solar developers for longer tenures. Indian lenders have now started lending to us for a period of 17 years, up from 13-14 years earlier,” Manoj Upadhyay, chairman, ACME Group, told FE.

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He added that while producers have been able to lower tariffs due to lower interest rates, solar power companies have been trying to persuade domestic lenders to further extend the lending period to 20 years, in line with foreign lenders. ACME managed to grab the largest chunk — 446 MW — of the Telangana capacity on offer and now has a portfolio of 1,300 MW.

Industry experts believe the new normal for average solar power tariff is now between Rs 5.50 and Rs 6 per unit and is likely to fall further depending on interest rates and tenures of loans. They added that domestic developers had also learned to manage solar project costs more efficiently in the last three to four years.

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The winning bids for Telangana were dominated by domestic producers (see chart on page 2) and foreign companies failed to make much of an impact except for the Toronto-based Skypower Global that won 200 MW capacity. “The domestic developers understand the nuances at the substation level and the bid results show that we have been able to leverage that experience to our benefit,” Upadhyay explained. Although producers are aware that the Telangana distribution companies have signed on for the financial restructuring plan (FRP) and have a liquidity problems, they are betting on an improved performance from the distribution companies in reducing aggregate technical and commercial (AT&C) losses. Telangana has inherited undivided Andhra Pradesh discoms’ legacy of the lowest AT&C commercial losses in the country at around 15%.

“The crisis in the distribution sector is an issue but we are confident that government-owned discoms will not default on our payments even if these are delayed,” Upadhyay said. He added that a for a state like Telangana, solar power was now less expensive than gas- and coal-based power if compared over a period of 25 years.

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