Rise in tariff with duty hike may help stranded solar plants find buyers

By: |
May 21, 2021 8:09 AM

Discoms had developed cold feet on buying power from these projects after much lower prices discovered under recent auctions.

solar plantThe remaining 3 GW capacity run the risk of re-auction or cancellation owing to higher tariffs.

The basic customs duty (BCD) to be levied on import of solar products from April, 2022 may salvage about 4 giga-watt (GW) of solar projects which have already been bid out but are yet to find buyers, analysts at Crisil pointed.
Since the BCD will lead to tariff hikes of Rs 0.25-0.50 per unit, state-run power distribution companies (discoms) may finally agree to procure power from solar power projects which had discovered tariffs of less than Rs 2.75/unit, the rating agency said.

Discoms had developed cold feet on buying power from these projects after much lower prices discovered under recent auctions. “The power supply agreements (PSAs) for the 7 GW of projects bid out at auctions prior to February 2020 are yet to be signed primarily because subsequent auctions saw tariffs plummeting and even falling below Rs 2 in December 2020,” Hetal Gandhi, director at Crisil Research said.

Of these 7 GW, about 4 GW of projects have tariffs of less than Rs 2.75/unit. The remaining 3 GW capacity run the risk of re-auction or cancellation owing to higher tariffs.

“It would also be faster for discoms, already short on their renewable targets, to buy power from auctioned projects with unsigned PSAs compared to projects which are yet to be auctioned,” Crisil added.

These projects were auctioned by central counterparties — the Solar Energy Corporation of India and NTPC — which sign power purchase agreements with the winning developers in competitive auctions, and subsequently ink PSAs with states to supply electricity from these plants.

From the beginning of FY23, solar module and cell imports will attract a BCD of 40% and 25%, respectively. Module costs comprise about 60% of the total project expenditure for solar plants, and owing to cheaper rates of imported modules, solar capacity addition has majorly been done through foreign products, especially Chinese.

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