Before the year started the cost of solar had gone down by 60% and this year it has already come down by further 15%
As the renewable energy sector buzzes with excitement and investment, one of the most active domestic renewable energy firms, Hero Future Energies (HFE), believes the tariff of solar power capacity under bidding this year would now be consistently below R6/unit as the input cost has come down drastically over the past year aided by economies of scale in solar installations.
Hero Future Energies, which comes from the stable of two-wheeler manufacturer Hero Group, won 38 MW of solar project in Madhya Pradesh at a tariff of R5.64/unit in the competitive bidding process concluded last month. While all the bidders went below R6/unit mark, Canadian firm Sky Power grabbed eyeballs to win half the capacity on offer at R5.05/unit, the lowest tariff discovered in the country.
“Before the year started the cost of solar had gone down by 60% and this year it has already come down by further 15%,” Rahul Munjal, managing director, HFE, explained. He, however, cautioned that the lowest tariff discovered in MP bids should not be taken as a benchmark for future bids as it could be the result of a combination of factors, including access to cheaper capital and lower internal rate of return (IRR), which may not be replicated for other projects.
While Munjal declined to divulge the IRR for MP project, he dismissed the theory that low tariffs were being achieved due to lower and possibly unsustainable returns for the companies. “The IRR is not in single digits but closer to the norms for these projects,” Munjal said.
The average tariff discovered in MP bids has buoyed the solar developers as they see solar power achieving grid parity in 2018 as projected by the government. It also assumes significance as it came on the back of a power supply agreement signed by the US-based SunEdison with Tata Power Delhi Distribution Ltd (TPDDL) last month at a tariff of nearly R6.50/unit.
Explaining the nearly R1/unit gap between two contracts, Sunil Jain, CEO, HFE, said TPDDL had floated the tenders nearly a year ago and hence the tariff was higher. He said with declining cost, the tariff would be below R6/unit for new projects.
HFE has plans to aggressively expand this year from 30 MW of commissioned capacity in utility-scale plants to nearly 120 MW.
Unlike most utility-scale solar developers active on the circuit, HFE aims to expand its portfolio in solar rooftops as well. Its commissioned capacity is nearly 4 MW of rooftop, but HFE wants to raise this four-fold this year. The company says a rooftop revolution is just around the corner in the country. The commercial segment has warmed up to the idea, while government buildings would soon float tenders for rooftop solar.
“HFE has two distinct divisions, one for utility-scale solar projects and the other for designing and executing rooftop projects,” Munjal revealed. He said HFE would leverage its domain knowledge in the utility-scale business to succeed in rooftops.