Consultants really feel record-low solar tariff one-off and should not maintain
Although the current environment of lower interest rates, the expectation of a further drop in prices for solar panels and an insured buyer can be attributed to solar tariffs that fell to the record low of Rs 2 / unit in the latest SECI auction, experts warn solar developers that so Quoting low rates is walking a tightrope. The internal return on equity (IRRs) for the projects could be well in the single digits if the cost assumptions are incorrect, they say.
“Access to debt at rates that are 200 to 250 basis points lower and a $ 0.03 to $ 0.04 per watt peak (wp) drop in module prices would help maintain equity IRRs of 12 to 13% on the new Allow tariff of 2 rupees per unit “, says Hetal Gandhi. Director – Industrial Research at Crisil, said FE. However, Gandhi cautioned that if module prices don’t fall and asset utilization is below 23%, IRRs can drop sharply into single digits, adding, “We clearly believe these tariffs are one-off and may not be sustained. “
Module prices are currently 0.17 USD / wp, around 13% lower than in the previous year, and it remains to be seen whether the prices have already reached their lowest point. Since Chinese modules – the cheapest source for Indian developers – are currently undergoing additional checks and tests, the timely delivery of modules from import destinations also remains an important factor that can be monitored. Modules make up about 65% of the project costs for solar power plants.
Al Jomaih Energy and Water and Green Infra Wind Energy of Saudi Arabia, a unit of Sembcorp Industries of Singapore, have the lowest tariff for building in the latest auction conducted by the state-run Seci for supplies to consumers in Rajasthan 200 MW specified or 400 MW solar projects. The state-owned NTPC receives 470 MW at Rs 2.01 / unit.
According to initial estimates by analysts at ICICI Securities, the cost of this project for NTPC should be between Rs 4.2 billion per MW, resulting in IRRs of 12-14%, which translates into a 54 basis point decrease in average debt costs year over year will be supported at 6.37% in the first half of fiscal year 21 and a lower tax rate since the project will be set up under the new company NTPC Renewable Energy. The Union budget for FY21 extended the corporate tax rate of 15% for manufacturing companies to new domestic power generation companies, effectively reducing the tax burden by ten percentage points.
Experts have claimed that the aggressive tariffs reported by the foreign-funded companies are due to their willingness to establish themselves as serious solar players in the Indian market, where the renewable energy base is set to quadruple in the coming decade. Sembcorp already has a strong presence in the country’s wind sector and recently commissioned a 300MW project in Gujarat which it won in the third round of SECI wind auctions which discovered the lowest tariff of Rs 2.44 / unit had been.
According to a recent joint study by JMK Research & Analytics and the Institute of Energy Economics and Financial Analysis, the equity IRR for a 250 MW solar project in Rajasthan selling electricity at Rs 2.55 / unit is 12.9%. The analysis took into account interest costs of 10% to 12% and a capacity utilization factor of 19.5%. “A previous equity IRR of more than 14% was considered good, but now that tariffs are falling and competition is increasing, most developers are estimated to achieve a 12-13% return on equity, so if there are any unplanned project delays or problems only a very low margin of error leaves cuts, ”said analysts in this report.
Up to 1,665 MW of renewable energy projects (Acme: 600 MW, Torrent: 500 MW, Mytrah: 300 MW and ReNew: 265 MW) have attempted to terminate their Power Purchase Agreements (PPAs) with SECI.
The supply chain impact of the coronavirus outbreak and other construction delays have been cited as the cause of PPA cancellations. However, industry trackers noted that the extremely low tariff cited by some companies may no longer be viable to terminate contracts in the face of timeouts.
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