Last week, BRIDGE TO INDIA launched its latest report: “Analysis of utility scale solar tenders in India”. This report examines recent bidding history for all PPA-based, open category tendered projects to understand risk-return relationship in the sector. From July 2015 to December 2016, India allocated 12.6 GW of solar projects to private developers through an open, competitive tender process. These tenders have seen tariffs trending downward from about INR 5.50 – 6.00 (US¢ 8.4 – 9.2)/ kWh in mid-2015 to INR 3.29 (US ¢ 5.0)/kWh in 2017 (refer), equivalent to an annualized decline of over 25%. Common perception is that auctions and increased competition are forcing developers to bid aggressively resulting in tariffs coming down so fast. But our analysis shows that changes in equipment costs and other factors are responsible for most of the decline. Adjusted for these changes, tariffs haven’t trended down in the last 18 months. Average harmonized tariff across 24 tenders gives us equity IRR of 14.20%, significantly below the benchmark expectation of 18-20%; Auction based tender process has forced developers to build forward-looking, favorable assumptions for solar module prices, debt refinancing and many other parameters; Inadequate risk pricing poses a severe viability challenge for the sector; To compare tariffs across different… Read More »
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