Falling Solar Tariffs Bring Opportunities Galore, But Present Challenges Too

Falling solar tariffs have certainly buoyed the Indian solar industry, and solar installations are expected to grow at a rapid pace this year. The recent bid of Rs 2.97/KWh for the Rewa mega project has created a new benchmark for the solar sector. With this, solar power in India has already achieved coal parity, something which not many were expecting before 2019. As tariffs fall further, the demand for solar power will go up, giving the government all the more reason to focus more on solar energy as compared to other energy sources.

- Hartek Singh

We have already crossed 10 GW in terms of cumulative installed solar capacity, and another 8-10 GW is likely to be added this year alone. To achieve the ambitious target of 100 GW by 2022, 15-20 GW needs to be added every year. This brings huge opportunities together with some major challenges for solar industry players.

Most tenders have an execution period of 1218 months, so the current tariffs are based on the upcoming installed cost of solar, which in turn depends on three major factors—module prices, cost of capital and exchange rate. While solar module prices are expected to drop by 20% over the next one year, an expected cut in interest rates will lessen the cost of capital. Even the exchange rate is likely to remain stable.

In this scenario, the per MW cost for solar is projected to drop by 10-12% this year. This is a welcome sign for industry players, but it may also put tremendous pressure on them if these factors do not come into play. In case the prices do not go down as expected, matching timely execution with optimum quality will be a challenge for developers.

We expect a lot more tenders for solar power, both in CAPEX and RESCO models, and an increase in demand from the industry. But this rising demand will be accompanied by a strain to reduce prices. The average size of solar capacity offered in tenders is also increasing, thereby giving developers better bargaining power to push prices down.