Think tank: Indian solar remains profitable venture despite low tariffs

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on email
Image credit: IBC Solar.

Indian solar is to stay a money-making occupation despite the pressure of ever-decreasing tender tariffs, the Institute for Energy Economics and Financial Analysis (IEEFA) has said.

In a new report alongside JMK Research & Analytics, the think tank modelled project and financing costs and concluded that firms developing or investing in Indian solar can reap returns, provided they keep a firm eye on expenses, interest rates and other dynamics.

As report co-author Vibhuti Garg noted, Indian solar players have already adjusted their expectations to the low-tariff environment. Return assumptions have declined from 14% to 12% as tariffs dropped in some cases to INR 2.5/kWh (3.47 US dollar cents per kWh), Garg added.

According to the IEEFA energy economist, such a rate majorly outcompetes thermal plant tariffs and will be prized by the distribution firms purchasing the power. “[But] this is a floor for developers if they want to make money,” she added.

Even above that threshold, the expected solar project equity returns of 12-13% leave “very little margin for error”, the IEEFA said, pointing at the impacts that could arise from unexpected project delays, curtailments, interest rate hikes, currency volatility and import duties on modules.

Eye on costs as COVID-19 tangles up supply chain

According to IEEFA, the fact that solar development has become a balancing act does not detract from India’s solar potential. The sun is “shining bright” for a country that boasts 35GW of installed PV and further pipeline projects (23GW) and bidding-phase projects (30GW), the think tank said.

The upbeat talk comes as the industry faces the impacts from the COVID-19 pandemic. With a total lockdown in place since 25 March 2020, the country has felt the brunt of – and is trying to act against – its reliance on solar component imports from China.

According to the IEEFA’s Garg, firms looking to deploy as the disruption continues must “factor in the risks and rightfully estimate the costs of every component.” At 64%, module costs vastly exceed those of inverters (7%), balance of system (8%) and solar park charges (12%), the think tank found.

The costs – modelled around an unidentified 250MW solar project in Rajasthan – could be offset in the long run by refinancing projects sitting at 75%-25% debt-equity ratio, the IEEFA noted, particularly once construction and commissioning risks are out of the picture.

Also key to a solar project’s ultimate returns are interest rates, the study authors pointed out. Adani Green, Azure Power and the other large players able to take on longer-term, lower cost loans are tapping into the dynamic to bid “more aggressively”, the report said.

Read Next

May 11, 2021
Spain’s Solarpack was affected by pandemic-related project delays in Chile during a first quarter, in which it saw its net profit shrink 95% year-on-year to €300,000.
May 5, 2021
SHV Energy, a Netherlands-based liquified petroleum gas (LPG) distributor, has acquired a majority stake in Indian solar developer SunSource Energy.
April 30, 2021
Solar manufacturers that plan on setting up integrated, higher capacity plants in India will be given preference in the country’s new production-linked incentive (PLI) programme.
April 26, 2021
Solar developer ACWA Power has secured a total US$114 million from financial institutions to fund the construction of what it claims will be Egypt’s largest private solar plant.
PV Tech Premium
April 20, 2021
New technologies are increasingly being used to enhance solar project economics and boost gains, however the application and modelling of these technologies remains uncertain. This exclusive recording from Solar Finance & Investment Europe sheds a light on those areas.
April 16, 2021
There was a more than fourfold increase in corporate solar funding in Q1 2021 compared with the same quarter last year, amid strong demand for PV assets globally, according to new analysis by Mercom Capital.

Subscribe to Newsletter

Upcoming Events

Upcoming Webinars
May 26, 2021
Session 1 - 7:00 AM (BST) | Session 2 - 5:00 PM (BST)
Solar Media Events
June 15, 2021
Solar Media Events
July 6, 2021
Solar Media Events
August 24, 2021