Dramatically low solar tariffs have been creating the stir in news since the Solar Energy Corporation of India (SECI) released it’s bid results in late November. Agencies have been reporting that Solar Power tariffs touched a record low of Rs. 3/unit. While this sounds like great news, it is only the partial truth. Here is the complete understanding of solar power tariffs discovered as part of SECI’s 500 MW tender.
1. Mechanism for Solar Tariff Discovery:
SECI, as part of it’s mandate from the Ministry of New & Renewable Energy, released a tender, inviting solar energy companies to bid for solar projects under CAPEX and RESCO models. The lowest bidders would be allocated capacities for which they would be able to avail central financial assistance or subsidies. Key features of the price discovery mechanism:
1.1 State-wise bidding for Solar Capacities
Participants had to bid separately for each of the states, i.e. they could bid a different tariff for Maharashtra versus Sikkim. The subsidy available for 30% for General Category states and 70% of the benchmark capital amount for Special category states.
1.2 Levelized Tariffs
For calculating bid tariff a weighted average of tariff over 25 years has been considered which includes a discount factor of 11% year on year. Thus it is possible for the Solar Developer to charge a tariff higher than the bid tariff in any of the years.
1.3 Applicability to Solar for Not for Profit Entities Only
The tender invited bids for solar to be installed at non-commercial entities such as schools, colleges and hospitals for which subsidies are available. Thus these tariffs do not apply to solar to be installed at say, factories.
2. State-wise Tariff Discovery
The chart below shows the average solar tariff bids for each of the states along with standard deviations. The green markers denote special category states for which the government is providing 70% subsidy for a limited time. So Delhi, for example, received an average bid of Rs. 5.31/kWh with a standard deviation of 0.53.
On study of the solar tariffs, it is obvious that except for Himachal Pradesh, Puducherry and Uttarakhand, the solar tariffs discovered range from Rs. 4.9- 6.52/unit.
For the rest:
- Rs. 3/unit in Himachal Pradesh is applicable for 1 MW capacity.
- Rs. 3.2/unit in Uttarakhand is applicable for 0.5MW capacity.
- Rs. 3.3/ unit in Puducherry is applicable for 0.5MW capacity.
Thus the complete truth for lowest discovered tariffs is as follows:
- Rs. 3-3.3/unit was discovered for three states only, which fall under special category and have 70% subsudy support
- Applicable to limited capacities from 0.5-1 MW
- Tariffs are levelized over 25 years
- Applicable to non-profit entities only
In summary, while it’s great news that in some special cases solar tariffs have reached a record of Rs. 3/unit, it is important to note that it is not a catch all situation. For roof top solar, without subidy, tariffs ranging from Rs. 4.9- 7.5/ kWh are more realistic and consumers should set their expectations accordingly. Even at these tariffs, roof-top solar is now below typical grid tariffs and a cheaper source of electricity for all.
Recently, we had also done an analysis on the CAPEX results of the 500 MW SECI tender, have a look here.