India's Central Electricity Regulatory Commission (CERC) has given the green light to tariffs of INR2.6 (US$0.03)/kWh for a group of solar projects awarded by the Solar Energy Corporation of India (SECI) last summer.
SECI, a government entity, initiated the tender last March and distributed 2GW of projects among six developers, including prominent Indian renewables firms SAEL and ReNew, with each securing approval for 600MW of projects. The developers had proposed tariffs of INR2.6 (US$0.03)/kWh, a rate now sanctioned by the CERC, which could potentially establish a new benchmark for solar tariffs in India.
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“The approval of the proposed tariffs by CERC marks a significant milestone for the Indian solar sector,” stated a spokesperson from SAEL, reflecting the sentiments of many within the industry.
In conjunction with the tariff approvals, the CERC has introduced fresh draft regulations governing the entire tendering process. Effective from April 2024 to March 2027, these regulations categorize power generation facilities into “generic tariff” and “project specific tariff” classifications, with solar projects falling under the latter category.
With solar tariffs exempt from annual regulatory adjustments by the CERC and instead determined on a case-by-case basis, industry analysts anticipate a potential uptick in solar tariffs as developers seek enhanced financial assurances from the government for project development.
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“The rising trend in solar tariffs underscores the escalating need for government support in the Indian solar landscape,” remarked an analyst from the Institute for Energy Economics and Financial Analysis (IEEFA). “Increased project costs and risks are major contributors to this tariff surge.”
According to IEEFA, the lowest winning tariff in utility-scale solar auctions witnessed a 22% spike between 2020 and 2022, indicating a heightened dependence on government backing for new solar ventures. Mercom, another energy consultancy, reported a nearly 7% increase in the lowest tariff recorded in 2022 compared to the previous year, highlighting a general upward trajectory in bid tariffs.
“While short-term benefits may accrue to developers, the sustained reliance on favorable government policies could hinder the long-term financial sustainability of the Indian solar sector,” warned an industry expert at Mercom.
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Nevertheless, data from the Council on Energy, Environment, and Water indicate an overall decline in India's solar tariffs from a peak of INR10.95 (US$0.13)/kWh in December 2010, offering a glimmer of hope for the sector's financial outlook in the long run.
