Even as the government’s decision to lift tariff ceiling for renewable energy is likely to give a fillip to capacity addition, the average tariff will continue to be competitive, mainly due to lower module cost and continued tendering of large capacities, ratings agency Crisil said.
Last month, the Ministry of New and Renewable Energy (MNRE) removed tariff ceilings from renewable energy tenders will give the beleaguered industry a much-needed leg-up.
The tariff ceiling was one of the reasons cited by the industry players for poor participation in tenders by Solar Energy Corporation of India (SECI) and state utilities, thus slowing down the pace of capacity addition.
Capacity addition dropped to 9 GW in fiscal 2019, compared with 11-12 GW over fiscals 2017 and 2018, and remained subdued through fiscal 2020 as well.
According to Crisil, the move to remove the cap will give an incremental fillip of 6-7 GW over the medium term.
“Solar energy developers will now have the leeway to factor in higher risk in cases where the counter party has a weaker profile, or irradiance is low, or there are other execution hurdles. This will allow for higher bid tariffs and improve subscription to tenders, though positive impact is expected to materialise only once the Covid-19 pandemic ends,” Crisil Director Miren lodha said.
However, Crisil expects solar weighted average tariff to remain in the current Rs 2.50-2.60 per unit range as lower module cost, larger scale of projects and continued tendering activity in the segment continue to pique competition among players.