Solar, conventional power rates will be at par in three years: experts

After Madhya Pradesh’s State utility managed to get the cheapest solar power in the country at ₹5.05 per unit for 300 MW, experts feel per-unit prices will fall further with NTPC inviting bids for projects in Rajasthan and Andhra Pradesh.

NTPC has invited online bids followed by a reverse auction for setting up a 650 MW plant in Rajasthan and 1,000 MW plant in Andhra Pradesh. The auctioning will take place by early September.

New realities

India Ratings and Research, in a media statement, has asserted that solar power is likely to become cheaper than or equivalent to conventional thermal energy prices over the next two to three years and reach ₹4 to 4.5 per unit by FY18.

Vivek Jain, Associate Director of India Ratings and Research, told

BusinessLine that solar tariffs are going down because prices of solar panels have been falling continuously in the international market. Earlier banks were hesitant to provide loans to such projects but the perception has now changed, he added. The load factor of solar plants, has been improving every year by 3 to 4 per cent.

Due to the massive capacity coming up under the National Solar Mission, the year-on-year decline in solar tariffs has been 8 per cent.

Better RoI

The return on investment in a solar project is 19 per cent, while in a thermal plant it is 15 per cent. These factors will further reduce tariff rates for NTPC projects, he said. A shift towards large solar photovoltaic projects will lead to economies of scale. The expectations of developers is likely to moderate as the market matures, leading to a reduction in overall tariffs.

Solar sector analyst Chandresh Jain said that since the NTPC projects are larger in size, solar players will bid very aggressively.

Projects more bankabale

Moreover, the bankability of a power purchase agreement by NTPC is better than the Madhya Pradesh utility, so “international companies will come for bidding, because even if they get less money they will be able to sell the project to another developer at a later date,” said Jain. NTPC will provide a developed land parcel to put up the solar panels, which is a further attraction for the project. “This is the first time NTPC will be conducting a live reverse auctioning, in which bids would be made in real time,” Jain said.