Has Tamil Nadu set too high a feed-in tariff of ₹7.01 a unit for solar power or favoured any investor?

Opposition parties in the State have demanded that the State Government explain its MoU with the Adani Group, which is to invest in a solar power project here. The tariff is lower elsewhere, says the opposition.

But authorities and solar industry investors deny that the tariff is unreasonably high.They feel it is unfair to directly compare tariffs across various States, as local conditions and business environment vary.

Standard tariff In Tamil Nadu, this tariff would be applicable to investors who set up a solar power project before the end of March 2016 and not just the Adani Group, which signed an agreement for a 650-MW solar project.

The tariff was set by the Tamil Nadu Electricity Regulatory Commission in September 2014, say authorities.

But the bone of contention is that the Group is reported to have bid ₹6.04 a unit in Madhya Pradesh and another major investor Sky Power South East Asia, had bid even lower at ₹5.05 a unit for a 25-year period in the same State.

Individual bids in one site cannot be taken as a concrete benchmark applicable under varied conditions, they say.

Authorities said the tariff in Tamil Nadu was for projects to be commissioned in the next one year, but the deadline was impossible for anybody due to the complicated procedures.

Seven other solar power developers -- Hindustan Clean Energy Limited, Emami Cement, Raasi Green Earth Energy, Moser Baer Engineering and Constructions, Welspun, Green Infra and Auroville Consulting – had approached the Commission seeking two years’ time to complete investments.

Time-consuming process For instance, following the order, Tangedco had submitted the model PPA in December 10, 2014 and this was approved by the Commission on January 21, 2015.

The companies would take more time to enter into a power purchase agreement with the utility before they could achieve financial closure and start work on the projects.

While the Commission did not admit the petition on merits, it recognised the need for more time, an official pointed out.

But in the three-member Commission, one was not convinced that the deadline could be extended under the present circumstances.

Extension sanctioned However, based on majority – two out of the three supporting extension of time – in April it passed an order stating that the one year would be effective from April 2015, effectively extending the deadline by six months to March 2016.

An official also pointed out that under the State Government policy announced in 2012 about 3,000 MW of solar power projects were to have been in place by end of 2015.

But the actual installations are yet to happen. Tamil Nadu needs to attract investors.

The tariff will have to be based on investment costs driven by local conditions.

Just last year Karnataka had set a price of ₹8.40 a unit. When Tamil Nadu had called for bids for solar power, it had tied up for about 760 MW of power to be supplied by over 40 projects at ₹6.45 a unit. But there was a 5 per cent annual escalation in tariff for the first ten years, at which it would be stable for the next 15 years.

However, this had been rejected by the Commission, which subsequently announced the feed-in tariff, a flat rate for 25 years.

High land cost Pashupathy Gopalan, President, AsiaPacific, SunEdison, which is looking at setting up 150-200 MW of solar energy projects in Tamil Nadu, says ₹7.01 a unit is not unreasonably high, given land costs and the lower levels of solar insulation (a measure of incident sunlight) here, compared to Rajasthan or Madhya Pradesh.

By itself the tariff in Tamil Nadu provides for an IRR of about 15 per cent post tax, which is a modest return.

According to the Solar Energy Association, Tamil Nadu officials estimate peg solar energy insolation at about 5.6-5.8 kWh/sq mt against Rajasthan’s 6-6.4 kWh/sq mtand Madhya Pradesh’s 5.8 kWh/sq mt.

Related Topics