Aggressive bidding for solar power projects by non-traditional power companies has forced independent power producers to consider matching them in price with lower bids and consider a change in strategy, according to a study.

Analysis of the competitive bids in Tamil Nadu, Rajasthan, Andhra Pradesh and Karnataka, shows that IPPs are compelled to match such low tariffs as projects under most States solar policies are awarded at the lowest bid, a Crisil study finds.

There has been sharp drop in capital costs in the last two years. This has prompted several States to invite bids for solar projects.

Non IPPs have bid aggressively in the last year. Such depreciation allows 80 per cent of capital cost in the first year. Non-IPPs such as Mohan Breweries and Essel Mining have bid at Rs 6.50 per unit or below whereas IPPs such as Welspun and Azure Power bid in the range of Rs 8-9 a unit.

Crisil finds this facility enables non-IPPs to bid at Rs 2 a unit lower than IPPs.

While module prices had come down bringing down the overall capital costs, the drop in prices was offset by sharp rupee depreciation. Therefore, capital costs are expected to rise marginally during 2013-14.

In the case of IPPs, they have access to a 10-year tax holiday under Section 80IA of the Income Tax Act. These IPPs do not avail accelerated depreciation.

Referring to the levellised tariff determined based on bidding process, Crisil said in Tamil Nadu it was Rs 6.5 per unit with 5 per cent escalation clause for 10 years.

Other States such as Andhra Pradesh were offering similar tariff.Even if these developers obtain foreign funds at lower interest, the return on their investments is likely to be lower, the study added.

> rishikumar.vundi@thehindu.co.in

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