Risk coverage of financial institutions for solar projects under the REC route
During the peak time in the day hours, the solar plant electricity generation from PV plants is also at its peak and the typical real- time market price is of the order of Rs. 6/kWh. The real time price of solar electricity will be always more than the typical APPC (Average Pooled Power Cost) for the distribution licensee. As the PV market grows and there is a significant contribution from PV to the grid, the electricity generators would like to explore the possibilities of selling their electricity through exchange as a merchant solar power project in order to unlock the true value of their PV electricity. Although the electricity production cost from PV will still remain costlier and the PV generators have to rely on the support mechanisms such as RECs until the solar electricity generation cost reaches to grid parity. The following figure depicts the grid parity for grid connected solar PV systems.
As it can be seen that the cost of generation of a solar PV plant is about 6.4 Rs/kWh in the first year and it reduces to about 2.60 Rs/kWh in ten years duration. It is expected that the APPC and cost of generation will be at par in next five to seven years of the solar project commissioning. During the first five years the cost of generation is significantly higher, however over a period of five years the cost of generation is in the range of Rs4-5 per kWh, which reduces any financers risk significantly. While many financing institutions are apprehensive on financing the REC based solar projects, actually there is hardly any risk coverage required for the financers after the five years of completion of the project, even after considering the fact that RECs are not having a clarity after 2017. The financers should cover their risk until the point where the cost of generation is over 5 Rs/kWh.