Will dollar denominated tariff bring down solar power costs significantly

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The tariff for Solar Power in recent bid come down significantly & bidder are quoting tariff for Solar Power as low as Rs. 5 per unit. It is evident from recent bid compiled by us that the average tariff for Solar Power came down from Rs. 17.91/unit in 2009 to Rs. lowest 5.09/unit in 2015 in recently announced Punjab bid.

While technology is changing at fast pace, it is expected that the technology innovation in PV modules as well as BOS system will have further impact to bring down solar tariff. Apart from technology innovation solar tariff is significantly influenced by energy & financial engineering.

One of the mechanism proposed by various policy maker to bring down Solar Power tariff is the introduction of US Dollar ($) denominated tariff. The US Dollar ($) denominated tariff can bring down Solar Power tariff because of fact that it can eliminates the cost of hedging. Solar tariff are mostly influenced by the interest components & typical break up levelized cost of electricity for Solar Power is as follows.


The above graph highlights that SBI base rate


The above graph highlights interest rate & tariff

If the interest rate is be brought down from present 12.5% to about 7% by taking USD & receiving Solar Power tariff in USD. As highlighted in the above analysis the typical LCOE, which is presently about Rs. 5.5 per kWh, can be brought down to about Rs 4.8per kWh with the interest rate 7.8%. The off takers of solar electricity (Discoms) have to pay in USD instead INR.

There is need to create hedging reserve by govt. to manage the off takers USD denominated risk. Most of the Discoms receive electricity bills (sale) in INR however if they are required to repay in USD ($) terms the Discoms require hedging mechanism for INR to USD variability. Govt, of India can create hedging reserve to manage INR-USD. This mechanism of USD tariff may work better for 3rd party open access consumers who naturally has thorough revenue receivables if they are export oriented units.

The typical hedging cost for USD ($) is about 5%-6%, however if hedging is done through creation of centralized reserve the cost of hedging will come down as low as 2%.

MNRE is working on concept of USD denominated tariff proposed scheme with Discoms will have 25 years USD purchase agreement in $ terms. However Discoms will sold electricity in INR to end consumer.

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