CERC capital cost move suggests solar tariff to fall further in FY17

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Indicating a continued downward slide in solar photovoltaic (PV) power project tariffs, the Central Electricity Regulatory Commission (CERC) has proposed nearly 20% cut in the benchmark capital cost of such projects for FY17 compared to the current financial year.

The electricity regulator is mandated to publish an annual revision in solar PV project cost. Though this benchmark does not play any operational role in tariff-based competitive bidding, it acts as an indicator and guiding principle for state electricity regulators, lenders and the companies for such projects.

CERC has proposed that the benchmark cost for solar projects be `5.01 crore/megawatt (MW) for FY 17, down from `6.05 crore set for the current fiscal. The regulator has invited comments and suggestions from stakeholders on the proposal to finalise the cost. Based on the final cost, the regulator would then set a levelised tariff for such project by the end of this financial year.

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“The proposal indictates that the average tariff in FY17 would be lower than that discovered in the current fiscal but not necessarily in the same proportion as the reduction in cost,” Jasmeet Khurana, head of market intelligence at a solar power consultancy firm, Bridge to India, told FE.

While the average tariff for the bids invited by states this year has hovered around `6 per unit, the recently concluded bid under the national solar mission saw the solar tariff plummeting to a historic low of `4.63 per unit.

Of the seven parameters considerd by the regulator, it reduced the cost associated with all of them except for land acquisition which remains at `25 lakh/MW. The most drastic fall was witnessed in the ‘pre-operating expenses’ category where cost reduced by 46%. The pre-operating expenses include transportation of equipment, storage of equipment at site, insurance, contingency, taxes and duties, interest during construction and finance charges, amoing others.

“Pre-operating expenses and financing cost contribute to around 5-7% of total capital cost on average basis. It may be noted that construction period of these projects is rather short, so IDC is not a major cost. Accordingly, these expenses are suggested `26.13 lakhs/MW,” the commission said.

In its analysis, the regulator concluded that the cost of solar modules fell by over 10% over the last 12 month, which prompted the downward revision in PV cost associated with a project. The commission brought down the cost of PV modules, which contributes to over 60% of project cost, by nearly 7% to `310 crore/MW.

“While the land costs could vary from state to state, it has been noted by the commission in the past that land typically used for utility scale projects is arid/barren, and recent slump in real estate market, it is proposed that land cost be retained at `25 lakhs/MW,” the order said. The land cost component has remained unchanged compared to the current financial year.

The falling cost and constantly improving efficiency of inverters allowed the commission to cut the cost on ‘Power Conditioning Unit’ by over 30% to `30 crore/MW. Similarly, falling cost of zinc enabled reduction in cost involved with mounting structures for the project by nearly a third.

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