The substantial drop in solar power tariff in recent times is unlikely to impact viability of the projects as the project and finance costs too have declined, according to Hero Future Energies Pvt. Ltd. CEO Sunil Jain.
“People have concerns whether lower tariffs are viable or not,” said Sunil Jain during an interaction with journalists on Tuesday.
“I believe these tariffs are viable as the project and finance costs also have fallen substantially,” he said.
Anticipating the fall in solar tariffs to continue and go below the Rs. 3.15 per unit at which the Rewa project in Madhya Pradesh was awarded, he expected a new benchmark to emerge for the Bhadla Solar Park.
For 750 MW capacity, the project in Rajasthan had already got bids for 8,000 MW. In a few years, the solar tariff would stabilise between Rs. 2.70 and Rs. 2.90, he said.
Investors, he added, were also working on a lower internal rate of return (IRR) on the equity. The IRR has come down from 16% to 15%, said the head of Hero Future Energies, a company that had completed 600 MW of renewable energy projects and raised, earlier this year, $125 million private equity from World Bank arm IFC.
Noting that wind and solar segments in India were doing well, especially “standing on their feet without subsidies,” Mr. Jain pointed out that the hindrance to the power sector, however, was by way of the overall demand remaining low.
“Growth in the demand is not happening the way it is envisaged,” he said, adding that the services sector that was powering the GDP was not a big consumer. The actual power demand growth came from the manufacturing sector, he said.