India’s new strategy for foreign currency-denominated tariffs plan for solar will aim at providing solar at a low rate of rx.4.75 to the states.
State owned firms, NTPC Ltd, will begin to call for bids from solar developers for buying 15,000 megawatts on behalf of the Ministry of New and Renewable Energy that will subsequently be sold to the states.
They will also run a reverse bidding process for securing solar power in foreign currency-denominated tariff to reduce possible risks and provide a purchase guarantee making such projects bankable and help the power eventually cost the same as that purchased from the grid.
“With the developers expected to quote bids in the region ofRs.3.50 per unit, NTPC will sell the power to the states at Rs.4.75 per unit, with the balance going to a hedge fund. This hedge fund will be used for payment to cover the foreign exchange risk,” said an official aware of the strategy, requesting anonymity.
This plan may involve a bundle with allocated thermal power. This will act as a backstop arrangement if the rupee depreciated beyond a certain point.
The aim of the move is to attract foreign investors to the India’s solar sector by reducing the risk involved in foreign exchange.
There are plans for India to include the yen, along with the dollar, and Euro in the currencies that will be considered in the nee plan.
Both state-owned NTPC and Power Trading Corp. Ltd (PTC) have plans to implement the scheme for foreign currency equivalent tariff on a basis of 1000MW each.
With a debt of Rs.3.04 trillion and losses of Rs.2.52 trillion, the state electricity boards are on the brink of financial collapse. Increasingly showing reluctance to buy power, based on poor financial health has been a motivating factor for the reduction of solar power tariffs.
Renewable energy has been pushed to the top of its security agenda and is looking to provide the renewable energy to less than Rs.4.50 per unit.
After the US and China, India is the biggest greenhouse emitter with renewable energy only accounting for 13% of India’s installed power capacity. India’s plan to move to solar is well fitted for the country as the nation receives solar radiation of 5 to 7 (kWh) per sq. m for 300-330 days in a year.