India’s solar potential lies in the successful implementation of its Jawaharlal Nehru National Solar Mission (JNNSM).

The first phase of this program aims to install 1000 MW by paying a tariff fixed by the Central Electricity Regulatory Commission (CERC) of India. Renewable technologies projects are eligible for a preferential tariff during the period of debt repayment. The feed in-tariff for solar PV projects was fixed at Rs. 17.90 and solar thermal projects at Rs. 15.40. In case of Solar PV and Solar thermal power projects the tariff period is twenty-five years (25) years.

While in spirit this is a feed-in tariff, it is subject to several conditions on project size and commissioning date. Preference has been given on the basis of return on equity, shorter loan repayment period, and higher normative interest on loans. Thereafter, these projects are expected to sell power through competitive route.

The tariff model adopted is a levelized tariff to avoid front loading of tariff while ensuring adequate internal rate of return.

The CERC has issued norms to determine renewable energy tariffs for the period 2012 to 2017. In these guidelines the normative capital cost for setting up solar thermal power project has been estimated at Rs 13 crore per MW for FY 2012-13 with capacity utilization 23 per cent and O&M expenses of Rs 15 lakh a MW, with an annual escalation of 5.72%.

CERC benchmark “too low”

Hari Kiran Chereddi, Managing Director of Sujana Energy Limited says he expects to see a reduction of around 1.5 to 2 Rs. from the previous FiT for solar thermal projects. However in view of India’s limited success in setting up manufacturing industries to service the CSP demand, the price reduction is merely a result of reverse bidding and over-competitive pricing by manufacturers.

He refers to receiver tubes, which are currently imported, given that the domestic manufacturing capabilities have yet to be established. “We feel that the CERC’s benchmark of Rs 13 crore a MW is very ambitious and a figure of 14‐15cr a MW would be more appropriate for developing solar thermal power plant,” he says.

Mr Chereddi adds that only a few states in India are capable of building solar thermal plants with 23% capacity utilisation. Areas such as Tamil Nadu and Andhra Pradesh, which are exposed to monsoon impact, will have normalised capacity utilisation factors around 18‐20%.

“As power producers, we would like the capacity utilisation factor to be lowered to ensure uniform development of power projects throughout India and not just in select few states”, he explains.

Manasa Gantayat, analyst at global management consulting firm Lucintel, says for the purpose of levelised tariff computation, Weighted Average Cost of Capital (WACC) should be considered on the basis of pre‐tax and the suggestion for post tax should be kept in abeyance till clarity is evolved on the DTC and applicable tax regime.

He says that shift from pre‐tax to post tax should not hamper returns due to any change in tax regimes. “The cost of equity is higher for CSP projects and these projects commensurately need a higher return on equity”, he said.

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