New Reference Rate in India

Solar power costs in India have been plummeting to new lows every year, due to the falling costs of solar panels and other components. The higher scale and learning curve effects have also been a key factor behind the decline in solar energy costs. This has been the case for solar projects all over the world where it is not surprising to discover solar projects being bid for as low as 2 to 3 cents/kWh in areas of low interest rates.

While the solar capital costs in India are the lowest in the world, the high interest rate regime still has kept the prices of large scale solar utility projects higher than some other places (such as Dubai). However, as interest rates in India have fallen in recent times and with the crash in solar panel prices, it is fair to assume that the solar costs will go down further.

The Solar Energy Corporation of India (SECI) has set the new reference price of new solar projects as just INR 4/ kWh. This is almost 8% lower than the lowest price discovered in any solar auction in India. The bidders will have to use this as a reference price, while bidding for capacity in new solar projects in high solar radiation states in India. SECI uses the Viability Gap Funding (VGF) model for allocating solar capacity through reverse auction tenders. Under this method, there is a fixed price for solar power and bidders have to ask for a fixed amount of money per MW of solar capacity. This is called the VGF and the bidder bidding for the lowest amount of VGF wins the right to build that solar capacity.

In some cases of solar bidding in the past, bidders have even asked for zero VGF or negative VGF. This means that the INR 4 /kWh can be breached if some solar bidders asks for a negative VGF. The state owned agency has recently put up 750 MW of solar capacity in a solar park in Rajasthan for auction.