ICRA on Solar Power Sector

Favourable amendments in RPO norms carried out recently & strong project pipeline are positives, though solar PV bid tariffs continue to remain aggressive: ICRA

The State Electricity Regulatory Commissions (SERC) in states such as in Maharashtra and Tamil Nadu have recently amended solar RPO norms with upward revision in norm and extension in trajectory period. The SERC in Tamil Nadu has significantly increased solar RPO norm from 0.5% in FY2016 to 5% in FY2018, while SERC in Maharashtra has extended the solar RPO trajectory till FY2020 while gradually increasing the solar RPO norm from 0.5% in FY2016 to 3.5% in FY2020.

“Such extensions in solar RPO trajectory coupled with upward revision in RPO norm as seen in these states are positive developments for the domestic solar energy sector. However, inconsistency in the solar RPO norms across the states, shortfall in RPO compliance by distribution utilities and absence of stricter enforcement by SERCs continue to remain regulatory challenges for the sector,” says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA

SERCs in 24 of the 30 states have declared solar RPO targets for FY2017 which vary from 0.2% to 2.5% for the obligated entities. Significantly, two states with large solar potential, viz. Rajasthan and Gujarat, are yet to announce the solar RPO targets beyond FY2017. Thus, the timely revision of the state solar RPO norms to bring them in line with the solar RPO target of 8% for FY2022 as per National Tariff Policy (NTP), 2016, remains crucial in ICRA’s view.

Despite these regulatory challenges in the sector, the projects bid out in the solar sector have been quite large. In the period from January 2016 till date, solar projects with cumulative capacity of about 5,420 MW have been awarded under the State and Central Government policies, with installation period ranging from 12 to 18 months.

“However, the bid tariffs for these solar PV projects continue to be aggressive with sizeable projects won at a tariff of less than Rs.5/kWh. Ability of such projects to tie-up debt funding in a timely manner remain crucial,” says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA. Viability of such tariffs hinges on structuring of debt with longer tenures, competitive funding costs and the ability of the project developers concerned to keep the cost of modules within the budgeted levels.

ICRA further takes a note of the judgement of the Appellate Tribunal for Electricity (APTEL) dated April 28, 2016 which is favourable for the solar sector, whereby APTEL has directed the SERC in Madhya Pradesh to pass appropriate order for RPO enforcement instead of imposing a meager penalty of Rs. 25,000/- . As a result, stricter enforcement of RPO regulations in a timely manner by SERCs remains crucial for sustained demand of solar energy in the long run.