Developers and Global Investors Snap Up India’s Solar Power Tenders – Decoding Tariffs vs. Returns for Solar Projects in India
In our joint study with IEEFA, we have analysed that current tariffs in the Indian solar sector (hovering at Rs2.50-2.87/kWh) have stabilised at rates about 20-30% below the cost of existing thermal power in India, and up to half the price of new coal-fired power.
We have seen that the margins have shrunk in the last three years for solar project developers. Earlier equity IRR of >14% was considered good, but now with falling tariffs and increasing competition, most developers are estimated to be getting equity returns ~12% only.
Despite low tariffs, the project developers are interested in building their project portfolio depending upon their project pipeline, cost of financing available, contract negotiation capabilities for equipment procurement, and IRR expectation.
Project location, offtake risk profile, project size, cost of financing, and module costs are the primary variables that impact returns for solar projects in India. To understand whether the project developers are getting the return on investments, we built a financial model to analyse the costs and tariff trends in the solar sector in India.
The findings of our analysis can be downloaded from link below: