In order to obtain a reasonable return on the photovoltaic power plant project, the developer must consider various risks and correctly estimate the cost of each component before bidding.
TestPV understands that the current solar power price in India has stabilized at INR 2.50-2.87 / kWh (US $ 0.033-US $ 0.037 / kWh), which is about 20-30% lower than the cost of existing thermal power generation facilities in India. Half the price of coal-fired power plants.
However, according to research by the American Institute for Energy Economics and Financial Analysis (Ieefa) and JMK Research & Analytics, under current market conditions, electricity prices below 2.55 Indian rupees / kWh ($ 0.034) are not financially viable in the Indian solar industry.
Researcher Ieefa said that although the electricity price is very competitive compared to the price of thermal power plants, it is profitable for distribution companies that have signed long-term electricity purchase agreements. However, because the current electricity price is as low as 2.5 rupees / kWh, developers have reduced their return expectations from 14% to 12%. This price is the bottom line for developers to make money.
Financing cost is an important factor in determining electricity prices and returns
Unlike other energy markets, India’s solar power prices and project revenue are strongly affected by interest rates, component costs, and power plant capacity utilization.
(Note: The capacity utilization rate of the power station is the ratio of the actual capacity of the power station to the designed capacity of the power station, which reflects the actual operating status of the solar power station)
Compared with other leading renewable energy countries, India ’s interest rates are significantly higher, which is one of the reasons for raising domestic electricity prices. Second, when the currency depreciates, the production enthusiasm of local Indian manufacturers increases, and the production capacity of local components increases, which is not conducive to imports, and will cause India to increase electricity prices.
Finally, in view of the large differences in the quality of solar energy resources, the utilization rate of power plant capacity in Indian states is also different. Any decline in utilization will have a significant impact on the project’s revenue. JMK Research & Analytics researchers said that a 3% drop in capacity utilization will result in stock returns falling by more than 7%.
In attracting international investment, the Indian Solar Company (SECI) and NTPC have played a key role. These central government agencies assess the counterparty risk and payment risk to ensure contract certainty.
However, to obtain a reasonable return on project investment, developers must keep in mind all parameters that affect electricity prices when bidding, and focus on the potential risks and correctly estimate the cost of each component.