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HomeUncategorizedSolar tariffs may reduce further: India Ratings Reserach

Solar tariffs may reduce further: India Ratings Reserach

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Solar tariffs are likely to fall further on a reduction in capital costs and solar power companies’ access to competitive funding, says India Ratings and Research (Ind-Ra).

India Ratings Reserach-AV“Despite aggressive bidding, debt viability of projects with low execution and counter-party risks (especially those under the Jawaharlal Nehru National Solar Mission scheme and Solar Park scheme), is likely to remain intact,” said Ind-Ra in a press release.

Solar tariff hit record low of Rs 4.34 per unit in an auction for a 70-mw solar plant under NTPC’s Bhadla Solar Park tender last month.

However, creditors will have to avoid the pitfalls of thermal power where aggressive assumptions and leverage build up at the holding company level to fund equity contributions in underlying special purpose vehicles resulted in significant stress, it said.

According to the statement, the solar sector has huge potential and if developed responsibly, it could transform the structure of India’s power sector.

Ind-Ra expects the developers will favor projects under the Jawaharlal Nehru National Solar Mission scheme state projects on account of healthy credit profiles of the off-taker i.E. NTPC Ltd (‘IND AAA’/ Stable/’IND A1+’) compared to weak credit profile of the state distribution companies.

“We expect the projects floated under the viability gap funding (VGF) scheme will attract larger participation provided the tariffs remain above Rs 5 per unit. Ind-Ra believes that with the increase in competition, a scenario of developers paying premiums instead of availing VGF funding (similar to the road project tenders back in 2012) cannot be ruled out,” it said.

The internal rate of return (IRR) for the recently awarded solar projects is likely to shrink to 12-14 per cent from the over 20 per cent registered by projects awarded over the past few years.

Despite this, Ind-Ra believes that the credit profile of the projects will remain comfortable with an average debt service coverage ratio of 1.3x.

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