Solar power contracts are likely to be placed on the winning bid rate in dollars, plus one cent a unit. It is the first time in the domestic power sector that the government would be looking at dollar rates.
“Foreign investors would also benefit when the rupee depreciates. The extra one cent would be collected as a fund, for paying investors when the dollar fluctuates,” said an official.
Currently, the petroleum sector has costs denominated in dollars, plus returns for oil and gas production and refinery operations, though the retail prices of products are calculated in the rupee. The ministry of new and renewable energy is designing a concept paper on dollar rate- based power purchase agreements ( PPAs).
The government believes $ 200 billion of investment is ready to come from the world over to India’s RE (renewable energy) sector. The idea is invite money in Indian renewables, both solar and wind energy projects, for a period of 25 years.
Private entities in the sector are looking forward to this development, as major names in the sector are funded by international agencies.
“In solar and other RE, the most important component is the interest cost, which is very high in India, at 1215 per cent. However, in the case of external funding the rate of interest is three to four per cent. If the cost of borrowing goes down, it will also help in bringing down the cost of solar energy in the country,” said Ratul Puri, chairman, Hindustan Power Projects. Apart from project developers being able to take advantage of low interest rates across the globe.
Of the $ 15- 20 billion annually the country would need for the sector, around $ 6 bn is likely to come from foreign investors, says an analysis by Bridge to India, a leading consultancy firm monitoring foreign investment in Indian RE.
It said leading institutional investors such as Morgan Stanley, IFC, Standard Chartered, Goldman Sachs and Asian Development Bank were scouting actively.
“Indian project developers need to tap foreign sources, as domestic private and public sector banks have reached their sectoral limits. Also, a lot of pension funds globally could take equity interest in solar power projects. They are sceptical due to currency risks; so, when dollar- based PPAs areexecuted, it will push them to invest for 25 years without any risks involved,” said Puri Madhya Pradesh and Uttar Pradesh are apparently ready with projects of 250 Mw each to be bid under a dollar- rate mechanism. The central government recently revised the RE target for the country to 175,000 Mw, of which 100,000 Mw is to be from solar.
With 1% extra charge on rates to finance fluctuation payment; move aimed at easing foreign investment flow
The government believes $ 200 bn of investment is ready to come from the world over to India’s renewable energy sector
Source: Business Standard; 27 April 2015