New low solar tariff keep developers on tight rope
Viability of new low tariffs committed by solar power developers will critically depend on the availability of 18-20 year debt at competitive rates, their ability to keep cost of solar modules within budgeted levels and completion of the project in time. Bids for solar tariffs touched a new low of Rs 3.15 per unit for NTPC’s 250 mw solar plant at Kadapa Solar Park in Andhra Pradesh, on Wednesday. This implies a tariff drop of 4.5% over the previous bid of Rs 3.33 per unit for Rewa Solar Project in Madhya Pradesh during February 2017. It signifies a further improvement in the cost competitiveness of solar energy against both alternate renewable as well as conventional energy sources, in ICRA’s view. Sabyasachi Majumdar, senior vice president & group head at ICRA Ratings said; “Viability of such tariff for project developer from credit perspective will be critically dependent upon the availability of long tenure debt at cost competitive rates as well as its ability to keep costs of modules within budgeted levels. Project execution in a time-bound manner also assumes immense importance.” With declining module price levels and the bidding process adopted, tariff competitiveness for solar projects has been showing an improvement in the last three years. Solar tariffs fell from an average Rs 6.79 per unit in 2014 to Rs 5.01 per unit in 2016. An improving tariff competitiveness of solar power thus remains favourable for the distribution utilities, in ICRA’s view. Assuming capital costs of Rs 4.5 crore per megawatt and capacity utilisation of around 21%, ICRA estimates cumulative average DSCR over debt tenure of 18 year at 1.20 time and rate of return below 10%, for a project with a levellised bid tariff of Rs 3.15 per unit. Any deviation in project parameters and cost assumptions may have an adverse impact on project returns and debt service ratios. “On the other hand however, project developers may have an incremental upside arising out of their ability to improve capacity utilisation using trackers or by a further downward movement in equipment prices over the execution period” adds, Majumdar. Kris Versteeg Authentic Jersey
Dark side of solar success: It may kill thermal power, banks
The latest solar power auction has yielded an electricity price of just Rs 3.15unit, down from Rs 5 two years ago. This seems competitive with coal-based thermal power. The government has raised its solar capacity target to 40GW by 2020 and 100GW by 2030, up from 12GW today. This promises to replace dirty coal-based power by cheap, renewable power. What’s not to like? Plenty. Solar power has many hidden subsidies. Its true cost is far higher than for thermal power. A far bigger problem is that solar power is given preference when supply exceeds demand, so thermal plants have to back down. The plant load factor (PLF) or capacity utilisation of coal-based plants was 76% six years ago, but is now just 58%. India used to be perennially short of electricity, but now most regions have surplus. India now exports power to Bangladesh, Nepal and Myanmar. Thermal producers had expected the power shortage to continue, and hoped for at least 70% PLF , yielding good profits. But at today’s PLF of 58%, many are in trouble, especially merchant plants selling power on the open market because they don’t have power purchasing agreements with state governments. If average PLF falls below 48%, and that of merchant plants falls even more -as is likely if solar capacity soars to 40,000MW by 2020 -then many coal-based projects will go bust. These are financed overwhelmingly by loans, not equity . Interest on loans must be paid even if plants lie idle, so high interest costs can kill projects when the PLF falls. Around 65GW of new thermal power plants are already in the pipeline. These, plus new solar plants, threaten a rising power surplus at a time of tepid demand growth. The consequent PLF collapse could bankrupt many projects, hugely burdening lenders. Many banks are already staggering under enormous bad debts, and now face the threat of a fresh avalanche. That will hit the whole economy . In sum, explosive solar power growth looks a blessing, but can become a curse. We should hurry slowly . Solar power looks great when the sun shines, but stops at sunset, just as power demand soars to its evening peak. Much thermal power has to remain idle during the day, ready to pick up the slack when solar production suddenly stops. This forced idleness carries huge costs hidden by ostensibly cheap solar power quotations. The notion that solar power has become cheaper than coal-based power is an illusion (though, hopefully it will become reality if costs keep fall ing). An official answer to a question in Parliament said, “The government is promoting solar energy through fiscal and promotional incentives such as capital and or interest subsidies, tax holidays on earnings for 10 years, generation based incentives, accelerated depreciation, viability gap funding, financing rooftop solar as part of home loans, concessional excise and customs duties, preferences for power generated from renewables. “Whew! Besides, the government offers a 25% capital subsidy for solar equipment production. The solar parks attracting the recent low bids get cheap or free land from state governments, a big implicit subsidy since 1,000MW needs 5,000 acres. At an investor conference last year, one solar entrepreneur estimated the true cost of solar power (sans implicit and explicit subsidies) at Rs 6unit without storage and Rs 8 unit with stor age. A captive coal-based power station working flat out yields power at just Rs 2.50unit, far cheaper than solar power. Commercial thermal plants have quoted Rs 1.77 to Rs 4 unit. Solar power is intermittent. It fails at night and works weakly on cloudy or foggy days. Ideally , plants should store part of their generation during the day and then release it after sunset. If all solar power that creates surplus supply is stored, thermal plants need not back down when the sun shines. Power storage based on conventional batteries is very expensive. Hopefully new technologies will cut the cost, but none are in sight yet. Solar costs are falling fast. The slower we go, the more solar costs will fall. So speed is not a virtue. Raising solar targets repeatedly looks green and good, but has hidden, potentially disastrous costs. In place of solar target practice, India must plan to match total power supply with decelerating demand, and aim for a solar-thermal mix that avoids huge idle capacities. Both thermal and solar capacity creation must slow down. Breakneck speed for solar power will break the neck of thermal plants and banks. Nickell Robey-Coleman Authentic Jersey
Aiming The Subsidies Wrong : Delhi’s Electricity Subsidies where the poor get only Rs. 1,000 per year and the rich Rs. 9,000 per year
Delhi is one of the richest states in India, with the highest household per capita consumption of power. States are taking steps to lower the tariffs unlike Delhi, which is relying only on subsidies. For initial 200 units, Punjab state has reduced tariff by 9.2% in 2015-16 in comparison to previous year, Similarly J&K has reduced tariff by 7% in 2015-16 incomparison to previous year. Before election AamAadmi Party promised to reduce the electricity tariff through audit of DISCOMS & by improving efficiency in the system. None of the promisedactions were fulfilled so to hide its failure the AAP government gave subsidies on electricity bills to consumers. The AAP government budget for 2016-17 had a non-plan budget of 26,000 Cr., implying a burden on taxpayer of almost 6%, as a result of the 400 kWh threshold level. They allocated Rs. 1600 Cr. for providing subsidy on Power Bills in budget 2016-17 which is more than 8 times allocated for Smart City i.e. Rs. 196 Cr., more than 1/3rd of the total budget allocated for Medical & Public health, and nearly 20% of the total budget allocated for Education. This clearly shows that the AAP government has been compromising on development efforts due to their failure in brining efficiency in electricity. The AAP Government has set the threshold for availing subsidies so high that on an average about 80% of households are eligible for a 50% subsidy. Furthermore, the average household subsidy varies from Rs. 1,000/year (consumers upto 100 units per month) to over Rs. 9,000/year (consumers with average consumption of 300-400 units per month). Clearly this shows that the current subsidy design is benefiting the rich more than the poor. Hence, there is a need for an effective and viable subsidy design with a primary focus on helping the marginal or poor. One of the ways for AAP Government to ensure a better targeting to those who need subsidies the most is to lower the threshold. For example, lowering the threshold of maximum monthly consumption to be eligible for the subsidy from 400 to 300 units per month results in almost 30% savings while reducing coverage by only about 13%. As a result of this, Delhi could find at least Rs. 450 Cr. extra, which could be used for other public services or support. Alternatively, the 450 Cr. could be spread out bottom-up, so the poorer “x” actually get a 70% subsidyinstead of a 50% subsidy. Thus, by just changing the subsidy rules, the Delhi Government can significantly save money of the Delhi taxpayer or can be further given to poor electricity customers. Joe Namath Womens Jersey
Government to replace 7,700 Megawatt old power units with efficient plants
The government has identified old power projects totalling 7,738 mw capacity owned by the Centre and states for replacement with energy-efficient supercritical plants, which will generate a gross 18,560 mw. “The government has identified 7,738 mw inefficient thermal plants, which would be replaced with supercritical units, to conserve scarce natural resources like land, water and coal,” a senior official said. According to the official, the replacement will result in creation of 18,560 mw of capacity as per the assessment of power generation utilities. The move is expected to not just save natural resources, but help in boosting generation capacity of the plants. Taking an example, the official added that 440 mw of the Haryana Power Generation Corporation in Panipat will be replaced with an 800-mw energy efficient plant, which will almost double the generation capacity. Breaking down the numbers, state power generation utilities have marked out 6,608 mw for the purpose, which will lead to creation of 16,580 mw. The central utilities have marked 1,130 mw for replacement that will create 1,980 mw, going forward. According to power ministry estimates, as on March 31, 2016, the capacity of coal-based thermal plants that are more than 25 years old was about 37,453 mw, including 35,509 mw in the government sector and 1,947 mw in private space. The official said the move towards energy efficiency and less-polluting technology makes more sense than renovation and modernisation and will yield long-term benefits. The plan is being chalked out after stringent norms for thermal power plants were laid down by the environment ministry. The new guidelines for coal-based power stations were introduced in December 2015 to cut down emission of PM10, SO2 and NOx and improve ambient air quality around plants. The ministry for the first time had fixed SOx and NOx norms for such stations and mandated that plants must adhere to these guidelines by 2017. According to industry estimate, the cost for technical changes at these plants could entail up to Rs 1.5 crore per megawatt. Besides, the domestic capacity to manufacture power equipment for the upgrade is not more than 15 gw a year compared to demand of around 40 gw per annum for meeting SOx norms alone. Phil Taylor Authentic Jersey
PM Narendra Modi may step in to resolve wrangling on NITI Aayog’s proposed National Energy Policy
Prime Minister Narendra Modi is likely to intervene to resolve an inter-ministerial wrangling over NITI Aayog’s proposed National Energy Policy to roll out the long-overdue power sector reforms. Different stakeholder ministries, including those of power, coal, and new and renewable energy, have failed to come to a consensus on some points of the proposed policies, including freeing coal from price control, despite several rounds of consultations, said a senior government official who is aware of the deliberations on the matter. “National Energy Policy is pending with PMO (prime minister’s office),” the official told ET. “The top office is now planning to convene a high-level meeting of all concerned ministers and secretaries to be chaired by the PM himself to suggest way forward to the policy,” the official said. The first draft of the policy, framed by the Aayog after intense consultations over last one and a half year, was ready for seeking public comments by March. But that has been held back after concerned ministries raised objections with the PMO over certain proposals. Coal ministry, for example, expressed reservations over the proposal to free up the commodity from any price control. Such a move would divest the ministry of its power to control coal prices and help maximise profit for Coal India. However, NITI Aayog has largely stood by its reforms agenda. National Energy Policy has proposed comprehensive reforms to free sectors such as coal, electricity and fertilisers from subsidies and price controls, helping to produce more power by making electricity generation projects commercially viable for private companies. The policy has outlined the need and measures to improve financial condition of power distribution companies (discoms), which are bogged down by debt, to make the sector profitable in the medium to long term. Key suggestions being considered include overhauling the entire structural and functional capacity of discoms so that they operate more professionally. In India, electricity and fertiliser sectors are heavily subsidised. The government feels there is a need to bring down subsides in such sectors and, hence, a clear roadmap for lowering subsidies and aligning their prices to that of the market has been laid out. But this proposal hasn’t gone down well with concerned ministries. National Energy Policy is aimed at curbing imports by increasing production of renewable energy in the country fivefold to 300 billion units by 2019 and tripling coal production to 1.5 billion tonnes. Coal imports are envisaged to come down by 10% by 2022 and by 50% by 2030. NITI Aayog CEO Amitabh Kant had earlier told ET that differences are obvious as the policy proposes far reaching reforms to transform the power sector. “Wherever there are differences, we’ll pose them before the Prime Minister and let him take a call,” he had said earlier. Prime Minister is the chairman of the Aayog. National Energy Policy will replace Integrated Energy Policy of the UPA regime that envisioned a roadmap for sustainable growth with energy security over a reasonable period of time. Cam Newton Authentic Jersey