Intended Capital Cost for Solar PV – Central Electricity Regulatory Commission (CERC)

Central Electricity Regulatory Commission (CERC) passed an instruction for resolution of standard capital expense for solar PV ventures for the fiscal year 2016-17. The instruction gauges capital expense including expense of gear, development, land, transmission and pre-operative costs of solar PV ventures for the upcoming FY at INR 50.1 million/MW (USD 0.76 million). Giving a deadline of 10^th January 2016 for the Industry to share the inputs, final benchmark capital expense and solar tariffs is required to be advised on 31^stMarch 2016.

From the sources

• CERC order discloses a capital cost decrease of 17% over the benchmark number for FY 2015-16 (last year decline was 12%)

• The industry might request an upward revision and a different benchmark for tasks with domestic content prerequisite

• Rapid decline in capital cost shows how difficult it is for the Indian government to move away from bidding and towards fixed feed-in-tariff

For the current year (FY 2015-16), CERC had pegged the benchmark capital expense at INR 58.7 million/MW (USD 0.87 million), therefore revised to INR 60.6 million (USD 0.92 million) after industry input.

Integrated with cost deduction of 12% for the present year, the new benchmark adds up to an aggregate decrease of 28% more in the coming 2 years. Amid FY 2014-15, the average tariffs found through bids in Andhra Pradesh (500 MW), Telangana (500 MW) and Karnataka (500 MW) were in the scope of INR 6.50 – 7.00/kWh.

However, one and half years later the new bids are expected in the range of INR 4.75 – 5.00/kWh.

A decline of this magnitude in capital cost raises two important implications for the sector. First, it is commercially not practical for the Indian government or other power off takers to offer fixed feed-in-tariffs. Second, the significance of CERC benchmarks, in view of benchmark capital expense for the present year, CERC has characterized solar power duty at INR 7.01/kWh. However, the bid tariffs during the year have come in sharply lower at rates essentially below INR 6/kWh for all allocations since May 2015.