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Falling tariffs in renewable energy auctions may pose risk for future projects

<p>Low power prices discovered in recent auctions of renewable energy projects may pose a risk for development of future projects in India. The risks facing renewable investments generally fall into two categories -- project development risks and operational risks. These risks can create a challenge to investments through reducing the availability of financing, elevating the cost of capital or through delays to project development.&nbsp;</p> <p>In the past two years, the average price awarded in tenders for 25-year contracts for solar photovoltaic projects declined by around 50 per cent to nearly Rs 3 per kilowatt hour in 2017, around the same price for the first tenders for onshore wind carried out that year. The Uttar Pradesh government recently cancelled 1,000 Megawatt (Mw) solar reverse auction it held earlier on 11 July in which winning tariffs varied between Rs 3.48 and Rs 3.55 per unit. And ET report quoted industry sources as saying it could be because the state government felt the tariff quoted was too high.</p> <p>The tariff was more than a rupee higher than the lowest-ever tariff of Rs 2.44 per unit, and even markedly higher than the winning tariff of Rs 3.32 per unit at the previous auction in Uttar Pradesh conducted by Solar Energy Corporation of India (SECI) in June. Most states have grown to expect low tendered power prices and some are setting tariff ceilings at levels close to Rs 3 per Kilowatt hour (kWh). At the same time, developers face some risks over technology prices, particularly in solar PV, in part due to policy measures.</p> <p>In 2017, prices for imported solar PV modules started rising, a five per cent goods and services tax came into effect (solar PV equipment was previously exempt), and there is now uncertainty over whether plant engineering, procurement and construction activities will be taxed at the &ldquo;work contract&rdquo; rate of 18 per cent, the report said. There are expectations that downward pressure in the pricing of imported modules may emerge in the second half of 2018, owing to policy changes in China that may reduce domestic demand in that market.</p>