Uttar Pradesh has announced a bidding process for a 200 MW capacity (refer to the Request for Proposal (RfP), PPA and Escrow agreement documents). The state has also finalized its draft solar policy. It is now called ‘Uttar Pradesh Solar Policy 2013′ (refer to the policy document). The policy aims to achieve an installed capacity of 500 MW till March 31st 2017.

• PPAs in the Uttar Pradesh Solar Policy will be signed only for a period of 10 years
• This covers a typical debt repayment period and is significantly more attractive for lenders and beneficial for developers
• Due to heavy losses suffered by power distribution companies in Uttar Pradesh, full subscription but low competition in terms of tariff are expected

A unique aspect of this policy is that the PPA will only be signed for a period of 10 years. This covers a typical debt repayment period, so lenders should not have issues with regards to the PPA timeframe. Considering that the PPA is signed at a tariff of around INR 7 (USD 0.14/EUR 0.11)/kWh, in all probability, the solar project will be able to sell power at a tariff greater than this tariff after 2023. The APPC in India is currently at around INR 3.5/kWh. Assuming an annual cost increase of 7% p.a., in ten years, the APPC will be at around INR 7/kWh. If power prices increase more than 7% p.a., the new PPA can be significantly more attractive. For this reason, we believe that a shorter time period for the PPA can actually be beneficial for the developer.

Like in Tamil Nadu (refer), power distribution companies (discoms) in Uttar Pradesh are also making heavy losses. According to recent estimates, the losses have reached INR 310 bn. Recently, the Indian Credit Ratings Agency (ICRA) and CARE Ratings have compared 39 utilities from 20 states in a grading exercise conducted by the Ministry of Power and the Power Finance Corporation (refer). Four discoms from Uttar Pradesh were at the bottom of the ranking and along with eight other utilities were awarded the “C” grade. As the allocation capacity is limited to just 200 MW, we expect it to be completely subscribed but the competition in terms of tariff to be fairly low.

We will discuss the various Indian solar policies in-depth in our upcoming, 10th INDIA SOLAR COMPASS, published through our website on the 1st of April.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

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