The Ministry of New and Renewable Energy (MNRE) has been keen to introduce Dollar denominated bidding for solar projects. The rationale is to eliminate currency risk for international developers and manage this on aggregate basis thereby reducing the solar tariffs. When the concept was first mooted in the second quarter of 2015, the solar tariffs in India were in the range of INR 6.00 – 6.50/kWh and the objective was to lower tariffs down to INR 4.50 – 5.00/kWh so that distribution companies (DISCOM) are comfortable procuring this power.
- Recent tenders organized by NTPC and Solar Energy Corporation of India (SECI) have seen tariff of less than INR 5/kWh, putting the need to carry out Dollar denominated bid into question
- Volatile currency market increases the risk considerably for Dollar denominated bidding
- Recent bid result indicate that Indian solar sector may not require incentives such as bundling and Viability Gap Funding (VGF) going forward. The same is true for Dollar based bidding as well
Most DISCOMs in India are financially stressed and had been hesitant to buy solar power at over INR 6.00/kWh when marginal thermal power is available at around INR 4.50-5.50/kWh (refer). To bring the DISCOMs onboard, the government had been targeting a solar tariff below INR 5.50/kWh. To this effect, central government has been using incentives in the form of VGF and bundling of solar power to sell solar power at an acceptable tariff to the DISCOMs.
Dollar denominated bidding was envisaged as yet another form of solar power procurement under which National Thermal Power Corporation (NTPC) would take the risk of currency fluctuation and manage any volatility through the use of a hedge reserve fund. The key advantage of Dollar denominated bid is that it would attract currency risk averse international investors to the sector. Through the auction process, it was envisaged that the solar tariff would reach about US$ 0.06/kWh (INR 3.60/kWh) and NTPC would then sell to DISCOMs at about INR 5.00/kWh after factoring in the cost of managing the hedge reserve fund. However, the very steep fall in bid tariffs in the last six months to INR 4.34 – 4.80/kWh has mitigated the need for Dollar denominated tariff procurement or any models such as VGF or bundling. There is little sense for India to pursue Dollar based bidding.