Tamil Nadu Solar Policy: Tariffs expected to fall to INR 6.2 (EUR 0.09)/kWh for 1,000 MW of utility scale projects

Tamil Nadu is the seventh Indian state out of 28 to announce an official solar target. In an overall target of 3GW, the policy is targeting 1,500 MW of capacity addition through utility scale installations till 2015. The Tamil Nadu Electricity Development Authority (TEDA) as the nodal agency will be directly allocating 1,000 MW out of this through the reverse competitive bidding procedure. The solar power produced from these projects will be sold to the state distribution company, TANGEDCO, at a preferential feed in tariff (FiT).

• According to our financial model, the tariff in Tamil Nadu is expected to fall to INR 6.2 (EUR 0.09)/kWh
• The 5% annual escalation of the tariff for the first 10 years makes this initial tariff viable for projects

According to our financial model, we expect that the Tamil Nadu Solar Policy will see tariffs fall to the lowest ever in the Indian market. For an internal rate of return of 12.8%, we expect the tariff to be INR 6.2 (EUR 0.09) / kWh for these 1,000MW worth of utility scale projects. This is the lowest ever tariff in the Indian market, under the competitive reverse bidding procedure used for the allocation of projects. So far, the lowest tariff under the reverse bidding mechanism has been INR 7 (EUR 0.11) / kWh for 25MW of projects in Odisha in February 2012. The 5% annual escalation of the tariff for the first 10 years, as fixed by the state, is primarily the reason why such a low tariff is possible in the first place. For the remaining duration of the power purchase agreement (PPA), the tariff will remain as determined in the 10^th year.

The tariff will be determined by a process called the open tender-two part system in which all bidders have to submit two separate bids in two separate sealed envelopes. Of this, the first is a techno-commercial bid with the commercial terms and conditions and the financial statements of the bidder and the second, a financial or price bid.

For additional details on the project development investments, and other opportunities under the Tamil Nadu Solar Policy, download our INDIA SOLAR POLICY BRIEF for FREE.