Finally the Ministry of New and Renewable Energy (MNRE) has heeded to the long pending request of developers and has communicated that the upper ceiling tariffs would no longer be prescribed in future bids for solar and wind projects.
The MNRE has directed Solar Energy Corporation of India (SECI), National Thermal Power Corporation (NTPC), state distribution companies (DISCOMs), and other implementing agencies to procure renewable energy power either through a single renewable source or various combinations of renewable sources with or without storage as per their procurement policies.
Project tariffs are determined by various parameters such as bid timing, technology, off-takers, and project location. Also, it was a bit irrational to keep a tariff cap without a floor price.
Removal of tariff caps would open up the sector by promoting healthy competition among developers and leading to the creation of high-quality assets
Many developers feel that the announcement is a win-win, both for the industry and government as this would move tariff discovery to a pure market-driven mode without artificial caps.
It may not make much of a difference to the actual tariffs being discovered in solar reverse auctions that have already touched the ₹2.50/ kWh level in the latest bidding. However for wind this may mean higher tariffs.
Tariff caps were slowing down auction activity in the sector. Developers have denied bidding at the tariff levels specified by state agencies instead of a market-based auction, where the lowest bid wins.
This has been the reason for most tender deadlines being extended or retendered after raising the upper tariff ceiling. This trend of tender extensions and retenders has also led to a delay in auction activity.
This move by MNRE proves that the government understands that a reasonable tariff regime is required to achieve the target of 175 GW of renewable energy by 2022 in a sustainable and timely manner.
Reference- Mercom India, Business Standard, Economic Times, MNRE PR