The target of 100,000MW for solar generation by 2022, announced by the Indian Government, has attracted unprecedented interest from national and international investors. The investors, many of whom are completely new to power sector, were attracted by the long term Power Purchase Agreements (PPAs) and short gestation time for the project besides not having any dependency on fuel linkages. Of course, falling prices of solar cells and competitive bidding have brought the solar power tariffs in India in the range of Rs 5.09 to Rs 5.88 per kWh and quite attractive compared to wind, biomass and even new thermal power projects.
One of the constraining factors for solar power has been the high interest rates in India that are in the range of 11.5% to 12.5% and have limited any further reductions in tariff. The Central Banker, with an eye on inflation control, has been cautious in cutting down the interest rates. Now, with the rate cut announced by Reserve Bank of India (RBI) on 28th Sep 2015 and the simultaneous PLR cut announced by India's largest commercial bank, SBI, long term debt for solar power projects should become cheaper. As per analysis of International Energy Agency (IEA), at 9% interest rate, half of the revenues from the PPA tariff go towards servicing debt.
The drop in interest rate is an unforeseen windfall for the project developers who have quoted aggressively in the recent competitive bidding in Telangana and Punjab. The post tax RoE of these projects will improve by about 0.4% with the reduction of 0.5% in the interest rate. Further rate cuts by RBI may be possible before the financial closure of these projects.
The other good news is India has emerged as the top most destination for FDI in the World, beating China and the USA. FDI inflows into India during January-June stood at $31 billion, ahead of China's $28 billion and the US's $27 billion, said the FT report under the headline 'India grabs investment league pole position'. Further, India has jumped 16 notches to move to 55th position in the Global Competitiveness Index as vindication of the committed policy of the Government to improve the ease of doing business. These macro economic factors will hasten the investments in solar power and help in achieving the audacious target of 100,000MW by 2022. Thanks to the vision and leadership of Prime Minister Shri Narendra Modi.