New Delhi: Tariffs for solar power have fallen to record lows below Rs3 per kilo-watt hour, providing a boost to the National Democratic Alliance’s green energy drive.

Renewable energy producers quoted the prices, at which they will sell solar power, to win contracts to develop the world’s largest solar power plant of 750 MW in Rewa, Madhya Pradesh, on Friday.

Mahindra Renewables Pvt. Ltd, Acme Solar Holdings Pvt. Ltd and Sweden’s Solenergi Power Pvt. Ltd bid Rs2.979 per kWh, Rs2.97 per kWh and Rs2.974 per kWh respectively to win contracts to build 250MW plants each, according to several people aware of the bid prices.

Piyush Goyal, India’s minister for coal, power, mines and new and renewable energy, said in a tweet that the first-year solar tariff bid of Rs2.97 per unit was a record low.

Under the Rewa contracts, there will be 5 paise per annum escalation in tariff for 15 years. A so-called levelized tariff—the value financially equivalent to different annual tariffs over the period of the power purchase agreement (PPA)—of around Rs3.30 per unit will be levied.

The last discovered lowest tariff for a solar power project in India was Rs4.34 per unit.

Such low tariffs will help the government’s solar energy drive, which is aimed at reducing dependence on thermal power and reducing greenhouse gas emissions to meet India’s commitments within the United Nations Framework Convention on Climate Change (UNFCCC).

“This is going to be the first time in the history that the tariff of electricity based out of Solar Power Plants is going to be at sub (Rs) 3 level. We could achieve this feat only because of our strength of knowledge and understanding of the domain, very dynamic and knowledgeable team, execution excellence and our belief that benefit of all technological innovations should ultimately be passed to the ultimate user. We are sure that once this plant gets operationalized after 18 months, it would be engineering marvellous," said Manoj Kumar Upadhyay, founder & chairman, ACME Group. ACME is among the companies that won the bid.

Mahindra Renewables and Solenergi could not be immediately contacted for comment.

The reverse auction for 750 MW of solar capacity at Rewa started on Thursday and saw initial participation by 20 bidders, including Green Infra Wind Power Project Ltd, SBG Cleantech Ltd and Enel Green Power SpA.

“...the seriousness which investors are showing towards the Indian renewables market is deepening and encouraging," said Arunabha Ghosh, chief executive of the Council on Energy, Environment and Water, a Delhi-based climate thinktank.

Overseas investors have shown interest in the Indian renewable energy market. Some of the probable entrants include State General Reserve Fund of Oman, UK Green Investment Bank Plc, Investment Corp. of Dubai, Norway’s Statoil ASA, France’s Total SA and Royal Dutch Shell Plc.

The price gap between thermal power and solar power has been narrowing. The average rate of power generated by the coal-fuelled projects of India’s largest power generation utility, state-owned NTPC Ltd, is Rs3.20 per unit.

The bids were conducted by Rewa Ultra Mega Power Ltd, a joint venture of Solar Energy Corp. of India Ltd and Madhya Pradesh Urja Vikas Nigam Ltd.

“If the prices have fallen from Rs4.34 to less than Rs3 per unit now, it means that some major breakthrough has happened for the winning bidder on cost of finance. And if that can spread across the market, it would be a big positive," added Ghosh.

This comes in the backdrop of concerns about the sustainability of electricity tariffs being quoted by solar power developers.

The solar space has already seen a significant decline in tariff from Rs10.95-12.76 per kwh during the 2011 financial year. According to the government, India had 9,012.69 MW of installed solar power capacity as of 31 December 2016.

India’s demand for renewable energy is expected to grow seven times by 2035, according to the latest edition of BP Energy Outlook. This means the share of renewable energy in the country’s fuel mix will increase from 2% to 8% by 2035.

Ghosh believes tariffs may fall further. “The market is evolving rapidly, so prices might fall even further if currency and the offtake risks could be hedged at reasonable costs," he added.

India, world’s third-largest energy consumer after the US and China, plans to achieve 175 gigawatt (GW) of renewable energy capacity by 2022 as part of its global climate change commitments. Of this, 100 GW is to come from solar.

The government says India has renewable energy potential of around 900GW.

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