The dearth of new solar auctions could drive the prices of solar power further down, below the all-time low of ₹2.44, with developers backed by private equity funds trying hard to build their assets, even if it means sacrificing returns.

“Many developers have built their companies anticipating huge auctions to reach the government’s goal of installing 100 GW of solar (capacity) by 2022. That has not happened so far, and competition is increasing to win projects at the cost of IRRs (internal rate of returns),” said Raj Prabhu, CEO and co-founder of Mercom Capital Group.

Analysts believe the IRRs in the solar sector have reduced to the range of 10-13 per cent now, compared with 15-16 per cent or more previously.

As a recent ICRA report notes, considering the magnitude of solar project awarded in the past 12-18 months, there could be 7-7.5 GW of solar capacity added this financial year. However, there is a temporary lull in announcement of fresh bids.

The pent-up demand may push solar tariffs further down, industry players suggest. “State bids have dried up, and, therefore, all the focus goes on the solar park bids that the Centre is carrying out, and there are just not enough of them, so people are desperate,” Sumant Sinha, Chairman & CEO, ReNew Power, told BusinessLine.

Sanjay Aggarwal, Managing Director, Fortum India, says despite the Centre’s target to tender an average of 15 GW solar projects a year till 2022, only 3 GW has been auctioned since the beginning of this calendar year and another 2 GW is expected to be auctioned by the end of this year, which is way below the target.

According to Prabhu, in the scenario where auction pipeline has dried out, it has come down to not enough business for solar developers, especially pure play solar and renewable energy firms.

The results of the latest solar auctions suggest that PE-funded developers and those companies that have been able to raise relatively cheap funds (often outside India) have become even more aggressive in bidding than corporate players such as Tata Power or Adani Green Energy that had already managed to build large renewable portfolios.

According to Rahul Shah, CEO & Executive Director, TataPower Renewable Energy, the lowest tariff bid by the company so far is ₹4.43 a unit. “Excess capital is chasing limited capacity, resulting in developers willing to take greater risks and perhaps with lower return,” he said.

ACME Solar and SBG Cleantech, which bid ₹2.44 a unit and ₹2.46 a unit respectively in the Bhadla Phase-III auction conducted by Solar Energy Corporation of India in May, are so far the lowest tariff record holders. Both are PE-backed.

However, aggressive bidding still applies to only those auctions where developers have enough confidence. Such projects, according to Kameswara Rao, Leader — Energy, Utilities and Mining, PwC India, offer land and facilities, transmission connectivity and a robust payment security mechanism.