New Delhi: The central government, which has mandated state power utilities to compulsorily buy solar power to help create a market for it, will in a fortnight set a higher purchase obligation for the next six years to encourage investments in the targeted 100 gigawatt (GW) of solar generation capacity.

With some states expressing dissent on the issue, the central government is preparing separate targets for different groups of states.

At a meeting of central and state officials on Wednesday to review the progress of power projects, the ministry of new and renewable energy (MNRE) sought suggestions from states for raising the renewable power purchase obligation of power distributors from 8% of all their purchases now to about 17% over the next few years.

The final trajectory for compulsory purchase of renewable power, excluding hydropower, will be announced in a fortnight after taking into account states’ views, a senior official of the ministry said on condition of anonymity.

Hydropower-rich Himachal Pradesh sought a thorough discussion on the concept of compulsory purchase of clean energy, which is costlier than other sources of power.

“We would like to have a dialogue on the concept of renewable power obligation. We have surplus hydropower, which is a major source of revenue for the state. We are getting not more than ₹ 2.5-3 a unit for the hydropower that we sell. But because of the renewable power purchase obligation, we are buying electricity at ₹ 5-7 a unit. This onerous task of buying at a higher rate, which is set to progressively go up, severely dents the bottom line of our distribution companies and affects state revenue," said an official from Himachal Pradesh government on condition of anonymity.

Higher trajectory for compulsory clean energy purchase will be proposed for at least three different groupings of states and will be implemented over the next few years till 2022.

States that have expressed willingness to set up and consume more of renewable energy are likely to be given a higher target. The compulsory purchase obligation is primarily for solar and wind power as the requirement does not cover hydropower.

Use of government policy as a tool to encourage more consumption of renewable power comes at a time when the declining tariff for solar power in recent competitive bids appears to have bottomed out.

On Tuesday, six companies won bids to set up solar power projects of 500 megawatts (MW) at a solar park in Karnataka, quoting tariffs in the range of ₹ 4.78-4.80 per unit, 10% higher than the tariff at which Fortum Oyj of Finland had won a 70 MW plant in NTPC Ltd’s Jodhpur solar park in Rajasthan in January, the lowest tariff yet in India.

While some industry executives say solar power projects are being won at unsustainable and aggressively low prices, others maintain that the power-sale tariff at which companies win projects is a function of a host of variables that differ from project to project.

“Investors having access to low cost funds and are in a position to negotiate well with equipment suppliers will have a cost advantage. Having infrastructure facilities readily available for a project will also help in quoting a competitive tariff," said Ashok Haldia, managing director and chief executive officer of PTC India Financial Services, an arm of Power Trading Corp. of India Ltd.

India has set a target of generating 175 GW of renewable energy capacity by 2022 which includes 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydropower projects.

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