New Delhi: The price paid for solar power in India at auction is set to fall below last year’s record lows for the South Asia nation, driven by plummeting panel prices, falling interest rates and competition among developers seeking a slice of the country’s renewables market.

Prices could dip lower than the Rs4.34 a kilowatt-hour offered in auctions held in Rajasthan a year ago, according to at least one developer of solar projects in India.

“This year we will see prices fall below Rs4 a kilowatt-hour for sure and it will be viable," said Rahul Munjal, chairman and managing director of Hero Future Energies Pvt., the clean-energy arm of Hero Group, one of India’s largest automakers.

In 2016, countries from Chile to the United Arab Emirates broke records with deals to generate electricity from sunshine for less than 3 cents a kilowatt-hour, half the average global cost of coal power. With China and Japan joining the competitive-bidding bandwagon, as much as 25 gigawatts of solar capacity could be awarded through auctions this year globally, according to Bloomberg New Energy Finance.

“We feel interest rates will go down and the cost of solar panels will fall, so these will have a great effect on breaching the Rs4 a unit-mark," said Hero Future’s Munjal, adding that he’s looking at a 500 basis-point decline in domestic interest rates.

Hero Future Energies, backed by the International Financial Corp., operates 360 megawatts of wind and solar capacity and has another 1.4 gigawatts of projects in the pipeline. The company plans to participate in some of the upcoming auctions.

A decline in costs is one reason developers say prices at auction will drop.

After falling 30% last year, the price of ordinary multi-crystalline silicon modules is expected to fall another 20% in 2017, according to London-based BNEF. Since 2009, solar prices are down 62%, with every part of the supply chain trimming costs.

“We expect these modules to sell for around $0.32 per watt," Jenny Chase, BNEF’s chief solar analyst, said in a research note.

Pent-up demand for nearly two gigawatts of solar capacity up for auctions in India in the early part of the year will also drive prices lower, said Rahul Goswami founder of Greenstone Energy Advisors, a boutique investment bank specializing in renewable energy deals in Asia’s third-largest economy.

“There is going to be a huge oversubscription in the coming auctions and everyone in 2017 will be looking at ‘how do I go forward from my one gigawatt to 1.5 or 2 gigawatts,’" Goswami said in a phone interview, adding that fewer tenders in the last several months is adding to the pent-up demand.

Auction process

Greenstone, which is currently working to find an equity partner for Canadian renewable energy company SkyPower Ltd’s 350 megawatts of capacity under construction in India, concluded deals for 80 megawatts of solar capacity on behalf of Punj Lloyd Ltd in 2016. The investment bank also advised billionaire Kumar Mangalam Birla’s Aditya Birla Nuvo Ltd on a tie-up with Dubai-based private equity investor The Abraaj Group to add solar power capacity in 2015.

India is preparing to award 750 megawatts of solar capacity in Madhya Pradesh later this month and nearly 1 gigawatt more by March, according to state-run Solar Energy Corp. of India, the government agency that conducts India’s solar auctions.

India adopted auctions in 2010 and is now racing to achieve Prime Minister Narendra Modi’s solar target of 100 gigawatts of capacity by 2022, a goal that’s second only to China.

Of the 25 gigawatts to be awarded through auctions, BNEF’s Chase expects 8.5 gigawatts of that to be in India. Bloomberg

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