Tamil Nadu Solar – Tangedco proposes Rs. 6.48/ kWh as “workable tariff”

Tangedco(Tamil Nadu Generation and Distribution Company) has been conducting meetings with the bidders for the 1000 MW tender of the Tamil Nadu Solar policy for finalizing the Power Purchase Agreement tariff. The meetings have been going on for the last 2 days(and today). This follows the opening of the financial bids last week.
A few developers/bidders who had meetings with Tangedco informed us that Tangedco proposed Rs.6.48/kWh as the final tariff. The bidders have been given time to decide on whether the rate is acceptable to them. According to the newspaper The Hindu Businessline, this price is based on the benchmark tariff notified by CERC for the year 2013-14.
The CERC fixed the levelised tariff for Solar PV at Rs.8.75/ kWh without Accelerated Depreciation and Rs. 7.87/kWh with Accelerated Depreciation(Details of the CERC tariff can be found here). The CERC tariff is based on a project lifetime of 25 years and without any price escalation of the tariff. On the other hand, the Tangedco’s tariff is based on a 20 year Power Purchase Agreement(PPA) and also a 5% escalation for the first 10 years.
It is quite likely that Tangedco took the CERC tariff of Rs. 7.87/kWh(availing Accelerated Depreciation) and levelised it for 20 years with the 5% escalation. While CERC takes a discount factor of 10.95% for the calculation of levelised tariff, it is not clear at this stage how Tangedco arrived at Rs. 6.48/kWh.
The response
It appears that several developers are unwilling to accept this rate, since they consider it too low. But it is too early to draw any conclusions as to how many MW of projects will enter into a PPA.
The way forward
Tangedco has already announced that it will go for a fresh tender(more details on the new tender, here) to fill the capacity that remains unallocated after the negotiations for the current tender. In such a scenario, Tangedco may not be under any pressure to accept prices much above the Rs. 6.48/kWh.
A clearer picture will emerge later next week.
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6 thoughts on “Tamil Nadu Solar – Tangedco proposes Rs. 6.48/ kWh as “workable tariff””

  1. Dear Madhavan:
    Just a bit of clarification, is the PPA price incremental by 5% for the first five years or 10 years?
    Since TANGEDCO has called the bidders for price agreement, is the information in public domain as to how many have agreed to the price and are going ahead with the project?

    1. Hi Anil – The 5% price incremental is for 10 years. The error is regretted and thanks for pointing out the error. (The post has been updated)
      Regarding the response of the bidders, the bidders still have time to decide. So, it is too early to comment on that part.

  2. neelamegan.rajan1

    I am confused. Please let me if the tariff announced by the cerc supplements the tariff given by the different states is it either cerc tariff or state tariff that one has to choose between? If we go only the tariff given by one body, then how the entrepreneurs are going to pay back their loan at over 12% interest rate? Please calcify this issue for someone who is interested in this venture but not clear on the tariff terms.

    1. The CERC tariff is more like a reference or guideline of what the cost of solar is like in India when it was computed. The tariffs emerging under the state specific policies are through competitive bidding and like any other tendering process, the prices emerging out of it may not be an accurate representation of the industry as a whole. Different investors have different risk appetites and profit criteria, so the tariff follows that trend. One specific tariff may not placate all investors which is also one of the reason why we are witnessing a low acceptance rate under the TN solar policy.

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