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Karnataka receives the lowest bid at INR 5.51/kWh for solar energy in India

According to reports, the state of Karnataka has received the lowest ever bid in India for INR 5.51/kWh as it opened the financial bids for an allocation of a capacity of 130 MW of solar energy, Bridge to India reported.

Karnataka is expected to issue Letters of Interest (LoIs) to 16 developers for this allocation. The lowest successful bid is of INR 5.51/kWh by Sun Pharma and the highest successful bid is of INR 8.05/kWh by Welspun Solar and Heidelberg.

The average bid across all successful bids is INR 7.06/kWh, which is workable for most developers, the report said.

Tamil Nadu had quoted a tariff of INR 5.78/kWh proposed by the Tamil Nadu Electricity Regulatory Commission (TNERC).  According to Bridge to India, these two tariffs do not seem to be in tune with a limited decrease in capital costs over the last few months.

If similar tariffs are to be quoted under the phase two of the National Solar Mission(NSM), based on the current draft, wherein the pre-determined tariff offered by the government is assumed to be INR 5-6/kWh, the government would end up paying nothing for the Viability Gap Funding, the report said.

For the lowest bid of INR 5.51, the return on equity for the projects will not be attractive enough to justify the investment, the report said. Even if the optional acceleration depreciation (AD) is availed, it can only amount to an equivalent increase of INR 1-1.5 in tariff, which still may not make adequate financial sense for developers.

Further, with the devaluation of the Indian Rupee and the possible imposition of the anti-dumping duties, the cost of importing modules and BOS would rise, increasing the overall costs of projects, Bridge to India says.

The devaluation of the rupee has also triggered an increase in the interest rates of banks, which means that the increased cost of borrowing also adds to the overall costs to developers. Moreover, as compared to Rajasthan, where projects have recently been allocated at a tariff of INR 6.45/kWh, most parts of Karnataka receives relatively low levels of irradiation, the report said.

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