Read in the Hindu Business Line that the centre has allowed NTPC and PTC to go for dollar linked tariffs for 1,000 MW of solar power plant each, on a pilot basis. If successful, they can go for 10,000 MW on the dollar linked tariff.
It is a public secret that high interest rates are a significant contributor to the high cost of solar power in India today. At the prevailing rates of 13-14%, solar power levelized cost is about Rs 6.5-7 per kWh. If the interest rates can be brought down by 300-400 basis points (to about 10%), some quick estimates show that the levelized cost could be brought down by about Rs 1.5 per kWh, whence you could be having solar power generated at about Rs 5 per unit.
Not bad at all, given that coal-based power costs about Rs 3.5 per unit and this can only keep increasing, meaning the grid parity of solar power (achieved when cost of solar equals cost of grid power) might be brought about much earlier than otherwise.
Dollar linked tariffs of course brings its own set of challenges – well, the main question is of course how will the fluctuations in the rupee, especially the depreciation, will be handled in terms of coughing up the extra money. The government appears to have some plans for this – let us wait and watch.
The dollar linked tariff in all likelihood open the floodgates for foreign investors to invest in Indian solar power plants. There is a ravenous amount of international money waiting to go to places that can give them good returns on long term basis, and solar is definitely one such vehicle (the encouraging welcome to yieldcos in the US is one such sign).