Council on Energy, Environment and Water Integrated | International | Independent
Policy Brief

Anatomy of Solar Tariff

Understanding the decline in Solar Bids Globally

Kanika Chawla, Manu Aggarwal
October 2016 | Power Markets

Suggested Citation: Chawla, Kanika and Manu Aggarwal. 2016. Anatomy of a Solar Tariff: Understanding the decline in solar bids globally. New Delhi: Council on Energy, Environment and Water.


This policy brief provides an overview of the financing mechanism that can be used to lower solar tariff bids globally. The analysis also deconstructs and compares the lowest solar bid globally and the lowest Indian solar bid. Further, it incorporates the most important factors which determine Levelised Cost of Electricity (LCOE) and economic feasibility of a solar plant.

Declining Solar Bids in India

feed in tariff rates in india

Source: Author’s analysis

Key Highlights

  • Many countries have moved from feed-in-tariffs (FiTs) to the competitive auction-tendering paradigm. An increasing number of countries are employing reverse auctions to encourage competition and drive down solar tariffs.
  • Solar bids in India declined from a high of 10.95/kWh in 2010 to a very competitive 4.34/kWh in 2016. This was assisted by the move from feed-in-tariffs (FiTs) to a competitive auction-tendering paradigm.
  • In 2015, a solar park project of 500 MW in Andhra Pradesh received a bid as low as INR 4.63/kWh.
  • Solar bids went as low as USD 3 cent (INR 1.99)/kWh4 in Dubai and Chile in 2016.
  • Solar developers prioritised market share over profit maximisation in the short term, recognising the huge market opportunity that solar power presented.
  • In India, industry pays an average power tariff of INR 6.3/kWh (INR 7.7/kWh for commercial users), compared to a tariff of INR 5-8/kWh for rooftop (captive) solar.
  • Commercial and industrial customers are the leading adopters of rooftop solar in India.
  • Factor which resulted in lower bids was open access to the market and government interventions, which minimised risk and led to solar projects attracting a broader set of developers.
  • Economic feasibility of a solar plant is determined by variable factors like land costs, transmission and evacuation infrastructure, financing, preliminary expenses, and operations and maintenance.
  • The cost of modules makes up 60 percent of the total project cost of a utility scale solar project in India.
  • Financing is a major factor that affected the cost of electricity. Cost of debt for utility scale projects in India were in the range of 13 percent to 16 percent and 10 percent to 14 percent, compared to 5 percent to 7 percent in the United States.
  • In 2016, debt was used to finance more than 70 percent of each renewable energy project in India.
  • External factors such as better technology and funds from developed nations could reduce long-term bid prices for solar energy.
  • Costs such as cost of capital, cost of land, etc. should come down for solar to be at grid parity with fossil fuels.

Key Recommendations

  • Double the installed capacity every 18 months to achieve the target of 100 GW of solar capacity by 2022.
  • Examine and mitigate certain local risks around land availability, evacuation and access to capital in order to drive down solar tariffs further.
  • Develop finance and policy interventions that focus on risk mitigation to mobilise international funding.
  • Accelerate the expected decline in tariffs in the range of INR 3.5/kWh to INR 3.7/kWh in the next ten years. Make use of policies such as land availability at fair prices, innovative use of wastelands to deploy renewables and currency-hedging facility.

Debt is used to finance more than 70 percent of each renewable energy project in India. Cost of debt is in the range of 3 percent to 6 percent in the developed world, as compared to the 10 percent to 15 percent in India.

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