New Delhi [India], Apr 1 : Credit rating agency ICRA estimates the solar capacity addition to increase from 3.5-4 GW in FY2017 to at least 7-7.5 GW (in grid connected utility segment) in FY2018.

The magnitude of solar project awards, both under the National Solar Mission ( NSM) and the state policy route in the past 12-18 months has been quite significant, though currently there is a temporary lull in the announcement of fresh bids. The backlog against these awards itself would support the estimated solar capacity addition as per ICRA study.

With declining module price levels and the bidding process adopted, the tariff competitiveness for solar PV projects has also shown an improvement in the last three year period, as seen from a decline in the weighted average bid tariff of Rs 6.79/kWh in CY2014 to Rs 5.01/kWh in CY2016. Subsequently, a bid tariff of Rs. 3.3/kwh (levellised over 25 year PPA term) for award of 750 MW capacity by Rewa Ultra Mega Solar Ltd in February 2017 remains the lowest discovered tariff as of now.

An improving tariff competitiveness of solar PV energy thus remains favorable for the distribution utilities. However, tariff viability for project developers from their credit perspective will be critically dependent upon the availability of long tenure debt (up to 18-20) at cost competitive rates as well as their ability to keep the cost of PV modules within the budgeted levels.

"Further, with declining solar PV tariffs for new projects, honoring of PPAs and timely payments by distribution utilities for projects with PPAs signed at relatively higher tariffs (if compared against the average power purchase cost for respective utility) remains crucial for the credit quality of such projects, given the absence of any take or pay as well as termination liability clause in most of the PPAs," said Sector Head and Vice President ICRA, Girishkumar Kadam.

As far as challenges are concerned, the solar sector, apart from the exposure to discom credit quality, continues to face regulatory challenges with regard to inconsistency in RPO norms and their compliance.

The absence of penalty measures by SERCs in case of the shortfall in RPO compliance, so far is worrisome as a sustained improvement in the discoms' financial position remains important in the long run.

This in turn is dependent upon the benefits expected from implementation of the Ujwal Discom Assurance Yojana (UDAY) scheme, tariff adequacy and their ability to curtail distribution loss levels in line with the targets.

"Also a fast track approach and time-bound progress on strengthening of power evacuation network, both at the intra-state and the inter-state level (inclusive of strengthening required for evacuation from the proposed solar parks) remains crucial, going forward," added Kadam. (ANI)