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India Risks Europe-Like Solar Slump With 28% Cut in Subsidies

India’s biggest solar power-producing state is seeking to cut the subsidized rate it pays to plants by 28 percent, joining governments from Spain to Greece backtracking on clean-energy support to lower costs.

Gujarat Urja Vikas Nigam Ltd. is asking for permission to lower the average megawatt-hour price to 9,000 rupees ($150) from 12,540 rupees, according to a petition copy obtained by Bloomberg News and confirmed by Gujarat Electricity Regulatory Commission Chairman P.K. Mishra. The government-run bulk buyer of solar power in the western state signed 25-year contracts with 80 projects, comprising 857 megawatts of capacity, since 2010.

The petition risks derailing an industry that drew $6.9 billion of investment in two years from companies including Essar Energy Plc and Tata Power Co. to make India the world’s fastest-growing major solar market, according to figures from Bloomberg New Energy Finance. Spain, after installing the most capacity worldwide in 2008, stalled growth by withdrawing support, including retroactively capping the number of hours solar plants could earn above-market tariffs.

“The petition itself will vitiate the business environment, let alone the outcome of the petition,” said Vineet Mittal, managing director of Welspun Energy Ltd., India’s biggest solar developer. “GUVNL’s proposition is not legally tenable.”

A first hearing on whether regulators will accept GUVNL’s case will be held on July 23.

‘Windfall Gains’

GUVNL argued in its petition that the project developers are earning “unjustified and windfall gains” after misleading officials on project and financing costs at the time rates were set. Project owners named in GUVNL’s petition, include Tata Power, Welspun, Moser Baer India Ltd., Lanco Infratech Ltd., Essar Energy’s power unit and Adani Enterprises Ltd. The companies declined to comment or didn’t respond to e-mails and calls except for Welspun’s Mittal.

“Regulators fix values for different parameters; developers always try to beat them,” said Ashish Sethia, Bloomberg New Energy Finance’s head of India research, yesterday. “They earn more returns than the regulator will like but it also brings efficiency.”

Regulators should have agreed to review tariffs after a certain time and to reduce them by no more than a certain percentage, Sethia said. Solar power costs fell as low as 7,200 rupees last month in bids for licenses in Punjab state.

Contract Bound

GUVNL is on the hook to pay about 16.7 billion rupees a year for solar power, more than double what it would pay were the electricity from conventional sources, estimates Nilesh Patel, chief executive officer of Movya Consultancy Pvt., a solar advisory based in Ahmedabad.

“They’re broke,” Patel said by phone yesterday. “GUVNL doesn’t have the money to pay this. It’s going the Spain way.”

GUVNL Managing Director Raj Gopal didn’t respond to an e- mail and four phone calls seeking comment.

Solar installations in Spain peaked at 2,758 megawatts in 2008 before tumbling to 69 megawatts the following year as one of the world’s most generous renewable support programs was dismantled, according to data compiled by Bloomberg. Retroactive measures reducing solar plant revenues have also been imposed in Greece, the Czech Republic, Bulgaria, and Belgium, according to the European Photovoltaic Industry Association.

Copyright 2013 Bloomberg

Lead image: Taj Mahal via Shutterstock

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