Impact of demonetisation on solar energy

Solar industry trackers see demonetisation leading to cheaper solar power in medium to long run although project delays have hit developers in short term. Combined with rapid decline in solar component costs, it will make a lot of projects that quoted low tariffs, feasible.

However, we have to wait and see how government agencies handle the situation, especially payment issues, going forward. The demonetisation drive has helped distribution companies recover pending bills from customers and banks are flush with funds, all of which can relax lending to the power sector and potentially bring down interest rates.

A spokesperson for Hindustan Power Projects, a leading energy player in the country, said demonetisation has led to a situation where the banking system in India will be able to bring down the cost of interest, thereby making the renewable energy target of 175 GW by 2022 a reality. “The solar sector, in particular, could benefit immensely from the initiative in mid term,” this person said. An industry executive said solar projects attract bank interest rate of around 11%.

“Projects that quote tariffs below Rs 4.5 per unit, tend to become unviable and do not find favour with bankers. If rates decline and come down below 10%, these projects would find it easier to procure bank finance and power prices would dip,” he said. Experts say as the rate of interest falls, a large number of project developers are likely to quote tariffs below Rs 4.5 per unit, reducing the gap between thermal and solar prices. They said the decision to allow consumers to pay pending utility bills using the demonetised Rs 500 and Rs 1,000 notes will help distribution companies recover dues.

Priyadarshini Sanjay, managing director at Mercom Capital Group, said discoms are expecting substantial inflow of payments till December 31 after which old high-value notes will become invalid. For cash-strapped discoms, this is unexpected good news. But some experts say the drive has slowed down development of solar projects.

Source: ET, 5th December, 2016