Tuesday, November 26, 2013: It is a well known fact that almost 60 per cent of the solar installations in India have been installed by the state of Gujarat alone. Reports suggest that around 1 GW of solar power has been installed in the state by developers, who are benefiting from the solar feed in tariff scheme started by the government.
However, the government has now shut down the solar subsidy scheme since it exceeded its targets by a huge margin with a huge number of developers setting up solar plants in the state.
It is noteworthy to add that Gujarat is a pretty well-off government, which brings us to the discussion that it has enough money to pay solar developers and even the land values in the state are reasonable. Even the government administration is comparatively better than other parts of the country, making it an attractive state for companies to set up multi megawatt power plants in the state.
According to a report by Wallstreetselector,com, “But now the success of this scheme is biting the state electricity utility which is finding that the outflows due to the solar tariffs is adversely affecting its financials. The utility had earlier appealed to the regulator to cut down the solar tariffs as it was leading to windfall profits for developers. The utility in its appeal said that the construction costs of the solar power plants were over inflated by the developers, when in fact they were much lower. The tariffs had been set based on a reasonable ROE figure for developers but in reality has turned out to be much more.”
While the regulator rejected the claims of the utility in retroactive cut of tariffs, which is an issue being faced by governments around the world. Developers in Spain, Czech and Italy have been making super normal benefits from high FITs. In comparison, the problem is yet not so big in Guajarat but the problem persists for the utility all the same, since it will be required to pay feed in tariffs for 1 GW of solar plants for 25 years.
Developers are unhappy as they feel that the goal posts have been changed suddenly. The report added, “Retroactive changes in laws are always an unwelcome development for investors everywhere but a fact they have to live with. This gives rise to unexpected risks for the companies and investors. Gujarat government is in no mood to give in and has appealed to overturn the GERC decision by going to the Appellate Tribunal for Electricity. The government wants a cut of roughly 30 per cent, which seems quite large.”
