How can Dubai afford solar power for Rs.2.2/unit?

When Dubai announced last month that an 800 MW solar power project there would generate electricity at Rs 2.2 per unit (2.99 cents), it created a global record of sort. However, no matter how hard we try, it seems pretty unlikely that India would ever be able to achieve such low prices using the current set of technologies, mainly because of the high cost of finance and expectations of high return that people have from their investments in the said sector.

The lowest bid that one of India’s solar projects attracted was Rs 4.34 per unit, by a Finnish company called Fortum Energy in January this year; the bid was for a 70 MW project in Rajasthan.

Even though prices may further go down a bit, it’s highly unlikely that they would beat, let alone reach Rs 2.2 per unit.

There is a reason why tariffs for the Dubai Electricity & Water Authority project cannot be as-is compared or expected in India. The risk factors and costs involved in both locations are completely different, says Sujoy Ghosh, (First Solar India head).

“The dirham is pegged to the US dollar and hence eliminates the need to hedge dollar-denominated investments into the project. Land and evacuation infrastructure has been provided by DEWA who seek a 10% return on their investment which is relatively low compared to India,” Ghosh told ET .

B Bandopadhyay, who served as an advisor to the Ministry of New and Renewable Energy, too shared his two cents on the topic. “Indian businesses seek returns ranging from 18% to 20%, while foreign businesses seek a much lower returns. This plays a pivotal role in reducing the cost of generation of such solar power plants,” Bandopadhyay was quoted saying.

Ghosh is also of the opinion that the cost of long-term debt is lower for Dubai-based projects, because of low credit risk. Other than this, long-term income tax holiday that Project investments in the UAE enjoy are not to be seen in India. Even the exemptions under Section 80-AI will be withdrawn from April next year.

It’s because of all these factors that Dubai has a lower tariff than India. “Cost of finance in India has been hovering around 12%, while cost of finance in Dubai is just half, at 6%,” Bandopadhyay added.

Other than this, SP Gon Choudhuri, Chairman of Renewable Energy College in Kolkata, mentions an important geographical fact. “The sun’s rays are far more intense in Dubai. A 1 MW solar plant can generate 20 lakh units of power in Dubai, which on an average in India is about 16 lakh units. Lower generation leads to lower capacity utilisation and higher cost of generation.”

“We may be able to generate 20 lakh units from 1 MW in the deserts of Rajasthan, but lack of evacuation facilities would lead to increased costs again,” he added.

Credit Business Insider

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