High cost of solar parks diluting policy objectives

21 September 2015 |

On paper, the solar parks policy is excellent. It tackles the two major issues of land acquisition and evacuation, reducing developer risk. In theory, this should bring down the cost of solar power. However, after seeing the costs released for the recently announced solar parks in Andhra Pradesh, Rajasthan, Gujarat and Karnataka, most developers are of the opinion that they could have quoted lower tariffs had they been allowed to bid for projects outside the park. Now, this is despite the fact the states are receiving a substantial central grant of 50% (or up to INR 2 million per MW) for developing this park infrastructure.

  • High charges for solar parks can make solar power more expensive by between INR 0.16/kWh – INR 0.36/kWh
  • Cost of leasing land inside the park is turning out to be more expensive that buying the land outright and creating own evacuation infrastructure
  • The policy itself is useful but the key reason behind this failure is inefficiencies in implementation and the Solar Park Implementation Agencies (SPIA) structure

The concept is that a Solar Park Implementation Agency (SPIA) in each state is responsible for land acquisition and infrastructure development, including evacuation. Developers are then expected to invest into and develop individual solar projects on top of the solar parks infrastructure.

BRIDGE TO INDIA analysis shows that the recently announced solar park charges by the various SPIAs will end up being counterproductive to the objective of reducing costs.

The charges announced for solar parks are high as compared to the stand-alone cost for developers to acquiring land and arrange evacuation infrastructure themselves within the same state. Ideally, the solar park lease should be cheaper but it is not.

Fig. 1: Increase in cost of solar power for projects installed inside the park vis-à-vis outside (INR/kWh)

Based on BRIDGE TO INDIA calculations based on applicable costs in the state. Project cost and return expectation has been assumed same for project being executed inside and outside the solar park

The purpose of creating solar parks is being defeated with such high charges. It does not make sense that the cost of leased land and common evacuation infrastructure with central government subsidy is turning out to be higher than the cost for private land acquisition and individual evacuation infrastructure. There is clearly huge inefficiencies that are getting built into the process. One possible solution to this could be perhaps to bid out execution of solar parks to private entities.

Various state IPAs

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