Will low solar tariffs hurt India’s sunrise sector?

Low tariffs are denting returns for investors and could lead to fund crunch for projects under development

A fall in solar energy tariffs in India is hurting the investment climate for what’s been billed as a sunrise sector, analysts and sector experts warn.

Solar projects, being won at record-low tariffs in government reverse auctions, are denting the returns for investors and in some cases could lead to financing constraints for projects under development, they say.

Solar tariffs fell below Rs.5 a unit in November, due to aggressive bidding by global companies, such as US-based SunEdison Inc,?Japan’s SoftBank Group, Canada’s SkyPower Global, and Finnish state-run utility Fortum Oyj, which are looking to get a foothold in India’s high-growth renewable energy market. Questions now are being raised as to whether solar projects would be viable and whether they will get adequate funding.

Indian banks are cautious about funding projects which offer low returns or look unviable amid increasing instances of liquidity constraints at many renewable energy firms, said an investment banker, asking not to be named as he is not authorized to speak with the media.

Several of the companies that have won projects at competitively bid tariffs in recent months are yet to start constructing these projects due to financing constraints, this person said.

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