The domestic demand for grid connected solar photo-voltaic power will be moulded by the extent of fulfilment of renewable purchase obligations (RPOs) by state distribution companies, according to a recent report.
A report by ICRA said that discoms will have to buy the obligated share of renewable power determined by the State Electricity Regulatory Commissions (SERCs) in order to ensure that solar power producers are not at financial risk.
Under the National Tariff Policy 2006, state distribution companies have to buy renewable power or Renewable Energy Certificates (RECs) to meet the obligations.
In case of solar power, the RPO has been fixed at 0.25 per cent in 2012, which is to be increased to three per cent by 2022.
"The extent of fulfilment of solar renewable purchase obligations by the obligated entities would determine the health of the domestic solar photo-voltaic industry going forward," ICRA said in a statement.
Going forward, domestic demand for grid connected PV power is expected to be supported by the solar renewable purchase obligations of the power discoms, open access consumers and captive power consumers.
To fulfil the solar RPO requirements by the end of FY15, solar capacity addition of over 2,500 MW would be required in the current financial year to touch 5291 MW, the report said.
It added that nearly 1250 MW of PV power generation projects have signed power purchase agreements (PPAs) with various entities and are at different stages of progress.
Domestic solar PV installations crossed the 2,600 MW mark by the end of FY14, with 1,100 MW of projects being commissioned during that fiscal.
While PV projects till FY13 were largely commissioned in Rajasthan and Gujarat under the Central government schemes and Gujarat Solar Power policy, a large number of other states have since followed suit with their respective schemes for solar power development, the report said.
Madhya Pradesh with total installations of 347 MW was one of the biggest destinations for solar power installations during FY14, it said.
In the last one year, the report said, the number of projects that were commissioned under the renewable energy certificate mechanism increased significantly to 507 MW as on March 31 from 24 MW a year ago, because of the prevailing healthy prices of RECs even at the lowest price band.
"Although solar REC prices beyond FY17 are as of now uncertain, we feel, even if net realisation (REC price plus average pooled power purchase price of obligated entities) remains low at around Rs 5.5 per unit, returns from these projects, which have already been commissioned, are likely to be higher than those under other policies," the report said.