Solar Projects Have an Economic Rate of Return of 7.4% according to MNRE Draft Report

The Ministry of New and Renewable Energy (MNRE) has released a draft study report that analyzes the economic rates of return for various renewable energy technologies in India.

The draft report, Economic Rate of Return of various Renewable Energy Technologies, is open to feedback and observations until February 15, 2018. It will be finalized following consultations with relevant stakeholders.

The MNRE observed that while the need for renewable energy deployment is well-recognized, there is a need for clarity about the full socio-economic costs and benefits of the large-scale deployment of renewable energy sources.

The report estimated the Net Present Values (NPVs) and the Economic Rates of Return (ERR) for various renewable energy technologies and found that small hydro technologies in the country have the highest ERR of 10.3 percent with a NPV of ₹114 million (~$1.8 million).



Ground-mounted solar technology had the second highest ERR of 7.4 percent and an NPV of ₹16 million (~$0.25 million). Rooftop solar projects were close behind, with an ERR of 7 percent and an NPV of ₹17 million (~$0.27 million).

ERR and Economic NPV Estimates for Various RETs

The MNRE report also studied the attractiveness of projects using their Financial Rates of Return (FRR). The FRR helps assess the financial viability of a project as it reflects the general condition of the renewables market in recent years.

Most of the country’s renewable energy projects fall within the FRR range of 9-11 percent, including grid-connected rooftop and ground-mounted solar PV projects.

FRR Estimates for Various RETs

Based on its findings, the MNRE also proposed a framework for estimating the level of incentives that should be provided to deserving renewable energy technologies.

“All new technologies need policy, regulatory, and financial support during their infancy. The same has been the story of RE (renewable energy) across the world. While RE has seen strong penetration in developed countries, the same (penetration) in developing countries like India is underway. At present, RE generation costs are falling on account of technological advances, supportive policies, increasing volumes, etcetera, while the cost of coal supplies is likely to see an increase due to various technical and policy-related issues. In this regard, it is considered prudent to present the economic, social, and environmental benefits and different renewable energy technologies in the Indian context,” the report observed.

The MNRE concluded that if the ERR of any given project is greater than the discount rate, while the FRR is less than the market rate, then the project calls for financial support. However, if the economic rate of return is less than the social discount rate, then the project does not require any incentive, irrespective of the fact of whether the FRR is greater, equal, or less than the market discount rate.

Recently, the MNRE announced that it planned to spend ₹660 million (~$10.3 million) over the next two financial years on increasing renewable energy awareness in India.

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