Third party-sale options of solar electricity

While most of the states have Average Power Pooled Cost (APPC) in the range of Rs.2-2.50/kWh, and also the state utilities have a risk of payment default, many investors are inclined towards the third party sale business model while investing in solar projects. This option fetches them about Rs.4.00/unit for the sale of electricity to third party and also makes them eligible to get REC benefits. Considering the base price of REC as Rs.9.30/kWh and third party sale of Rs.4.00, the total assured revenue is of the order of about Rs.13.00/unit. Considering the fact that RECs are available till March 2017, many investors consider worth investing under this option because under reverse bidding if they have to implement projects, the winning bid goes as low as Rs.7.50/unit. The third party sale option has some of the other costs associated with it. Considering a solar power plant in Rajasthan under third party sale of electricity, following charges are applicable.

a)      Transmission and Wheeling losses : About 8%

b)      Wheeling charges : About 11 paisa/kWh (33 kV)

c)      Cross subsidy: About 50 paisa/kWh

d)     Open access surcharge: About 43 paisa/kWh

Considering a base rate of Rs.4.00/unit, the net effective rate to any HT consumer reaches to about Rs.5.50/kWh. The typical electricity tariff to HT consumers in Rajasthan are in the range of Rs.6-6.50/unit and this leads to about 10% reduction in electricity bill. Considering the fact that solar electricity cost of generation will continuously decline in future and tariffs to HT consumers will increase, the third party sale model may become attractive to investors as well as financial institutions due to security of cash flow under this scheme. Although there is a lack of clarity under the REC route, still over 100 MW of projects in Rajasthan are being considered under this option for implementation.


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