The ministry of new and renewable energy has proposed internal rate of return (IRR) of major renewable energy projects to be in the range of 9-11 per cent. The assumptions are based on zero government incentives, reflecting return rates in a no-subsidy scenario, it said in a draft report.
While IRRs for solar and wind projects are estimated to be between 9 and 11 per cent, small hydro plants are seen to fetch IRRs between 9 and 10 per cent.
The estimates are based on the assumption of 10.5 per cent cost of debt and 34.61 per cent income tax rate for all types of renewable projects. The capacity utilisation factor for wind, utility-scale solar and small hydro projects were set at 25 per cent, 20 per cent and 40 per cent, respectively. The capital cost (per MW), in the same order of generation source, was seen as Rs 5.9 crore, Rs 4.1 crore and Rs 9.5 crore. The average tariffs (per unit) were Rs 4, Rs 3 and Rs 4.3 respectively.
Even though the analysis did not consider market risks such as payment delays or curtailment which regularly afflict renewable power generators, it acknowledged that realisation of these risks in the operation phase would lead to a reduction in financial rate of return (FRR). IRR has been used as the financial rate of return (FRR) in the study. MNRE has asked stakeholders to send their feedback on the draft by 15 February 2018.