Softbank Too Bids at Rs 4.63/kWh for 350 MW Solar – An Analysis of the Magic Number 4.63

All right, so a few weeks back, we were all circumspect when Sun Edison bid at Rs 4.63/kWh for 350 MW solar power plant in Andhra Pradesh under the National Solar Mission.

How could this be? – we asked among ourselves. Perhaps Sun Edison is quoting an unsustainable price?, wondered many; while a humbler few said – perhaps Sun Edison knows something we don’t know?

A few wise eggheads had all along pointed out that many other bids for that allotment were not far from Sun Edison’s.

Now, all these are coming to a head once again – and this time it is SoftBank in the place of Sun Edison, the allotment is once again for 350 MW, once again for AP under National Solar Mission and the bid is once again, Rs 4.63/kWh -not a paise more, not a paise less.

Sounds Jeffrey Archer-ish?

What is so magical about Rs 4.63/kWh for solar? We analyse the 4.63 phenomenon in this post.

Firstly, what indeed does Rs 4.63 represent?

Rs 4.63 represents the tariff that Softbank will receive for every unit they generate and export to the grid.

Well then, this is not exactly the cost of solar power generation, but this rather is the lowest price at which Softbank feels it can sell the power and still make a decent profit.

So, what will be the cost of solar power for Softbank?

In order to answer this question, we will have to first figure out what could have been the inputs for Softbank for them to get a decent returns on a 4.63 tariff.

For this, we took our detailing financial calculations spreadsheet and did a reverse calculation.

The question we asked ourselves was:

With a tariff of Rs 4.63/kWh, what should be the inputs so that Softbank gets a decent IRR – 15% equity and 11% project IRR?

Well, the following is one such scenario under which they indeed can get such an IRR at Rs 4.63

  • Capital cost: Rs 5.3 crores/MW (excluding costs for approvals, interest cost during construction and working capital for 1st two months)
  • Interest: 8% tenure of 12 years with one year moratorium
  • CUF: 19%
  • O&M costs: 5 lacs/annum, 3% escalation
  • Grid uptime: 100% (this means offtaker takes all the power generated by the plant)
  • Panel degradation: 1% per annum for the entire project lifetime

Normal depreciation and taxes (no accelerated stuff). Take other numbers according to convention (insurance etc).

  • Plug in the above numbers in a well prepared financial spreadsheet, and what do you get?
  • Equity IRR: 14.7%
  • Project IRR: 10.8%

Sure, you might get slightly different results for the above inputs as no two financial guys will (as will no two economists) agree on everything, but yours should not be too different from ours.

With that settled, three questions arise.

Q ONE: Is the above the only input combination that can give these equity and project returns for a Rs 4.63/kWh tariff?

Q TWO: Is the above input combination feasible at all under the current circumstances?

Q THREE: What is the LCOE for such an input combination?


Q ONE: Is the above the only input combination that can give these equity and project returns for a Rs 4.63/kWh tariff?

Well, in theory, no.

Anyone who likes to play with spreadsheets can come up with, in theory, a number of other input combinations (mainly with varying capital costs, CUFs and interest rates) and come to the same equity and project IRRs.

But in practice, we feel what we have provided is one of the very few combinations that will make sense in the market.

You will not accept an interest rate of 4% or CUF of 24% for a non-tracker system, surely?

Now, while on trackers, we had assumed that the power plant operates without trackers. With trackers, for a similar combination, the capex could go up by about 25 lacs/MW, opex by 2 lacs/MW annum and CUF could be as high as 21%. Such a combo will again give a similar project & equity IRR, for other inputs such as interest rate remaining the same. (11.1% pIRR, 15.6 Equity IRR).

So, let us say what we have provided above are some of the few plausible scenarios with and without trackers.

Q TWO: Is the above input combination sustainable under the current circumstances?

Well, let us look at some of the thorny numbers presented above:

  1. Is 8% interest rate possible? If it is from Indian banks, forget it – it is a big NO. But it is a Yes, if it is international money – which almost certainly will be the case for Softbank
  2. Is 5.3 crores/MW (without trackers) possible? Yes, just about, if land costs are taken care of by the government. For one of the recent 2 MW projects we worked on, the total cost without trackers came to Rs 5.75 crores/ MW (excluding approval costs, interest during construction etc). In this case as well, we did not include land cost as the land was already owned by our client. Now, is it possible to get 5.75 down to 5.3 when the scale goes from 2 MW to 350 MW? It just could be, don’t you think so?

The rest of the inputs are fairly acceptable (19% CUF, 1% degradation, O&M costs…). One might debate the 100% grid availability assumption as being too naive, but at this scale, the contract could have involved the offtaker agreeing to such a clause.

So overall, the input combination is just about sustainable!

Q THREE: What is the LCOE for such an input combination?

Well, things get interesting here, because we are all interested in knowing what exactly the blooming solar power costs.

For this, we took the above inputs that gave an acceptable IRR and plugged these into our LCOE calculator.

And the result was: tick, tick, tick – Rs 4.1/kWh

So, with Rs 4.63/kWh being the tariff, for a reasonable return (and we expect the folks like Nikesh Arora at Softbank to be reasonable when it comes to financial returns), the LCOE of solar power at these kinds of scale is in the vicinity of Rs 4.1/kWh.

The LCOE number comes out almost identical for both projects with and without trackers, if we were to go with the above inputs.


  1. Just to emphasise once more, we have not considered accelerated depreciation, just simple, civilized, WDV based depreciation
  2. On trackers, we have considered single axis trackers, pretty much the only type of trackers used for solar power plants in south India
  3. While calculating IRRs, we have considered the preliminary expenses etc., as per the accepted norms
  4. We have considered an inverter replacement once every 10 years


Hope the above stuff was of help. You think there is anything inaccurate in my assumptions or inputs? Or think I have missed something? Oryou just have a simple suggestion for improving this post? I will be happy to hear your thoughts on the above – do drop in your comment below or send a note to . Thank you!

34 thoughts on “Softbank Too Bids at Rs 4.63/kWh for 350 MW Solar – An Analysis of the Magic Number 4.63

  1. Radhakrishnan Mundoli

    Narasimhan, A few comments.
    1. The annual degradation has a maximum number. over the life time of 20 years, the degradation will not go to 20%. Also 1% is the maximum degradation; it usually varies from 0.5% to 1%.
    2. If soft bank is a banking institution will they consider the investment as a loan to themselves. If one takes away the loan component (considering that soft bank is looking at the returns and not into the interest), the entire financials takes a different turn. The LCOE and IRR will all look very lucrative.

    Interested in having the results if one considers the above scenrio

    1. Narasimhan Santhanam Post author

      Dear Radhakrishnan

      Many thanks for your insights

      Indeed very interesting.

      On the degradation, I agree with you. I have been a bit more conservative, I agree, 0.5% is more like it aftre the first two years.

      On Softbank lending to themselves, that is also pretty much a possibility but I doubt it will make much difference to the overall interest rate because the real spoiler is the exchange rate risk here, which could be as high as 6-7% (assuming one takes cover for that). Now, one might argue that the Re cannot depreciate much more against the dollar, but who knows.

      So, if I don’t do much to the interest rates but decrease the degradation to 0.5%, the LCOE comes almost to Rs 4/kWh, not significantly different from Rs 4.1/kWh which I have stated above.

      Thanks once again for your comment and contribution


    DEAR SIR ,
    L.JAYA RAJU, 095055 77753

    1. Narasimhan Santhanam Post author

      Dear Rajesh

      Yes, solar has reached grid parity for some sections of the Indian power consumers.

      I can safely say that solar would have reached grid parity for pretty much all industrial and commercial sectors in India by 2020. By then, it would have reached grid parity for a substantial portion of the household/residential sector as well

      We live in interesting times

  3. Mohan Patil

    We are in solar field
    What about connectivity charges with all components of switchyard are included or not Rs5.3Cr/Mw
    As per our information same are to be excluded then above costing holds good..
    Please let us know which bank gives loan @8%.
    We have requirement for 25MW total Projects
    Please clarify us.
    Mohan Patil

  4. Sharath Rao

    Dear Mr. Santhanam,

    First of all a great post and explanation! But, I have a difference of opinion on the assumptions engaged:
    1. I believe one cannot exclude the cost of land. I did check with officials from KREDL (Karnataka), the developer has to pay Government of Karnataka (GoK) towards the land procurement. In case of Karnataka, the current rate is Rs. 20,000/acre/year. This is the rate at which GoK is leasing the land from farmers in Pavgada taluk (Tumkur) for a period of 30 years. [I have heard these are the numbers but I haven’t personally seen a document quoting these numbers]. I did confirm from the official that this policy holds good for solar parks in other states too.
    2. If the cost of land and cost of approvals and IDC are included then that could work out to approx. 2-2.5% of total capital cost, if not more.
    3. The NTPC park is located in Kurnool, whereas in NSM a plant located in the neighboring district of Anantpur had a CUF of approx. 21.7% [I am not sure, but, I believe this was without tracker]. So I think a higher CUF could be considered in this case.

    What would happen to the project IRR if the above factors are considered. I believe project IRR could go a tad higher or??

    I second the idea of Mr. Radhakrishnan though in a different manner. I would be happy if you could consider the following scenario:
    1. Softbank will look at the entire investment as ‘debt’ and hence rate of interest on Yen debt with hedge could be far lower than 8% (Yen 10 year bonds yield the lowest interest rate compared to US or German Bund). Hence, the project IRR would be significantly higher than 11%.

    Lastly, I would like to understand how LCOE of both, with tracker and without tracker, yield similar results. Is it that incremental capital and operational costs of tracker negate the higher CUF?? If the trackers aren’t yielding a higher LCOE than why should I have them as it being a mechanical/electrical component is exposed to wear and tear as well as maintenance – an avoidable headache. Am I missing something here?

  5. Ujjwal Surana

    Soft Bank would compare this project as bench marked against other investment (or say loan) opportunities across all sectors.
    Other bidders (IPPs) would compare this project with just another solar/renewable project in another state/ another technology/ another capacity.
    Would this answer 4.63?

    1. Narasimhan Santhanam Post author


      Interesting perspective indded.

      It might or might not be the case though.

      Sure, a number of IPPs might consider it the way you put it – compare it to bids in other states – but it is not just IPPs who are bidding for solar today, it is pretty much everyone and his cousin’s daughter who has money with them.

      But, if you take only large and serious players, they are mostly the IPPs and in this case your context setting is perfect indeed

      Thanks once again for your comment


    Sun Edison had earlier quoted 4.63/kWh in similar project but now trying to leave India or sale it.Now Softbank. No reality to start production. It may be a set back to the Nation and to tarnish the image in global eyes.

    1. Narasimhan Santhanam Post author

      Dear Chauhan

      What you mentioned here is what quite a few perceive as well; but, as I have analysed above, 4.63 is feasible and does provide a decent return under some circumstances, which could be valid for both Sun Edison and Softbank.

      Just to let you know, prices far less than the equivalent of Rs4.63 /kWh have been quoted elsewhere in the world during 2015 – see , though of course, the circumstances and incentive structures for some of these could have been quite different from those in India.

  7. Ajay Agrawal

    Sir….we are in real estate business at Mathura U.P., we are interested in MW solar power plant for our residential project having 2500 units. Unutilized power may be sold to state electricity board. We need some basic information’s regarding financials. Anybody…please guide us……thanks!!!

  8. Rajesh Narayanan

    I would urge Mr Santhanam, thru his good offices, to collate & publish information of the fate of projects which quoted below Rs 7.00 and their financials.

    1. Narasimhan Santhanam Post author

      Dear Rajesh

      Many thanks for your comment.

      I wish my good offices extend to those who are in power. Alas, they do not.

      However, from what I have heard from sources close to the corridors of power, I believe while many of those who won the Telangana ppA last year are just about getting financial closure now. I am not sure what % of projects are still unfinanced in this, but I would not be surprised if it is still substantial.

      For the same state – Telangana – I also hear that the state may scrap the allotments that were made earlier this year (for 2000 MW?). I say this based on what some of the smaller winners told me – as of my writing here, nothing really seem to be happening on this

      The less said about Tamil Nadu, the better. This is the least transparent state when it comes to solar – no one really knows how the government is dishing out the solar allotments and at what rate. Some minister suddenly announces the state will meet 2000 MW of solar soon. Well, they might too, if they have sudden block deals of the kind they had with Adani recently (638 MW). But overall, this state leaves a lot to be desired when it comes to transparency.

      The best state with something solid going on, seems to be Karnataka, in which a significant % of those who won allotments seem to getting financial closure and proceeding to the next stage.

      You perhaps know all the stuff I have said above!

  9. S Padmanabhan

    1) Period of loan makes a lot of difference. International Finance Corporation (IFCW) offers 17 year loans. International banks also do this. Indian nationalised banks have difficulty in doing this- loan maturity has to be in line with deposits and Indian banks do not accept long dated deposits.Term loans in India are around 9-10 years.

    2) Softbank can borrow in yen at almost 0 % rates.Even of they convert Yen to $ for modules, the rates are cheaper than 8%. The weakness of Rupee -almost at Rs 66-67 per $ is helping them.If it becomes strong, the forward cover rates will go up- that could cause problems.But currently, convert your project at Rs 67 and repatriate at Rs 65 or less – if economy does well- gives them a big advantage. But then in the long run, no one has made money in currency management- it looks ok in short term.

    3) Payment delays, backing down peak power etc will hurt the economics.Perhaps SoftBank will have to experience and face difficulties- but todya- everything looks hanky dory.

    4) For a Japanese investor- 14-15% IRR on equity is huge – they do not get more than 8-10% in Yen terms.So far the returns are not indexed and they run the exchange risk.Yet- their returns would be more than 10% in Yen terms.

    5) Sun Edison 4.63- is stupid given the condition of their company.They are perhaps liquidating their modules stocks/orders so that they can do more turnover.They perhaps think, volumes will turn them around than profits. This is not correct. They have already put all their assets on block for sale. Who will give any premium for projects at 4.63?

    1. Narasimhan Santhanam Post author

      Dear Padmanabhan

      Good to say Hi to you after quite a while (I am assuming that you are the Paddy I know going by the extent of finance knowledge you have shown in your comments)

      Thanks for your comments – I agree with some and not exactly with others, and here they are:

      Agree – completely agree on 2, 3 & 4.

      Not exactly –

      1. Indian banks are OK with giving loans up to 15 years now, at least 12 years (+1 year moratorium) for sure, as we are just concluding one for our client with Andhra Bank.

      2. Sun Edison’s rate might not be stupid really, because they may be able to get similar deals on all almost all aspects. Now, if you include the possibility that they could liquidating unsold inventory, why would that be stupid?

      Look fwd to your thoughts, and thanks again for dropping in

  10. Manoj M

    I read that there are other countries where the tariffs bid have been even lower than 5 US cents/kWh, that would be less than Rs 4/kWh…how are the companies able to afford bidding such low tariffs in other countries?

    1. Narasimhan Santhanam Post author


      Thanks for your comment

      Yes, there have been successful solar bids far lower than even Rs 4/kWh

      The lowest was 3.87 c/kWh , which is only about Rs 2.5/kWh! see here for a detailed list of low bids worldwide in 2015 –

      However, most of these low bids could have included significant incentives from the government. As I had indicated in this post and in another ( ) for even a low cost country like India, something like 4.63 Rs/kWh appears like the lowest possible price without external incentives and support mechanisms

      Hope I was able to answer your question

  11. Madoo Mistry

    I tend to agree with Mr padmanabhan on one of the points – I think Sun Edison has a nice reason for low tariff as they can use their unsold inventory…

    but then from what I hear Sun Edison is not using its own (MEMC) cells or modules for its Indian power plants.

    Also, such a theory (unsold will not hold for Softbank which is run by hardnosed finance folks from what I read

    Maybe 4.63 is just about possible?

  12. Bartha Basu

    I think we will soon see the likes of Goldman Sachs also getting into the Indian solar act, as these FIs will have enough access to really cheap finance that is getting little returns elsewhere..

    Soon, the Indian solar sector will look more and more like the Indian Financial Sector.

    1. Narasimhan Santhanam Post author

      Yes Sharma, Azure’s bid is 10% higher indeed, but kindly note this allotment is under the domestic content requirement section, so Azure needs to get modules (and cells) that were made in India.

      This alone will for sure escalate the total cost of the project by 6-7%

  13. Kriti Saldanha

    I am not sure if 4.63 is the right price. Maybe it will increase in the future if these companies find they had bidded too low tariffs

  14. YehDilMaangeMore

    Can some one ask Sun Edison and Softbank to reveal how they arrive at this price and how much profits they will make???

    1. Narasimhan Santhanam Post author

      If only wishes were horses!

      Who knows, perhaps they will reveal it…but I am hoping what I have done in the post above has done some extent of unravelling.


  15. SP

    Hello Sir,

    There is less information available about Solar Park, What are the role and responsibility of Solar parks .

    I found one document and if you go to last page it says “Annual O&M charges shall be @5% of development charges for the first year and thereafter will escalate cumulatively @10% per annum.”

    does it mean Solar Park will take care of your plant and Solar developer just be at home 🙂 .. But it would be great if you can provide the “Role and Responsibility of Solar Park and why there are indeed exist ” understood they provide the good GSS and transmission facility so energy loss can be minimzed but overall how this concept works ?

    One Time:
    o Non-refundable processing fee of Rs. 10 lakhs per project plus service tax &
    other charges (as per the Rajasthan Solar policy)
    o Land will be allotted to the developer on prevailing DLC rate at the time of
    executing of lease deed agreement, which is Rs. 32,873 per Bigha (Rs. 2,03,057
    per Hectare )at present.
    o Development Charges of Rs. 10 lakhs per hectare for the year 2015-16
    o Thereafter it shall escalate cumulatively @10% per annum
    o Metering System Cost at 220 kV side will be charged on actual basis.
    o Connectivity charges @ 2 Lakh/ MW (as per RERC)
    o Lease rent will be charged @5% of DLC rate for first 2 years and thereafter it
    will escalate for every year @5% per annum
    o Annual O&M charges shall be @5% of development charges for the first year
    and thereafter will escalate cumulatively @10% per annum.
    o Rs. 1 Lakh per MW every year for the entire life cycle of the project from the
    time of commissioning for the Rajasthan Renewable Energy Development Fund
    o Water charges will be payable on actual consumption basis @ Rs 16.5/kL (at
    present current rate)
    The charges above are payable with applicable taxes, wherever relevant

  16. Srinivasan

    Dear Mr. Santhanam,

    It is a nice article. I have a few questions.
    1. Have you considered Banking and Wheeling Charges in the recurring cost?
    2. What about cross subsidy and REC?
    3. What happens to the small time developers?

  17. Ankit

    Sir here is mentioned that for 1 MW it coat you 5.3 Cr/MW. But recently I have completed a project in 4.4 Cr/MW.

    They are working for 350MW I.e.they will complete there project within 4 cR/mw.( excluding land and approvels)

  18. Tejas Shinde

    Hello sir,
    Is there a viability gap funding provided by central government ? I read it somewhere that there is a 1 Cr per MW VGF available from MNRE ? Does this also bring in the viability in your model?

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