The current tariffs in the Indian solar sector, hovering at Rs 2.50-2.87 per kWh, have stabilised at rates 20 to 30 per cent below the cost of existing thermal power in India, and up to half the price of new coal-fired power, a new study said on Friday.

It concludes that the lucrative prices provide enormous opportunities to invest in clean, zero emissions solar industry.

The study undertaken by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics compared domestic tariffs and the conditions enabling project returns, with the results juxtaposed against solar developer expectations.

Their findings are published in the report -- Developers and Global Investors Snap Up India's Solar Power Tenders - Decoding Tariffs vs. Returns for Solar Projects in India.

Co-author Vibhuti Garg, IEEFA energy economist, told IANS that their modelling found that as per the current market conditions, tariffs below Rs 2.50/kWh are financially not viable in the Indian solar sector.

"Developers have already reduced their return expectations from 14 to 12 per cent, with tariffs being achieved as low as Rs 2.5/kWh," said Garg.

"While this rate is very competitive compared to thermal plant tariffs, and lucrative for power distribution companies entering long-term power purchase agreements, this is a floor for developers if they want to make money."

The authors found Solar Energy Corporation of India (SECI) and NTPC also played a key role in building international investor interest. Contractual certainty is in place with counter party and payment risk assurance from these Central government agencies.

Co-author Jyoti Gulia of the JMK Research said conditions in India are very different to other energy markets.

"We found a number of competing concerns in our analysis," said Gulia.

"Interest rates, module costs, and capacity utilisation factors in particular have a major impact on solar tariffs and project returns.

"The cost of financing is a big element in determining tariffs and returns. Significantly higher interest rates in India compared to other leading renewable energy countries are one of the reasons for higher domestic tariffs. The zero indexation for the 25 year period is also a key value for India that is not explicit in the year one tariff.

"The landed cost of imported modules at a time of currency devaluation is also adversely affecting tariffs, however this might be compensated with the falling module prices.

"Finally, capacity utilisation factors (CUF) differ across states in India, given significantly different solar resource qualities. Any drop in utilisation rates has a significant impact on project returns. As per our report findings, a three per cent drop in the CUF results in over seven per cent fall in equity returns."

Garg said developers must be mindful of all the parameters impacting tariffs when bidding.

"To earn reasonable returns on project investments, it is crucial for project developers to factor in the risks and rightfully estimate the costs of every component," said Garg.