Solar Energy Prices Moving towards Grid Parity
Indian renewable energy policy makers appear to have learned a lesson from the EU: they are forcing solar power producers to compete in auctions rather than luring investors with subsidies which can hurt the economy. This is the message that came across loudly in the latest national auction (National Solar Mission’s Phase-1 Batch-2) of December 2011. The lowest bidder (Solairedirect SA, France) offered photovoltaic electricity at the rate of Rs 7,490 ($147) per megawatt-hour. According to the analysis of Bloomberg New Energy Finance, this is globally the third lowest bid after $120 for a megawatt-hour in Peru and $110 in China and also 30 percent below the global average price for solar power. This study also points out that, in terms of levelized cost, globally project developers ask for around $208 per megawatt-hour for a solar plant, $78 for a wind, and $76 for a coal plant.
The average bid price in the Batch-2 auction was Rs 8,780, which is 30 percent lower than the average of Batch-1 auction of December 2010. Therefore, even the solar prices (most expensive amongst the renewables) are fast inching towards the conventional coal based power; though still off by about 35 percent. Industry experts feel that solar power will achieve cost parity with fossil-fuel based power in next 3 – 5 years; the Indian government is a bit extra cautious and expects parity by 2019.
The reason for this happy scenario for solar energy is the falling prices of solar panels due to rapid capacity additions by the Chinese manufacturers. The price competition taking place worldwide is reflected in these latest bids. Recently, solar and Wind power developers in some Latin American countries like Brazil, Uraguay, and Peru have won contracts close to the rates of fossil fuel-based electricity.
As per current scenario, solar power is already on par with power produced from imported LNG at a production cost of Rs. 8-10 / unit.
Rising Interest in Solar Electricity
It cannot be denied that a large part of India’s solar success is due to State incentives under the National Solar Mission (NSM), which seeks to install 20GW of solar power by 2022 in the country. The Jawaharlal Nehru National Solar Mission (JNNSM) was announced in 2009. JNNSM aims to promote the development of solar energy for grid connected and off-grid power generation. The ultimate objective is to make solar power competitive with fossil based applications by 2020-2022.
Roadmap Proposed by the Jawaharlal Nehru National Solar Mission
|Application Segment||Target for Phase 1 (2010-13)||Target for Phase 2 (2013-17)||Target for phase 3 (2017-22)|
|Solar Collectors||7 million sq. meters||15 million sq. meters||20 million sq. meters|
|Off-grid solar application||200 MW||1,000 MW||2,000 MW|
|Utility grid power including roof top||1,000-2000 MW||4,000-10,000 MW||20,000 MW|
In addition to the federal program, states such as Gujarat, Karnataka, Tamil Nadu and Maharashtra have also emerged as front-runners in promoting RE by offering fiscal and tariff incentives to both domestic and overseas promoters.
Response to NSM’s Phase-1 auctions has been quite heartening: In the Batch-1 auction of December 2010, there were bids for 1,700 MW against the allocated 150 MW; in the Batch-2 bidding of December 2011, about 200 companies offered over 2,500 MW against invitation of 350 MW.
This is despite a 2010 World Bank study ‘Report On Barriers For Solar Power Development In India’ that interviewed solar developer: “Around 63% of the developers stated that barriers in policy and regulatory aspects were the most significant barriers. Around 53% of the developers stated that along with policy barriers, the infrastructure barriers are critical too.”
Nonetheless, overseas solar developers still have faith in the Indian solar market. Given the solar growth potential, global solar operators cannot afford to ignore India. International player do see good prospects in investing in India’s RE sector that largely comprises wind and solar. Recent reports by PwC and KPMG consultancies have highlighted that India is the third preferred nation after USA and China for global renewable energy investment. Major global solar suppliers have already entered or have plans to enter soon. Given the rate and quantum of tie-ups, experts feel that the solar capacity which was mere 50 MW in 2010 is set to rise to almost 10GW in next five years.
In the End…
Let us hope that all these developments will bring “light” in the homes of over 400 million Indians living in the rural and backward areas uncovered by the national power supply grid, as pointed out by a 2011 study of International Energy Agency. It will be unjust if the fruits of all these “developments” again remain limited to only about 300 million urban Indians, including the corporate sector, whose interests are primarily at the core of the so called “economic liberalization” of the country.
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