Solar
energy in India is now cheaper than coal power. Here’s why
Wind power has still not met
as much success in India as abroad because of a lack of clarity on policy
issues.
Over the last few
decades many businesses have been affected by disruptive technologies which
have delivered the same products as theirs at much lower cost and in an easier
way. Be it telecommunication, computers, taxi operations, hospitality or
travel, all have faced the brunt of technological disruption.
The power sector is
also facing the impact of developments in solar and wind technology, both
globally as well as in India.
Wind power has still
not met as much success in India as abroad because of a lack of clarity on
policy issues and restrictions in adapting new technology. What has brought
India onto the world map is solar energy.
From a figure of 2,650
MW, capacity has increased to 10,000 MW in just over two years. This is
important as the increase has taken place when tariff rates had crashed over
the years. From a tariff rate of around Rs 12 per unit in 2010, solar power
touched a tariff of Rs 2.62 per unit in the recently auctioned Bhadla Solar
Park, Rajasthan.
It’s worth noting that
there were 27 bidders for Bhadla Solar Park and many bid near the lower price
range, thus highlighting the interest the sector is generating. The present
price is lower than India’s largest thermal power producer NTPC’s average coal-based power tariff of Rs 3.20 per unit.
There are many reasons
that the cost of solar power has come down in India and cheaper solar panels is
only one of them. Solar panel prices have fallen by 85 percent over the last
five years.
There have been more
structural issues that has led to the sharp drop in power tariff. Top of the
list is the decision of the government to provide security to bidders that the
solar power generated will be bought by the government and payment will be
ensured. This has been done by setting up the Solar Energy Corporation of India
(SECI) under the ambit of the Tripartite Agreement for payment security against
defaults by state distribution companies.
This single move has
transformed solar power from a power sector play to a financial one.
Investments are based on how much internal rate of return (IRR) the project can
generate. Many investment companies and banks are partnering with companies who
understand the solar sector to invest in India as the risk has been taken care
of by the government, making the project as good as a financial instrument with
visible cash flows.
A
double-digit IRR is good enough for most foreign players.
Apart from ensuring
purchase and payment, the government has also taken care of the next big issue,
land. Solar companies were finding land acquisition one of the biggest hurdles
in setting up solar power plants. The government has now allowed companies who
specialize in land acquisition, and state governments, to allocate land which
can be leased out to parties interested in setting up units.
Currency fluctuations
also play an important part as most of the panels are imported. In the case of
Bhadla Solar Park rupee appreciation helped bring down cost of power purchase
further.
Finally, it is the way
in which solar power farms are constructed that has helped in bringing about a
boom in solar power. Most players, rather than purchasing solar panels, enter
into a long-term lease with the supplier.
This way the buyer
does not have to shell out a huge amount while at the same time the seller is
ensured about payment as all payments are backed by requisite guarantees. Thus,
cost of funds plays an important part in arriving at a tariff. With low
interest rates globally, solar tariff can continue to remain low.
The next leg of disruption could come in from Tesla which has
launched its ‘solar roof’ at a lower-than-expected price. In India, roof top
solar power generation has not yet caught on, but given the way it has been
adopted world over, it is just a matter of time.
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