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Competition cuts solar power cost

According to reports, Solar electricity has finally joined the national power grid in India. What’s more significant, it has entered the grid at a cost far less than expected, reducing the need for heavy government subsidies to make the sector viable.

The ministry of new and renewable energy recently opened bids to produce 350 MW of solar power that will be fed into the power lines. Of this, the first batch of 150 MW has already achieved financial closure. The bids —which came in as low as R10 a unit — surprised the ministry, which had expected quotes of R12 and above. The bids which were 17% below what the government expected, was a strong upside from the competitive bids.

A government official explaining the process said since the benchmark has been set, companies in the second round would offer to produce solar electricity at even below R10 per unit. To give the companies space to optimise economies, bids for project size have been increased to 20 MW from 5 MW allowed in the first phase. While this will attract bigger players from abroad, some elements like the crystalline photovoltaic installations are required to use cells and panels made in India, to promote domestic content.

K Subramanya, CEO, Tata BP Solar, says, “India is the place to be in. We have begun well and we need to be more ambitious in terms of targets and timelines. The hunger for energy is immense in our country. So is the opportunity.” To make solar electricity economically viable, the government has made it compulsory for power distributors to supply electricity by mixing the higher cost solar power (0.25% by 2013 and 3% by 2022) with thermal or hydel power. This raises the cost of the power supplied, but the assured evacuation ensures solar power is sold in the market.

Raj Prabhu, managing partner of Austin, Texas-based Mercom Capital Group, a market intelligence firm in clean energy technology, adds with a note of caution, “Though financial closure doesn’t mean that all the projects are viable, it’s a big step forward. There is need to create a more enabling environment for project financing. It’s imperative as we approach the next phase of the mission, which has a bigger target.”

Saying that the second phase of bidding endorses the successful beginning of the solar mission, Rajya Ghei, country head, Moser Baer Clean Energy Ltd adds: “India has made a bright beginning towards solarisation. It is now entering the exciting part of its solar journey with many large-scale solar PV farms scheduled to be commissioned during next 12-18 months.”

Global industry leaders agree. Charlie Gay, president of solar division at Applied Materials in Santa Clara, says, “The bidding offers further opportunities to our customers of solar panels and module manufacturers. The invite to bid is a boost for the entire ecosystem; it offers our existing and potential customers opportunities to expand their business, which subsequently helps scale our business in India.”

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