According to reports, riding on the crash in photo voltaic (PV) panel prices, the solar power sector in India had a dream run last year with capacity ballooning to 940MW in 2011-12 from a paltry 20MW in 2010-11. That’s just statistics. What’s significant and not borne out by these statistics is the fact that the cost of power from solar is now on a par with the cost of power from new coal-based plants.
In industry parlance, it’s referred to as grid parity, considered the holy grail of solar power. Grid-parity is the point where the cost of electricity generated from sunshine becomes competitive with that of power produced from coal, gas, wind and hydro-based plants.
Going forward, the appetite of the private sector can only increase with the government setting a target of adding 20,000MW capacity by 2020 under the Jawaharlal Nehru National Solar Mission (JNNSM). The flow of private investments into the country’s solar sector has already seen a seven-fold jump to $4.2 billion in 2011, according to a latest report by Pew Charitable Trust.
“If we compare the cost of power from new coal-based plants, it will be at par with that of solar. If one takes into account the total duration of the power purchasing agreement, which is 25 years, grid-parity is already there. Solar power needs only a one-time investment in the form of land and PV panels. Its fuel, which is sunshine, is free unlike coal where price will head only northwards,” said Gaurav Sood, managing director, Solairedirect, a solar power producer. Solairedirect was the lowest bidder at Rs 7.49 per unit for a 5MW plant auctioned under JNNSM in December, 2011. The average tariff bid for 350MW under the mission was Rs 8.8 per unit.
Three years ago, the cost of generating a unit of solar energy was around Rs 18. In fact, solar has already taken over diesel as a cheaper form of energy and a lot of telecom towers are now being run on solar power.
In recent years, there has been a sharp decline in capital costs for solar PV plants. PV module prices have fallen a sharp 80% in the last five years and 30% during last year alone. A Crisil report released a few weeks ago said, “Capital costs fell by 30% from a year ago to Rs 10 crore per MW (megawatt) by the end of 2011. The fall was driven by 50% drop in prices of solar PV modules, which account for almost half the capital costs of a PV project. The sharp fall in capital costs has improved the returns from the projects that were commissioned in FY12.”
Heavy subsidies by China to its domestic manufacturers have been a major factor in driving down module prices. The recent reduction of subsidy to the sector by Germany, the largest solar power generator in the world, has also pushed down prices further.
While the solar power generators are basking in the sunshine with optimism, the module makers are fighting to stay afloat. The nascent solar equipment industry in India is facing the heat and looking for ways to survive the Chinese subsidy onslaught that has already consumed many leading global manufacturers such as Solyndra (US), Q Cells and Solar Millennium (both in Germany) which have filed for bankruptcy.
Funding to the sector has also seen an uptick, even though banks are still cagey about rock-bottom tariffs and higher debt levels. “We are keen to assist solar projects as they are pollution free. But we would prefer a lower debt-equity ratio in the range of 60:40,” said B K Batra, executive director, IDBI Bank. The bank has funded half a dozen projects in the past. Given its green energy status, it’s also not surprising that agencies such as US EXIM bank, ADB and IFC have also been active in the space.