SOLAR REVOLUTION IN INDIA CONTINUES UNABATED
The solar revolution in India marches on, with renewed momentum, if the recently concluded reverse bidding auction for a 750 MW Solar Park in Madhya Pradesh is any indication.
While the rest of the world watched in disbelief, Mahindra Renewables Pvt. Ltd., Acme Solar Holdings Pvt. Ltd. and Sweden’s Solenergi Power Pvt. Ltd. successfully bid INR 2.979/kWh, Rs 2.97/kWh, and Rs 2.974/kWh to build 250MW plants each. These bids are the lowest in the history of solar tariffs in India. The previous lowest bid was INR 4.34/ kWh for a 70 MW unit in Rajasthan.
A variety of reasons led to this unprecedented crash in solar tariffs, from reduced cost of photovoltaic (PV) modules to risk mitigation for developers and intricate financial planning.
Chinese module manufacturers dropped module prices to less than INR 20 per watt (30 cents) because of oversupply in the market. Reports say that manufacturers are selling below cost. With major manufacturers already having preferential rates for the Indian market, it is unlikely that module prices will go up significantly in India even after the glut clears out.
Assuring developers of risk mitigation in terms of electricity off taking, by Rewa Ultra Mega Power Limited (a joint venture of Solar Energy Corporation of India Limited and Madhya Pradesh Urja Vikas Nigam Limited), also contributed to the drop. This risk mitigation aspect allows developers to access finance at lower costs and reduce their expectations on returns by a few percentage points as long as the project proves to be sustainable and financially viable.
The remarkably low tariffs discovered in this auction will have far-reaching implications for the country’s solar landscape. With both international and domestic investors looking at India as a serious place to set up solar businesses, the 100 GW target is no longer being brushed aside as over-ambitious and unrealistic. The result is that developers are competing and bidding aggressively, with lower margins, to get their foot in the door in states with high solar potential.
Grid parity of solar with conventional fossil fuel sources, such as coal, is no longer a distant dream and shatters most myths associated with the high cost of renewable. The model of price escalation aligns with increasing coal prices in the recent past. Large-scale solar is now in a strong position to compete with any other source of electricity in India, which is extremely encouraging for the National Democratic Alliance’s plans to promote solar both in India and in the International Solar Alliance proposed by Prime Minister Narendra Modi in 2015 and launched the same year at COP-22 in Paris.