If we consider a middle class household, with a house on a plot of land 40X50 feet and assume that 20% of the plot area is covered by solar panels on rooftop or on ground, then using today?s technology, we can generate almost 300 units of electricity per month which is more than its average monthly consumption! Yes, if this gets adopted on a wider scale, solar power can truly transform our energy landscape.
Until recently, the cost of installing solar panels was very high putting it beyond the reach of most middle class and even the upper income class households. However, in the past three years prices have fallen substantially from over $3/W to less than $1/W. For an average upper income household consuming say 300 units of power every month, an installation of 3kW costing between R4 lakh to R5 lakh today (without battery storage) would be able to meet their average power needs. That might still sound expensive but if this is accompanied by innovative consumer financing, the costs can be spread out over much longer periods. For example, an EMI of R10,000 per month for 5 years would be adequate to cover this installation cost.
As the supply chain develops, costs of making panels and installing them will get cheaper thereby bringing them more and more within reach of a middle class household. Further, conventional power prices are on their way up. In recent months, many state electricity utilities have raised tariffs by 15-20%. Upper income residential consumers pay in excess of R7/unit in many states and commercial consumers pay in excess of R10/kwh. If one takes the impact of future tariff increases into account then the average lifetime cost, called the levelised cost, of grid power will be in the range of R10-13/kWh for these consumers. That is exactly where solar power cost lies today (and even lower!). So, we have reached parity in many ways. To spread the use of solar power at a consumer level, we need to do the following:
* Develop innovative consumer financing models that spread the one-time cost of solar installations over a longer period.
* There may be a ?viability gap? when viewed with current costs of grid power as opposed to lifetime costs. The government should give appropriate incentives to bridge this gap. This can be in the form of renewable energy certificates which can be monetised through trading or through other forms of direct subsidies such as generation linked incentives. The idea is that such incentives for a limited period of time will give industry the push that it needs to develop the eco-system and bring down the costs.
To put the potential in perspective, Germany which is a temperate zone country with much lower sunshine than in India, has solar installations in excess of 25,000 MW in a grid where peak demand levels reach about 60,000 MW. While it is true that each MW of solar power generates fewer units of electricity than conventional power (a factor of one-fourth) on an annual basis, this statistic illustrates that large scale deployment is possible. In India, solar panels can generate 50% more electricity for the same installation as compared to Germany due to higher sunshine levels.
India launched its solar programme called the National Solar Mission (NSM) in 2009. Besides, Gujarat launched its own programme at the state level. About 140 MW of capacity have come up under the NSM and 600 MW under the Gujarat solar programme. Under the NSM, price of solar power was determined through an auctioning process. As against the regulator determined benchmark of R15.39/kWh, the discovered prices were in the range of R7.49/kWh to R9.44/kWh with an average price of R8.79/kWh. This downward trend in prices has emerged due to various factors but most notably due to China emerging as a major low cost manufacturing centre for panels, driven by large manufacturing scale, government incentives and integrated manufacturing.
While the solar power generation space is looking very interesting and holds promise for the future, the solar manufacturing sector is undergoing significant pains today. Facing the onslaught of global competition and resultant price crashes, the Indian manufacturing sector is losing money. Many of the companies may not be able to sustain; those that do will have to reinvent their business models to relook at their cost structures, market segments and delivery strategies.
The solar sector holds great promise for India. Given that our power needs will more than double in the next decade and we are facing struggles as a nation in producing fossil fuels, the timing is right to give a strong focus to this sector.
Solar technology could do to the energy sector what cellular technology did to the telecom sector. A piece of square land in Rajasthan with each side of 55 km length can generate enough solar power to equal India?s entire annual power generation! We need to think differently and make this potential happen!
The writer is partner, management consulting, KPMG in India