Competition cuts solar power cost

Written by Rajiv Tikoo | New Delhi | Updated: Sep 28 2011, 06:52am hrs
Solar electricity has finally joined the national power grid in India. Whats 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.

The ministry has set up a R486-crore payment security scheme as a buffer mechanism for solar power producers. Payments from the fund will be made if state electricity boards default on their dues. The producers will not run into a cash crunch, leaving it to the ministry to negotiate with the state electricity boards for pending payments.

The process for rolling out the second batch of Phase I was started soon after 36 of 37 projects from the first batch of Phase I developers achieved financial closure for installing 615 MW capacity, including 30 solar PV projects of 150 MW.

The winners were selected from over 400 applicants on the basis of reverse bidding. In January 2011, project developers had entered into power purchase agreements with NTPC Vidyut Vyapar Nigam, the designated nodal agency for procuring solar power under Jawaharlal Nehru National Solar Mission (JNNSM).

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 doesnt mean that all the projects are viable, its a big step forward. There is need to create a more enabling environment for project financing. Its 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.

The JNNSM targets installation of grid-connected solar capacity of 20 GW by 2022. To be implemented in three phases, the mission begins with setting up 1 GW, divided equally between PV and solar thermal, between 2010 and 2012-13. The second phase will be from 2013 to 2017 and the third phase from 2017 to 2022.

Jagat S Jawa, director-general, Solar Energy Society of India, adds, The outlook is promising. We are in a position to leapfrog now. The successful deployment of ongoing projects will catalyse the growth in the industry.

Sentiments of these leaders on the back of recent policy developments are supported by global market research reports, which have concluded that India is emerging as the new Germany on the global solar energy map. Underlining Indias potential at a time when Germany, which represents half of the global market for solar components, is cutting down solar subsidies through 2012 and industry players look for alternative growth markets, a new study says, India stands out as a top target. The study aptly titled Global Subsidy Roundup: Solar Beyond Germany by global advisory firm Lux Research, which works on emerging technologies, adds, India combines a heavily-funded subsidy scheme with a grid in great need of distributed generation and huge projected electricity consumption.

Its not a one-off study. According to another Lux report, India is amongst major drivers like Japan, China and India in addition to the US in the global solar market for grid-connected systems, which is projected to more than double from 2010 to 37.5 GW by 2016. The inferences are based on research across 156 locations, according to Market Size Update 201: Putting the Rest of the World on the Map of Global Solar Demand.

The momentum is expected to pick up as Concentrated Solar Power (CSP), which holds large scale promise, starts showing results. According to a newly launched report by MarketsandMarkets, a global market research and consulting company, the global solar market is expected to be fuelled more by CSP technologies (CAGR of 44.9%) than PV (CAGR of 29.9%) as the former takes root in new markets like China, India, Brazil, Canada, Germany and France.

In the report titled Solar Power Market by PV, CSP Technologies by Installations, Price, Cost, Trade Trends & Global Forecasts (2011 2016), the authors project the global solar market to be worth $75.2 billion by 2016. Since the overall market is getting bigger by the day, its a win-win situation for both PV and CSP players.