The unintended consequences of low solar tariffs
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New Delhi: India’s race to the bottom for solar power prices has resulted in some unintended consequences. These range from some electricity distribution companies (discoms) wavering on signing power purchase agreements for projects awarded at higher tariffs to postponement of some tenders, according to consulting firm Bridge to India.
The latest milestone was the new record low tariff of Rs3.15 per kilowatt hour (kWh) quoted by France’s Solairedirect SA at the auction of a project in Andhra Pradesh on 12 April. This is expected to fall further during bidding for 750 megawatts of solar power projects in Bhadla, Rajasthan.
“Solar tariffs in the sub-INR 3.50/ kWh (US¢ 5.4) range should provide huge demand boost for solar power in the long run but ironically, lower tariffs have led to unique challenges in the short-term. Central and state governments are reconsidering their procurement policies leading to postponement of some tenders. Meanwhile, some DISCOMs, having completed auctions with higher tariffs (notably Jharkhand and Odisha), are now having second thoughts on signing PPA’s,” Bridge to India wrote in a 24 April note.
The solar space has already seen a significant decline in tariffs from Rs10.95-12.76 per kilowatt-hour (kWh) in 2010-11. Solar power tariffs have declined sharply because of plunging prices of solar modules. Modules account for nearly 60% of a solar power project’s total cost and their prices fell by about 26% in 2016 alone.
Bridge to India had earlier termed the recent low winning bids for solar power projects in India “unsustainable” and warned that “inadequate risk pricing poses a severe viability challenge for the sector”, Mint reported.
India’s solar power generation capacity has more than tripled to 10,000MW from 2,650MW as of 26 May 2014.
The National Democratic Alliance government’s push for a green economy has led to a renewable energy capacity addition of 14.30 giga watts (GW) which is connected to the national electricity grid. This includes 5.8 GW of solar power.
“We believe that this short-term lull will lead to fierce competition for new tenders and a slight reduction in new solar capacity addition in 2018 before activity picks up again,” the previous Bridge to India report added.