Record low solar tariff in India puts thermal and wind power on notice

By Jasmeet Khurana, associate director, consulting, Bridge to India
Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn
Share on reddit
Reddit
Share on email
Email
Jasmeet Khurana, associate director, consulting, Bridge to India explains record breaking tariffs for 750MW in Madhya Pradesh. credit: Bridge to India

The Rewa 750MW solar tender in Madhya Pradesh, India, saw tariffs plunge to a record low of INR 2.97/kWh (US$0.044) after a lengthy online auction. Acme Solar, Mahindra Renewables and Solenergi Power won 250MW each. The tariff has an escalation of INR 0.05/kWh (US$0.0007) for 15 years, resulting in a levelized tariff of INR 3.29/kWh (US$0.049) for 25 years, 24% below the previous low of INR 4.34/kWh (US$0.065) as seen in NTPC’s Rajasthan tender in January 2016. But adjusted for lower cost of equipment and changes in other parameters, the fall is only about 2%.

The record low tariff can be attributed to large project size and improved risk profile for the Rewa projects with unconditional state government offtake guarantee and deemed generation compensation for grid unavailability.

We believe that reduction in solar tariffs below INR3 level will act as an inflection point for the solar sector and have long term consequences on India’s future power generation mix. India has a low per capita power consumption of 1,075kWh per year and still needs to build most of its power generation capacity to catch up with peer developing countries such as Brazil, Thailand and South Africa, which have 2-4x the per capita power consumption of India.

It is time to add the fourth dimension of storage in India’s power sector regulations

This auction makes solar PV a firm favourite for powering India’s future economic growth. States looking to procure power and IPPs will take notice and adapt their strategies accordingly. Successful bids for new thermal power plants in India in the past two years have been between INR 3.93-4.98/kWh (US$0.059-0.074). For wind power, most states are still offering FITs of about INR 4-6/kWh (US$0.06-0.09) although upcoming auctions may bring that to about INR 4/kWh (US$0.066). Gas power is simply not viable in India due to high cost (INR 5/kWh) and short supply of natural gas. This clearly makes solar power a key contender for future power capacity addition in the country.

The key arguments against a full scale up for solar PV are its intermittent nature, India’s evening peak power demand profile and the grid’s ability to balance a surge in renewables. Solution to these issues lies in cost effective energy storage and pricing for energy storage is moving in the right direction.

India has already taken the first small step for adopting energy storage. Recent tenders announced by Solar Energy Corporation of India (SECI) aim to use storage to smoothen the supply curve for solar power plants. The next step would be to use storage with solar projects to carry out peak shifting and match solar power’s generation profile with the country’s evening peak demand profile. Realistically, this may still take a few years to become cost competitive with thermal power but it looks like we are heading there. India’s power sector regulations are defined for generation, transmission and distribution and most regulations had to undergo changes over the past few years to accommodate utility-scale and distributed renewable generation. It is time to take out the editing pens again to add the fourth dimension of storage in India’s power sector regulations.

Read Next

PV Tech Premium
April 8, 2021
After a challenging year, India’s solar sector stands primed for something of a rebound. But a host of familiar issues, from the perilous state of DISCOMs to regulatory uncertainty, run the risk of stymying future growth. Vinay Rustagi, managing director at consultancy Bridge to India, talks to PV Tech about the future prospects for Indian solar.
April 8, 2021
Tata Power Solar has expanded its PV manufacturing facility in Bengaluru, India, taking the total production capacity of modules and cells to 1.1GW.
April 1, 2021
Norwegian independent power producer Scatec is looking to collaborate with project developers in India as part of efforts to gain a foothold in the country’s burgeoning solar sector.
March 30, 2021
Local authorities in New South Wales, Australia, have given French independent power producer Neoen the green light to develop a large scale solar-plus-storage production facility in the region despite receiving 50 complaints from members of the public.
PV Tech Premium
March 26, 2021
Solar developers have welcomed clarification on India’s new import duties for modules and cells that will come into effect next year, but questions have been raised about the ability of domestic manufacturers to ramp up production to meet rising demand.
March 23, 2021
Scatec has unveiled a NOK 100 billion (US$11.7 billion) plan that will see the company expand its renewables portfolio to 15GW over the next four years.

Subscribe to Newsletter

Upcoming Events

Solar Media Events
April 13, 2021
Solar Media Events
April 20, 2021
Upcoming Webinars
April 28, 2021
4:00 - 4:30 PM CET