In The Last Seven Years, Solar Power Has Become 73% Cheaper In India

India¡¯s solar sector recently reached record low tariff levels in the auction conducted at the Rewa Solar Park in the state of Madhya Pradesh. India was one of the first countries to adopt reverse auctions for solar projects since the inception of its national solar policy and the government¡¯s goal has always been to procure solar power at the lowest price possible, according to Mercom Capital Group.

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According to the report, recent record low bid of Rs.3.30 (~$0.494)/kWh (levelized over 25 years) at the Rewa Solar Park by ACME was lower by Rs.1.05 (~$0.02) and 24 percent compared to the previous low of Rs.4.35 (~$0.07) quoted in Rajasthan (by Fortum) in July 2016.

"When the first 150 MW of solar was tendered under the National Solar Mission (NSM) Batch-I in 2010, the average tariff quoted was Rs.12.16 (~$0.17)/kWh. Average tariffs have fallen by about 73 percent since 2010, almost in line with Chinese spot module prices, which have fallen by approximately 80 percent since 2010," mentioned the report.

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Mercom Capital group said when the entire global solar market was about 17 GW in 2010; Indian solar installations at that point were only about 18 MW. When NSM was initially rolled out, neither the government agencies nor developers had much experience installing solar power projects, nor was there a supply chain in existence. With subsequent auctions, intense competition to get into a new sector resulted in aggressive bidding leading to continued drops in tariffs.

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"Intense competition in reverse auctions due to a limited supply of projects has pushed companies to bid lower and lower, sacrificing margins, in order to gain market share," said the report.

Other factors leading to fall included, highly competitive reverse auctions, falling module and component prices, the introduction of solar parks, lower borrowing costs, and the entry of large power conglomerates with strong balance sheets and access to cheaper capital have all contributed to the dramatic fall in bids.

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Additionally, an increase in lending by Indian Renewable Energy Development Agency (IREDA), the World Bank, the Asian Development Bank and other development banks have provided developers with cheaper loans which has enabled developers to bid at much lower prices, stated an official at Ministry of New and Renewable Energy (MNRE). In the last two years, average domestic borrowing rates have declined by approximately 14 percent for solar projects.

Looking Ahead

The central government just doubled solar park capacity to 40 GW, which is expected to help bring down costs as long as the parks are built and operated efficiently. The MNRE has also released new guidelines for auctions which brings in some of the lessons learned from REWA park. The additional 20 GW, when tendered, will change the face of the Indian solar sector and make it cheaper than thermal in some cases. At least that¡¯s the expectation stated by an MNR official.

The government is also developing a green energy transmission corridor. Although the progress has been slow, the grid is getting ready to take on large renewable energy capacities. In addition, solar park capacities have doubled. You add these to falling module prices and the MNRE guidelines for solar tenders and we have the perfect environment for a solar boom in India, stated a project developer.

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¡°The Rewa auction was unique and is not a direct comparison to previous auctions or low bids. After many years of experimentation, the government is finally realizing that eliminating risks leads to lower bids, which results in lower tariff pay outs, saving possibly billions in the future. It took them seven years, but they are learning,¡± commented Raj Prabhu, CEO and Co-Founder of Mercom Capital Group. The government is extremely pleased with these record low bids; the question is - can developers and investors make attractive returns at these levels? There is no margin for error.