Solar power tariffs have hit a new low. US-headquartered SunEdison’s winning bid of ₹4.63 a kWh for a 500 MW project in Andhra Pradesh, has evoked comparisons with the e-commerce industry, where critics have mockingly dubbed the business model as ‘scale-up and trust to luck’. It has also deepened the cleft between the believers and cynics, with the former pointing out that as long as two years back, global renewable energy consultancy GTM Research had predicted solar module prices to fall to 36 cents a Watt by 2017, roughly half of the then prevalent prices. Also, the fact that nine of the 28 bidders had quoted tariffs below ₹5 should question charges of irrational exuberance. Creditworthiness of the power buyer — the power will be bought by the state-owned NTPC for the next 25 years — has also been cited as a cost-dipping factor. Recent headwinds faced by SunEdison, the world’s largest renewable energy company — it called off a previously announced bid to acquire Continuum’s wind energy assets, and has reportedly put some of its operational solar assets in India on the block — have cast a shadow on the future of the Andhra Pradesh project. However, SunEdison has said the sell-offs will release cash for new projects.
The key question is whether the rock bottom prices quoted by SunEdison and others are a one-off, or part of a larger downward trend. Past trends cannot be used as a guide, as solar tariffs have been declining far faster than any chart-based prediction. When the Indian solar story began in 2010, tariffs were around ₹18 per kWh. Now, against the new benchmark of SunEdison’s bid, solar has reached parity with conventional power even without having to wait for conventional power costs to rise to meet solar’s downward glidepath. A confluence of factors such as technology, scale, finance and growing maturity of the industry, have helped drive costs down. It also helps that the world of finance is frowning upon coal and oil, owing to climate change fears. In fact, a recent study by KPMG estimates tariffs to fall to ₹4.20 in 2020 and further to ₹3.59 per kWh by 2025, given the scale effect offered by the Indian government’s massive solar programme of 100,000 MW by 2022. By 2020, KPMG estimates solar power prices to be 10 per cent lower than coal power.
However, long-term sustainability of renewable power is critically dependent not on the tariff charged by power producers, but that paid by consumers. Financial revival of bust state power distribution utilities, as well as tariff and subsidy reforms are essential for the long-term survival of the power sector, regardless of whether the energy source is renewable or fossil fuel-based. Massive investment is also required in transmission infrastructure to wheel power from production to consumption centres. If the government bites the reforms bullet in power, India can well become a global powerhouse in renewable energy.