Economy

How solar power was made cheap

M Ramesh Chennai | Updated on January 27, 2018

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Solar tariffs have crashed to unprecedented levels of less than Rs 3 a kWhr in the auctions that are currently under way for 750 MW of solar projects in Rewa, Madhya Pradesh.

Solar power developers submitted an initial bid for three blocks of 250 MW each and the lowest bid – which happened to be Rs 3.64 – became the benchmark for further bidding process, which began on Thursday and continued through the night.

Whoever offers to sell electricity at the least price will bag the mandate to put up a project and sign the power purchase agreement with Rewa Ultra Mega Solar, an equal joint venture of Madhya Pradesh Urja Vikas Ltd and the government of India-owned Solar Energy Corporation of India (SECI).

At the time of writing this report, tariffs had gone below the Rs 3-mark, a level that many people still think is ridiculously low and unviable.

However, there is an opposite view as well. Companies like Singapore’s Sembcorp, Adani, Softbank, Italy’s Enel and GDF Suez are among the bidders. These are large companies, not fly-by-night operators, and they know what they are doing.

One industry expert, whose company dropped out of the race, said that the big players were assuming solar modules to be available at an incredible price of 27 cents, and betting on un-hedged foreign currency loans at cheap interest rates.

In an unrelated tweet, Paula Mints, a solar energy expert based in the US, who runs a company called SPV Market Research, said: “Make no mistake, current module prices are below costs. If this continues, quality will suffer and there will be a significant consolidation.”

Another expert in India, whose company is builds solar plants for others (‘EPC company’) said that the game plan of the bidders was probably to “go EPC-light”, meaning that they would do the construction of the plant by themselves.

Historic

The Rewa bid will mark an epoch in the history of renewable energy, with the tariffs coming so low.

Hardly six years back, in December 2011, when an unknown French company called SolaireDirect put in a bid for Rs 7.49 in the first auctions under the National Solar Mission, it made headline news and the company was roundly criticized for being reckless.

This trend – low bid and criticism of recklessness – has continued ever since. For instance, when the now-defunct SunEdison bid Rs 4.63 for a 500 MW project in Andhra Pradesh, it was bombarded with criticism.

Tariffs continued south regardless, and earlier this year. Finnish company, Fortum, won a project in Rajasthan, bidding Rs 4.34 a kWhr.

The fall in prices are a result of precipitous declined all costs, but particularly, prices of solar modules, thanks to capacity oversupply in China.

When SunEdison bid Rs 4.63, module prices were around 43 US dollar cents, and many thought they had hit the bottom. However, prices are now around 30 cents, and some believe there is room for further decline. The Rewa auction indicate that the players are betting on that.

Published on February 10, 2017

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