Economy

Solar power prices sliding rapidly, to dismay of discoms

M Ramesh Chennai | Updated on June 22, 2018 Published on June 22, 2018

Regulatory issues holding back wider use, says report

Solar tariffs have come down substantially, not just in the cases of large utility-scale plants but also where an energy company sells power directly to a customer.

For instance, a solar energy company that puts up rooftop plants and sells energy directly to consumers under long-term agreements told BusinessLine recently that a customer wanted to buy power at no more than ₹4.5 a kWhr, with a 2 per cent annual reduction. This means towards the end of the 25-year agreement period, the customer would be paying just ₹2.8 a kWhr.

The norm in the industry today is about ₹4.5 a kWhr. The electricity distribution companies (discoms) are not keen on large consumers buying solar power directly from energy companies.

But all that they can do about it is to convince the respective State electricity regulatory commissions to raise a plethora of charges that come under the head ‘open access charges’. Turns out that even with these (rising) charges, solar power is cheaper than the power the discoms supply, and corporate consumers are smacking their lips at the prospect of direct purchase of power.

Lowered costs

To make matters worse for the discoms, solar power is set to become even cheaper. A recent report of the World Business Council for Sustainable Development (WBSCD) expects the per kWhr cost of solar power to “decrease 5-6 per cent per year over the next five years”. Likewise, the costs of setting up solar plants are also expected to come down.

“Prices for a fully commissioned utility scale solar plant in India are likely to decrease from around ₹4.2 crore a MW in 2017 to ₹3-3.2 crore a MW in 2020 — an annualised reduction of 6 per cent,” the report says.

The estimates have been derived from market intelligence-based projections made by solar consultancy Bridge-to-India.

The report notes that India is among the countries where it is cheapest to build a solar power plant and there is “little room for further decline locally”.

However, module prices driven by a glut caused by oversupply in China will hammer down prices. But further declines in module prices will be “gradual and limited” because of many reasons such as recent manufacturer bankruptcies in the US, stretched financial positions of Chinese manufacturers and the ongoing trade cases.

Similarly, for wind projects, capital cost reductions will be moderate, but technological improvements would help bring down the per kWhr costs.

The WBCSD report, which focusses on corporate buying of renewable energy in India, notes that nearly 2,000 MW of renewable energy capacity has been built for direct sale of energy to consumers (open access) and this will only increase.

It expects that the ‘corporate PPA (power purchase agreement) market’ will add 6,600 MW of capacity between now and 2023.

Huge potential

In 2016-17, industries and commercial establishments used 533 TWhr of electricity, accounting for half the country’s consumption. Potentially, all of these could be buying renewable energy directly from energy companies because green power is today cheaper than what the utilities supply.

The problems are mainly the regulations. For instance, if you have a connected load of less than 1 MW, in almost all States you are ineligible to buy power directly. This excludes a lot of consumers, who are then forced to buy costlier power from the utilities.

‘Net metering’ regulations are another issue. These regulations basically make it very difficult for, say, a rooftop solar plant owner to sell any surplus power.

“Delay or refusal to grant open access permission by utilities…is a hurdle that corporate buyers and developers face regularly,” the report says.

Corporate buying (or self producing) renewable energy in India is part of a global mega-trend. A report of the International Renewable Energy Agency of last month said that companies in 75 countries bought (or self-produced) 465 TWhr of renewable energy, roughly equal to the annual electricity consumption of France.

It further said India and South Africa are among the leading emerging economies to see growth in corporate buying of renewables. At least 35 India head-quartered companies “actively source renewable energy”, ranking India 9th among the top 10 countries where corporate buying of renewable energy is happening.

Worldwide, 130 companies have declared that all the power they consume would come from renewable energy sources, and 42 have achieved it. Four Indian companies are on the “RE100” list — Infosys, Dalmia Cements, Tata Motors and Hatsun Agro.

Published on June 22, 2018
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