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Growth of India’s solar energy, grid parity by 2014

Solar power catching up with conventional energy http://www.business-standard.com/india/news/solar-power-catching-upconventional-energy/186748/on Cost of solar power may equal to that of conventional energy by 2014: Study Devjyot Ghoshal / New Delhi Sep 14, 2012, If India’s conventional power sector, particularly coal-based thermal power projects, has found itself squarely stuck under the long shadow of governmental inefficiencies and suspect allocation mechanisms, there is a drastically different story unfolding in the country’s solar energy sector.

The rising cost of conventional power, largely driven by increasing
raw material exports and the growing cost of establishing greenfield
projects, alongside a steady decline in solar power prices — mostly a
function of a sharp reduction in the prices of solar photo voltaic
(PV) modules — could result in solar projects reaching grid parity by
2014, a new study by KPMG has suggested. Grid parity is the point at
which the cost of solar power equals the cost of utility power from
conventional sources.
“The positive feature of the last two years has been the development
of capacity in the ecosystem, triggered by the (Jawaharlal Nehru)
National Solar Mission,” the study said, “India’s solar capacity has
grown from less than 20 Mw to more than 1,000 Mw in the last two
years.” By 2017, the study forecasts, this could grow to 12,500 Mw of
solar power generation capacity.
KPMG’s prediction is based on the expectation that the landed cost of
conventional electricity to consumers will increase over the next
decade at the rate of between 4 and 5.5% every year. Solar power
prices are likely to decline at the rate of 5-7% annually during this
period.

“In the last 18 months, retail consumer tariffs have gone up, partly
the fallout of the financial condition of state utilities. We expect
this to continue,” said Santosh Kamath, partner (energy & natural
resources), KPMG India. “Also, if power capacity addition gets
delayed, then the cost of power will go up. The dependence of imported
coal is also likely to increase,” he added.

Yet, solar tariffs have dropped by around 20% since May 2011, Kamath
added, bringing the cost per unit down from between Rs 10.5 and Rs
12.5 to around Rs 5-7. “This is also because PV module prices have
come down by around 40% in the last 18 months,” he explained.

By 2017, according to Kamath, this momentum could potentially allow
for the development of 4,000 Mw through the Jawaharlal Nehru National
Solar Mission and other state programmes, 2,500 Mw of captive solar
installations, 2,000 Mw of solar projects for diesel replacement and
4,000 Mw of roof-top solar generation capacity.

This scale of growth, according to the report, could mean that by the
end of the 13th Plan period (2022), solar projects could meet as much
as 7% of India’s power requirement, mitigating 30% of coal imports and
creating foreign exchange savings of up to $ 8 billion.
ncremental investments

These projects, however, are being increasingly backed by substantial
investments into India’s solar energy sector. In 2011, India saw $10.3
billion of clean energy investments, according to Bloomberg New Energy
Finance, which is only about 4% of the global investment in the
sector, but 52% higher than the $6.8 billion that came into the
country during 2010.

Within this, funding for grid-connected solar projects increased by
seven-fold — up from $0.6 billion in 2010 to $ 4.2 billion in 2011 —
bringing investments in solar almost at par with wind projects, which
stood at $ 4.6 billion.

The World Bank Group’s International Finance Corporation (IFC), for
instance, has put in about $80 million into India’s solar sector since
2010, with approximately $64 billion coming in the last fiscal alone.
IFC is also helping to develop the off-grid lighting market and
assessing the viability of solar component manufacturing.

“Installed capacity in India continues to be well below the estimated
potential in both wind and solar, which will continue to provide
strong impetus for growth,” said Soumya Banerjee, IFC’s senior
investment officer for South Asia. “Going forward, continued
significant private investment will be needed,” he added.

Early days

This private funding is helping players like Azure Power, which has
$10 billion from IFC, to grow their portfolio from a small 2 Mw
utility-scale solar power plant in 2009 to about 35 Mw currently.

“I think it is pure economics that is making everyone look at India,
because it’s a market driven by demand, not climate change,” said
Azure Power’s founder and CEO Inderpreet Wadhwa, “The economics make
sense. You have a regulated tariff, there’s a market, there are
customers and the price is more palatable now.”

That is why Wadhwa seems fairly confident that his home-grown firm
will be able to develop and operationalise 100 Mw of solar power by
2014. “We are tripling in size every year and we can continue to see
that growth if the policy continues,” he explained, “But more
visibility is required. Right now it’s more of start and stop, so you
get one allocation and you don’t know when the next is coming. Since
you have a big team, it can allow you to plan accordingly.”

But others like Kiran Energy, which operates a joint venture with
Mahindra, are playing the game differently. It is focusing on building
clusters, of between 55Mw and 100 Mw, which could be utilised by
multiple industrial users, particularly if renewable power purchase
obligations are enforced. These will designed to ensure that
distribution companies, open access consumers and captive consumers
buy a certain percentage of their power from renewable sources of
energy.

“In the last year, India Inc. has slowly realised that solar power is
reliable,” said Ardeshir Contractor, Kiran Energy’s co-founder and
managing director, “The demand in India is elastic at the moment, so
if there’s some [further drop in prices], then the solar sector will
take off.”

That, according to KPMG’s report, is likely to happen sooner rather than later.

September 14, 2012 - Posted by Christina Macpherson | India, renewable