The global as well as the Indian solar market is set to grow rapidly in the coming years mainly on account of significant cost reductions in the segment, including a reduction in the cost of solar photovoltaic (PV) modules. With the price of solar power in India falling to as low as Rs 2.97 per kWh, developers are exploring means to enhance the efficiency of solar plants in order to maximise their returns. In this regard, balance of system (BoS) components play an important role. These components are also being looked at for bringing down the cost of solar PV systems further, as their costs have declined at a much slower pace than those of PV modules.
BoS costs refer to all upfront costs associated with a PV system, with the exception of module costs. They can be further categorised as hard costs and soft costs. Hard costs include the costs of inverters, switches, support racks, wiring and batteries/storage systems, and land. Soft costs include costs associated with planning, permissions, customer acquisition, insurance and labour for installation, and interconnection.
These costs vary considerably across regions, technologies and market segments, and are significantly affected by local conditions and the regulatory environment. For instance, solar system costs in the US are much higher than those in Germany or China. Apart from regional tariffs, factors affecting price variations include currency depreciation, off-the-mark downstream demand, varying customer acquisition and labour costs, and increasingly competitive pricing behaviour. In terms of market segments, residential solar systems have higher BoS costs than large commercial installations. The costs are even higher for complicated arrangements such as canal-top and floating PV systems. Meanwhile, BoS costs for utility-scale systems are much lower due to economies of scale.
According to the Central Electricity Regulatory Commission (CERC), the following costs are associated with BoS components:
Land: The land acquired for setting up solar projects is mostly barren and of no commercial use. The increase in land costs, variations in land prices in different states and the decline in land requirements for PV projects due to the increased average module efficiency are all aspects that need to be factored in while determining the cost for land. Accordingly, the CERC had set the land cost at Rs 2.5 million per MW for 2016-17.
Civil and general work: Civil work includes soil testing, preparation of the soil/ground (earthmoving; digging holes for foundations/pilings and levelling), land fencing, and development of approach roads, arrangements of water supply in solar farms, and construction of control rooms and cable trenches. General work involves maintaining the security of a solar farm, setting up of power backup generators, yard lighting and earthing kits. The CERC had finalised the cost of civil and general work at Rs 3.5 million per MW for 2016-17, taking into consideration the type and quality of soil, the terrain and groundwater tables of various regions.
Inverters: The CERC had approved a cost of Rs 3.5 million per MW for inverters for 2016-17. For this, it had considered the cost of available inverters in the country, the major overhaul/replacement costs and the suggestions of various stakeholders. It has been noted that inverter prices have been reducing as their efficiency continues to increase.
Mounting structures: With technology advancements, the efficiency of solar cells has increased, leading to a decline in the cost of mounting structures per MW. The CERC had approved a cost of Rs 3.5 million per MW for mounting structures for 2016-17, mainly because of the fall in the price of zinc, which is utilised to galvanise steel for making mounting structures.
Evacuation costs: These include the costs of direct current (DC) cabling between solar PV panels and inverters, alternating current (AC) cabling between inverters and substations, low and high tension panels, earthing arrangements, breakers, transformers (current, potential, auxiliary and step-up outdoor type), control cables, isolators, lightning arresters, protection relays, meters, peripheral lighting and telemetry systems for real-time monitoring. Considering these, the CERC had set the evacuation cost at Rs 4.4 million per MW for 2016-17.
The steep fall in tariffs witnessed in the Rewa solar power auction will significantly affect the cost economics of a solar power project in the coming years. In order to stay competitive, fierce cost cutting and optimisation are being observed across the BoS segment. In addition, there is an increased focus on augmenting the overall generation of a plant through technology advancements and efficiency enhancement across BoS components.
Inverter technologies have advanced significantly over the years. In addition to converting DC to AC, inverters now provide several capabilities and services that ensure optimal performance of solar plants. A key trend in inverter technologies is the use of 1,500 Volts (V) systems, which allow developers to optimise the DC losses and costs. While these are already in place in countries such as the US, India is yet to catch up as only a few manufacturers make inverters of 1,500 V.
Mounting structures too have seen a number of developments in recent years. While the initial mounting solutions were focused on developing viable support structures, efforts are now being made to improve and simplify the designs by using better materials and providing customised solutions. The weight of mounting structures has reduced at a fast pace in recent years. While this has led to cost reduction, it is important that the weight of mounting structures is reduced in a viable manner, keeping in mind the costs associated with their failure.
Another noticeable trend has been the increasing adoption of solar tracking technologies. The installation of trackers in a solar PV plant can increase the energy generation. The quantum of energy gain varies based on the location. For instance, an increase of over 21 per cent has been observed in the generation of projects located in southern states, closer to the equator, such as Tamil Nadu and Andhra Pradesh. Meanwhile, northern states such as Rajasthan and Madhya Pradesh, which are located farther away from the equator, have seen an increase in energy generation of over 15 per cent. According to industry experts, while the installation of solar trackers will increase the capital expenditure by 9-12 per cent, it will lead to an additional energy output of 18-25 per cent. With advancements in solar tracker technologies bringing down tracker costs, about 50 per cent of the upcoming solar power capacity will be set up with trackers.
Over the years, while BoS costs have reduced to some extent, the segment is yet to witness a significant cost reduction. The installation process requires a number of different participants, including developers, installers, property owners, governmental entities, financiers, utilities, labour, etc. Hence, reducing costs at various levels, which can be challenging. In addition, the costs incurred and participants vary according to the type of system, customer and regulatory regime.
Another major challenge is the lack of a complete value chain in solar equipment manufacturing. India still depends heavily on imported equipment and raw materials, and does not have an indigenous manufacturing set-up for BoS components. Therefore, economies of scale are difficult to achieve. Competition levels in the solar BoS space are also increasing with the entry of a number of domestic and international players. Indian manufacturers face stiff competition from foreign players, who have ventured into India following the announcement of large capacity addition targets by the government. This is most likely to further drive down costs.
With solar tariffs falling continuously, developers are putting pressure on equipment suppliers to cut costs and remain competitive in the price market. Going forward, the fall in solar development costs is clearly expected to come from components other than solar panels. In fact, industry stakeholders are of the opinion that the cost of solar panels may actually rise in the future.
In sum, the demand outlook for BoS component suppliers is very strong. Driven by government programmes, the total installed solar PV capacity has crossed 10 GW and a further 10-12 GW of new solar capacity is expected to come online in the next two years. Since about one-third of the cost of a solar project is for BoS, future capacity addition presents a significant opportunity for companies operating in this space.
Going forward, BoS components are expected to remain the focus of the cost reduction efforts in the segment. The industry can no longer depend on a single component for reducing costs and thus needs to focus on a combination of components. In addition, improvements in customisation, optimisation, software, system design and processes are likely to drive PV performance while reducing costs.
Based on presentations by Shilpi Dangi, Head, Design and Engineering, Gensol Engineering; Monika Rathi, Head, Business Development, Products, Mahindra Susten; Shailesh Vaidya, Chief Executive Office, Scorpius Trackers; and Rajan Sharma, Manager, Business Development, Archtech Solar India