The latest solar auction yielded an electricity price of Rs 3.15 per kWh, down from the Rs 3.30 per kWh tariff determined in the Rewa solar park tender. The latest record has been set by Engie’s Solairedirect in an auction conducted by NTPC for a 250 MW project in Kadappa, Andhra Pradesh. As module prices fall further and the competition gets more intense due to the limited supply of projects, companies will be pushed to bid even lower, thereby setting new records in subsequent auctions.
After the first successfully conducted auction of wind power projects, even this segment seems set to tread a similar path, wherein it may witness a falling tariff trend as various states join the competitive bidding route for project allocation.
The auction route is likely to not only result in lower margins for project developers, but also lead to greater capacity addition in the renewable space. In fact, as per the country’s overall capacity addition statistics, renewables have already surpassed conventional power in terms of incremental capacity added during 2016-17. Given the increased renewable project pipeline and reduced interest in developing conventional projects, this trend is here to stay.
However, the transformation from coal-centric generation to variable renewable-based generation poses several challenges for policymakers as well as the industry. These pertain to the commercial, financial and technical aspects of renewable and conventional power projects.
As renewable capacity grows, capacity utilisation of the conventional power fleet will decrease, resulting in deeper grid efficiency issues. This, along with India’s evening peak demand profile, will add to grid management woes. Already, the PLF of coal-based plants has touched 58 per cent, against 76 per cent recorded six years ago. Once India crosses the 100 GW renewable mark, the capacity utilisation of thermal projects is likely to drop to below 50 per cent, which is much lower than the critical rate of 55 per cent.
To address the issues associated with increasing renewable penetration, plans have been drawn up to enhance the transmission infrastructure and introduce grid-level battery storage systems, but their implementation has been less than satisfactory.
In an era of cheaper renewables, there is an urgent need for compensatory mechanisms for backing down and ramping up conventional power. Developing an effective and economically sound ancillary grid services market also needs to be prioritised.
Therefore, as much as the government needs to scale up renewables, the coal sector, policymakers, regulators and players (both public and private) in the power sector value chain need to develop strategies that will help avoid a hard landing tomorrow.