May 2017

Editor Dolly Khattar

At a time when the addition of coal-fuelled power generation capacity is at a standstill in India and globally, the country is witnessing a free fall in solar power prices.

The newest low is a tariff of Rs 2.44 per kWh achieved in the auction for 500 MW of capacity at the Bhadla Solar Park in Rajasthan. The two big factors that are driving tariffs down, besides the government push to achieve the 100 GW by 2022 target, are the hyper competition among developers and a steep fall in global equipment prices. Several global majors like Japan’s SoftBank, France’s Engie, Italy’s Enel, Canadian Solar and Singapore’s Sembcorp have entered the Indian solar market while others such as Norway’s Statoil ASA, France’s Total SA and Royal Dutch Shell Plc are looking at India as a promising investment opportunity. And a number of domestic firms such as ReNew Power and ACME have got access to low-cost funds, thereby adding to the competitive pressures.

Good as these low tariffs are for end-users and discoms, they have resulted in some unintended consequences. The central and state governments are reconsidering their procurement policies, leading to the postponement of some tenders. Meanwhile, some discoms, having completed auctions with higher tariffs (notably in Jharkhand and Odisha), are now having second thoughts about signing PPAs.

While the government will eventually resolve the issue of delays, the bigger problem pertains to the impact of low tariffs on the overall electricity market. The average rate of power generated by the coal-fired projects of India’s largest generation utility, NTPC, is Rs 3.20 per unit, which is higher than the tariffs determined in the Bhadla, Rewa and Kadapa solar park auctions. If solar power continues to grow sustainably (that is, storage solutions become viable in a few years to address the intermittency challenge), the power sector could be looking at long-term deflation, which would be revolutionary for the entire energy market and disrupt many businesses. Thermal power will be badly hit. Already, many discoms have cancelled or downsized their thermal power procurement.

Thus, while concerns have been expressed about the unsustainability of such low solar bids, they have certainly succeeded in disrupting the power sector. Its true impact in the near to medium term will depend, to an extent, on technological progress and how well Indian power producers are able to adapt to the changing market dynamics.

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