The growth of solar and wind power capacities depends largely on their cost and tariff trends. Various domestic policies and global shocks have impacted these two factors. This article examines the trends in solar and wind power project costs, equipment prices and tariffs, as well as the future outlook for these segments…
Equipment price trends
In the past few years, solar module prices have seen an upward trend due to the impact of domestic policy developments such as increase in GST, basic customs duty (BCD) and the Approved List of Models and Manufacturers (ALMM) as well as global factors such as commodity price hikes (especially polysilicon, glass and metals), demand-supply mismatch, disruptions in China due to lockdowns and power shortages, and supply chain disruptions due to the Russia-Ukraine conflict. However, the prices are expected to decrease as some of these issues get resolved.
According to PwC, as of November 2022, the landed cost of solar modules assembled in India with imported cells was 39 cents per watt. This included the cell price at China port (16 cents per watt), shipping (1 cent per watt), BCD and taxes (4.8 cents per watt), balance of material (9 cents per watt), profit margin (4.5 cents per watt), and GST (3.7 cents per watt). Meanwhile, the landed cost of solar modules imported directly was 42.7 cents per watt. This in-cluded module prices at China port (25 cents per watt), shipping (1.5 cents per watt), BCD and taxes (11.7 cents per watt) and GST (4.6 cents per watt). Further, according to the International Renewable Energy Agency (IRENA), the onshore wind weighted average total installed costs in India fell from $3,760 per kWh in 1990 to $926 per kWh in 2021. Further, the weighted average LCOE of commissioned onshore wind projects in India fell from $0.2374 per kWh in 1990 to $0.0299 per kWh in 2021. In 2022, materials (43.5 per cent) and labour (18.2 per cent) constituted the largest share of wind turbine costs.
According to the Draft National Electricity Plan 2022, the capital cost of solar power and wind power projects is expected to reach Rs 53.3 million per MW and Rs 77.9 million per MW respectively by 2031-32. The capital cost of wind projects is expected to grow at a compound annual growth rate (CAGR) of 2.64 per cent till 2031-32. Over the same period, the capital cost of solar projects will grow at a CAGR of 1.72 per cent.
Tariff trends and outlook
Renewable Watch Research has tracked the tender results for standalone ground-mounted solar and wind projects since April 2022. In the wind energy segment, the lowest tariff of Rs 2.84 per kWh was discovered in the GUVNL (Tranche III) 500 MW tender in July 2022. Meanwhile, in the solar energy segment, the lowest tariff of Rs 2.30 per kWh was achieved in the GUVNL (Tranche XIV) 500 MW tender in June 2022.
The tariff outlook for the solar power segment is impacted by uncertainties surrounding the imposition of BCD on solar cells (25 per cent) and modules (40 per cent). As the existing capacity is inadequate to meet the demand, the hike in BCD may push up the cost of solar manufacturing, thus leading to increased tariffs.
Another parameter that impacts the tariff outlook in the solar space is uncertainty surrounding the ALMM, which mandates the exclusive use of solar modules from select manufacturers for government-tendered, open access and net metered rooftop solar projects. This impacted solar tariffs as mostly domestically manufactured expensive solar modules were used. Now, the government has lifted the ALMM mandate for projects commissioned by March 2024. Furthermore, the GST on renewable energy equipment has increased from 5 per cent to 12 per cent, making the new effective rate approximately 14 per cent.
In the wind energy space, the bidding process has changed from reverse auctions to closed bidding. In closed bidding, the bidder who offers the lowest (L1) tariff will win the project if the technical criteria are met. In contrast, in reverse auctions, bidders would continue quoting lower competitive tariffs after the opening of bids. This change in the bidding process is expected to stop aggressive bidding by developers and lead to higher tariffs.
In India, high taxes on petrol and diesel have resulted in increased logistics cost for renewable energy projects. In general, freight charges have increased across the world due to high oil prices.
Since 2020, geopolitical disruptions have severely impacted the outlook for renewable energy prices in India. Due to lockdowns and power shortages, manufacturing was affected, leading to increased equipment prices. There were supply chain disruptions due to the Russia-Ukraine conflict. These disruptions had increased the solar module price by 8-9 per cent, according to PwC. Overall, these disruptions hiked the commodity price for polysilicon, glass, copper, silver and aluminium.
Going forward, the industry can expect solar tariffs to go down during the ALMM waiver period and wind tariffs to go up once closed bidding begins in auctions.
By Sarthak Takyar