Could solar power be starting to come of age on a larger scale?

Could solar energy be starting to come of age on a larger scale? The lowest winning bid was just Rs. 7.49 /kilowatthour (kWh), or about 15 US cents /kWh, in the second batch of Phase 1 of India’s National Solar Mission (NSM).

Rs. 7.49 /kWh is impressively low. That’s just a couple of US cents per kWh more than what I pay for conventional grid power in New York City and actually lower than what my colleague pays in Connecticut! I know this is not a fair comparison, but it is food for thought nevertheless.

Even focusing on the Indian solar energy market exclusively, current grid power prices in the top energy-consuming Indian states are expected to be in the range of approximately Rs. 3.90 /kWh in Andhra Pradesh to Rs. 5.90 /kWh in Rajasthan, at a nationwide average of Rs. 4.70 /kWh. Commercial and industrial power prices are generally accepted to be higher. This means that the lowest winning bid is tantalizingly close to the higher-end grid power price – just about Rs. 1.60 /kWh off grid parity (about 3 US cents). From conversations with the Indian Ministry of New and Renewable Energy, we got the sense that they were pleased with the current progress towards grid parity and perhaps even hopeful of surpassing their original ambitions. India now has over 140 MW of installed solar capacity, almost a seven-fold increase from what it had a year ago.

As I discussed in my previous blog at the conclusion of the Phase 1 second batch bidding process, the bids for 350 MW were numerous, bidding for cumulative capacity many times in excess of the available allotment. Various websites (here, here, here and here) have number-crunched the second batch winning bids, so we will not repeat this. But here are some key highlights:

The lowest bid was for Rs. 7.49 /kWh, at more than 51 percent discount to the base tariff of Rs. 15.39 /kWh. This bid was put forth by Solairedirect of France for 5 Megawatts (MW).

The highest winning bid was for Rs. 9.44 /kWh, at about 39 percent discount to the base tariff.

There were 22 companies that won bids, and 27 total winning bids.

Welspun Energy, Azure Power, Mahindra, Green Infra and Jakson Power won multiple projects, with Welspun securing the maximum 50 MW of allotment for a single organization. Green Infra and Mahindra secured 40 and 30 MW respectively.

All but three of the winning bids are in Rajasthan. The other three are in Tamil Nadu, Maharashtra and Andhra Pradesh.

In comparison with the first batch, the second batch bids were even more aggressive than previously – the highest winning bid in the second batch had as deep a discount as the lowest winning first batch bid, both about 39 percent. This was despite more stringent penalty clauses for non-completion of projects in the second batch, at an average of about 30 percent of the value of the project. Also, the first batch base tariff was higher at Rs. 17.91 /kWh.

Additionally, the second batch has concentrated a very large solar capacity in Rajasthan. The first batch winners, while skewed towards Rajasthan, were more geographically dispersed.

Furthermore, in my earlier blog we said that we were expecting aggressive bids due to changes to the guidelines and the entry of well-established companies into the fray. But somewhat surprisingly, many of these companies are absent from the list of winners. We are not entirely sure whether their bids were unsuccessful or were withdrawn. Nevertheless, some of these companies are undertaking large projects through state-level programs, that some have argued are more profitable than the national program. The 40 MW Dahanu Power project by Reliance in Jaisalmer, Rajasthan is one such notable one.

Finally, after the first batch, some stakeholders in the solar community expressed to us some trepidation as to whether such low bids would be sustainable. We suspect that the aggressive second batch bids will continue to stoke similar concerns about the projects’ viability.

At least one of these bids was aggressively low to facilitate an entry into the Indian solar energy market, as in the case of French company Solairedirect’s lowest winning bid of Rs. 7.49 /kWh. On the other hand, it is encouraging to see that some first batch winners bid again and won in the second batch as well – Welspun Solar, Azure Power, Mahindra and Sai Sudhir Energy. Additionally, Welspun has some existing projects under Gujarat’s policy, and is also competing for Karnataka’s allotments. Similarly Azure has a 2 MW solar power plant under operation in Punjab. Clearly, it’s not just the National Solar Mission that’s driving the solar industry – state-level programs are having tremendous impact as well. Perhaps valuable experience and scale from multiple projects are giving these bidders the confidence to bid low yet make profits. Could this be an indication that projects at these price levels are bankable?

Vignesh Gowrishankar, Sustainable Energy Advocate, New York. Co-Authored by Sameer Kwatra and Meredith Connolly.