Grid parity is the point at which the cost of solar power equals the cost of utility power from conventional sources.
The rising cost of conventional power, largely driven by increasing raw material exports and the growing cost of putting up green-field facilities coupled with the steady decline in solar power costs could result in solar projects reaching grid parity by 2014, a new study by KPMG India has suggested.
“The positive feature of the last two years has been the development of capacity in the ecosystem, triggered by the ( Jawaharlal Nehru) National Solar Mission,” the study said.
According to the study, India’s solar capacity has grown from less than 20 MW to more than 1,000 MW in the last two years. “By 2017, this could grow to 12,500 MW of solar power generation capacity.”
KPMG’s prediction is based on the expectation that the landed cost of conventional electricity to consumers will increase over the next decade at the rate of between 4 and 5.5 percent every year. On the other hand, solar power prices are likely to decline at the rate of 5 to 7 percent annually during this period.
“In the last 18 months, retail consumer tariffs have gone up, partly the fallout of the financial condition of state utilities. We expect this to continue,” said Santosh Kamath, partner (energy & natural resources), KPMG India. “Also, if power capacity addition gets delayed, then the cost of power will go up. The dependence of imported coal is also likely to increase,” he added.
“Yet, solar tariffs have dropped by around 20 percent since May 2011, bringing down the cost per unit considerably,” Kamath added.
By 2017, according to Kamath, this momentum could potentially allow for the development of 4,000 MW through the Jawaharlal Nehru National Solar Mission and other state programs, 2,500 MW of captive solar installations, 2,000 MW of solar projects for diesel replacement and 4,000 MW of roof-top solar generation capacity.
This scale of growth, according to the report, could mean that by the end of the 13th Plan period (2022), solar projects could meet as much as 7 percent of India’s power requirements, mitigating 30 percent of coal imports and creating foreign exchange savings of up to 8 billion U.S. dollars.
These projects, however, are being increasingly backed by substantial investments into India’s solar energy sector. In 2011, India saw 10.3 billion U.S. dollars of clean energy investments, according to Bloomberg New Energy Finance, which is only about 4 percent of the global investment in the sector, but 52 percent higher than the 6.8 billion U.S. dollars that came into the country in 2010.
Within this, funding for grid-connected solar projects increased by seven-fold — up from 0.6 billion U.S. dollars in 2010 to 4.2 billion U.S. dollars in 2011 — bringing investments in solar energy almost at par with wind projects, which stood at 4. 6 billion U.S. dollars.
The World Bank Group’s International Finance Corporation (IFC), for instance, has put in about 80 million U.S. dollars into India’ s solar sector since 2010, with approximately 64 billion U.S. dollars coming in the last fiscal alone. IFC is also helping to develop the off-grid lighting market and assessing the viability of solar component manufacturing.
“Installed capacity in India continues to be well below the estimated potential in both wind and solar, which will continue to provide strong impetus for growth,” said Soumya Banerjee, IFC’s senior investment officer for South Asia. “Going forward, continued significant private investment will be needed,” he added.
This private funding is helping players like Azure Power, which has 10 billion U.S. dollars from IFC, to grow their portfolio from a small 2 MW utility-scale solar power plant in 2009 to about 35 MW currently.
“I think it is pure economics that is making everyone look at India, because it’s a market driven by demand, not climate change, ” said Azure Power’s founder and CEO Inderpreet Wadhwa.
Wadhwa expressed confidence that his home-grown firm will be able to develop and operationalize 100 MW of solar power by 2014. “We are tripling in size every year and we can continue to see that growth if the policy continues,” he explained.
But Wadhwa also said that more visibility is required. “Right now it’s more of start and stop, so you get one allocation and you don’t know when the next is coming. Since you have a big team, it can allow you to plan accordingly,” he said.
But others like Kiran Energy, which operates a joint venture with Mahindra, are playing the game differently. It is focusing on building clusters, of between 55 MW and 100 MW, which could be utilized by multiple industrial users, particularly if renewable power purchase obligations are enforced.
These will be designed to ensure that distribution companies, open access consumers and captive consumers buy a certain percentage of their power from renewable sources of energy.
“Last year, India Inc. has slowly realized that solar power is reliable,” said Ardeshir Contractor, Kiran Energy’s co-founder and managing director. “The demand in India is elastic at the moment, so if there’s some (further drop in prices), then the solar sector will definitely take off,” he added.