While India is heading towards large scale deployment of utility scale solar power, it is equally important to generate this power at a price which is affordable to the end users, even if it is provided as a bundled power as a part of the JNNSM. The recent price discoveries under different batches have of bidding have led the price of solar power as low as 7.49 Rs/kWh, which is comparable with the existing peak power generation cost through HSD or Naphtha fired peaking power stations. The recent technological developments followed by larder volumes of orders for solar modules have been responsible for achieving the price of solar power which is almost half of the solar tariff determined initially by CERC for solar power. The economics of solar power generation is very different than that of conventional power generation. The capital cost of a solar power plant is almost double than the cost of a gas based peaking power station, also the financing cost is much higher as compared to a conventional power due to perceived risk associated with the renewable energy technology, for which financing institutions do not have a great precedence in terms of assessment of technology and reliability of generation forecasts.
However the financers overlook is the great volatility of fuel prices associated with the conventional power as compared to the solar power, which do not have any dependency on the fuel supply linkages. If we look at the peak power pricing trends, we have observed the peak power price as high as 17 Rs/kWh in 2009 itself.
Solar PV is already price competitive for captive users who wish to install the solar electricity for their captive purposes in their building/industry premises and having existing consumption from grid electricity and captive DG sets. The weighted average cost of generation to captive consumers who generate about 30% of electricity from DG sets and balance from grid is already over 8 Rs/kWh. This average cost to captive consumers will continue to increase, as diesel prices are bound to increase and there is no control of government on these prices. However solar power installed cost per watt continues to decline and will be much more cheaper five years down the line.
Until now, most of the grid connected solar plants in India have been installed under power purchase agreements (PPAs). Under a PPA, a utility agrees to buy electricity from a solar power project developer a fixed price for a period of at least 20 years. However in recent months many solar investors are opting the REC (Renewable Energy Certificate) route and generate electricity which is sold to the utility at APPC (about 2.5 Rs/kWh) and also eligible to sale the certificate at a minimum price of 9.30 Rs./kWh. Government is also planning to introduce the REC scheme for off grid captive generators, who wish to hook their solar plants to grid and continue to use solar electricity for their captive purposes. The solar electricity will be metered through net metering provisions and the solar electricity consumed by the generators will be considered a deemed generation and will be eligible to get REC benefits as well. The solar market is under consolidation phase and will led to some of the innovative policies from government which meet the large scale deployment of solar power on roof top systems as well.