Indian regulator proposes drastic reduction in solar project prices – is it overreaching itself
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The Indian central electricity regulator generally publishes solar electricity reference prices each year, based on equipment and financing costs with reasonable equity returns. During the last year prices for solar PV were around INR 6/kWh, with a total equipment cost of INR 6 crores/ MW. However current bids are being seen in the range of INR 4.5-5.5 /kWh, as increased competition and a well-entrenched supply chain has seen a sharp fall in prices. Financing cost are also reducing in India, with a fall of 125 bps in the RBI interest rates. This has meant that developers have bid aggressively to capture this massively growing market. Now the Indian regulator CERC is proposing a drastic reduction in the equipment prices to just INR 5 crores/MW for the next year. They are being aggressive in extrapolating the current fall in solar panel prices of around 11-15% to next year as well. This is wrong in my view as the solar component prices are increasing.
While the decrease in solar inverter prices from around INR 40 lakhs/ MW to INR 30 lakhs/MW may be justified, solar panel prices may not decrease this much leading to a distress for developers and state agencies which use this reference price. The costs of construction as well as mounting structures have also been sharply reduced, with land prices being kept constant. This means that if the prices increase in any part of the solar project, then the viability of the entire project may come into question.
There is no doubt that solar prices will decrease by 3-6% annually over the coming decade, however projecting a sharp decrease of 10-15% in prices over the next year is too aggressive. Nobody knows how the world situation will change and keeping such aggressive targets may boomerang on the sector in my view. The commission is proposing a solar panel price of just 46.5c/watt for FY 16-17, compared to the average spot price of 55 cents/watt in the international market today. While the solar panel prices in India are around 50 cents/watt, note that the efficiency levels and quality of these panels are hardly the best. Even China where competition is high and logistics cost are low, the prices of panels are around 60 cents/watt.
2 Comments
The IEAR has given the costing for mass production of solar power, however this will also be wise if they consider the implication for domestic user who can generate the power at-least for their own consumed, so the costing chart is also required for per 1.kws 2. kws 5 kws and 10 kws too
This is showing the aggressiveness of the government in solar. But the question is whether this is detrimental to the development.
By asking developers/investors to speculate on the forward pricing may be a tactics which government is feeling will payoff.
However the question is whether this will attract foreign investments into the sector without which presently the sector is not seen developing. As to when Indian investors and banks will start contributing into the sector development is to be seen.
Investors are usually very averse to future speculation especially when it involves foreign governments and long term.
Will have to wait and see the result.