Solar+Storage Set to explode in India

The capital costs for building a solar power plant is the cheapest in the world thanks to very low labor construction costs as well as super cheap Chinese imports of solar panels which makes up 60% of a solar power plant cost. While solar power prices have fallen to nearly INR 4/kWh, which is around 6 cents/kWh, the power utilities are still feeling secure given that solar remains an intermittent source and rooftop solar has not really taken off due to on the ground red tape in getting approvals for net metering.

However, things could take a drastic turn with storage entering the picture in a big way. Tesla has recently started production at its Gigafactory in USA and plans to reduce costs of lithium ion batteries by nearly 40% in the next 3-4 years. Other battery players will also get in, given that the technology is not restricted to the Panasonic Tesla combine. I soon expect similar gigafactories to be built in China and costs to plummet given the past track record of Chinese manufacturing. While these factories are primarily making batteries for electric cards, they will also be used for stationary storage applications.

Rooftop solar energy which is already cheaper than grid in a large number of places in India could soon see its biggest barriers dissolve as homeowners could simply switch off the grid at INR 5/kWh price (7 cents). Most of India’s urban consumers which accounts of a majority of power utility revenues pay around INR 6-10/kWh plus various associated duties and taxes. With power prices only going to increase, this means there will be a big differential between the grid price and the solar + storage price. In fact, utilities might go into a “death spiral” much before as the highest tariff paying customers will switch out much faster. Some commercial and industrial consumers pay horrendously high prices and they are already using solar power energy provided by private generators and electricity providers.

Solar energy has already reached grid parity along with wind power energy in India, with prices ranging around 6 cents/kWh. New thermal power plants are in the same range if not higher priced, while gas is out of the picture. Building nuclear and hydro plants not only takes a lot of time but causes a lot of environmental issues. This makes solar energy not only great from India’s climate change commitment perspective but also from the cost perspective.

While regulated utilities may get along for a while as the state government and regulators increase tariffs, the biggest risk will be for private utilities. Even their long term power purchase agreements will not be of much help given that if the prices become too high compared to the solar price at that point of time, the purchasing entity might go bankrupt or just renege on the long term contract.

I would be a very scared investor of a power utility given the inevitable march of renewable energy. More specifically if you are an investor in CESC or any of the private utilities better sell out your shares now and look for “greener” pastures.