Why Solar Panel Prices Will Fall In India

The whole country has been abuzz with the recent fall in solar energy prices in the most recent tender when people bid as low as INR 2.97/kWh or just around 4.5 cents per unit. Even on a levelized basis, the price of around 5 cents was by far the lowest seen in the country much lower than the Fortum bid of around 7 cents seen last year. This not only marks a paradigm shift for the energy sector in the country but also changes the renewable energy calculus of the country.

You might also like to read our List of Top Rooftop Solar Panels to buy in India.

The price of INR 3.3 /kWh means that solar energy is cheaper than any new coal power plant that is going to be built in this country. NTPC which is India’s largest power producer produces power at around 3 cents from coal power, but that comes from very old coal power plants which have been depreciated and built at a time when the problems of land and water were not so acute. Solar power energy costs are expected to keep falling further in the future, as technology improvements keep happening at a furious pace driven by the hyper competitive solar panel manufacturing sector which keeps dropping the costs of solar panels by a jaw dropping amount every year without fail.

New technology such as a diamond wafer saws, PERC etc. are seeing increasing adaptation which will lead to further solar panel price fall. In fact some of the major solar consultancies are already forecasting a price of just 25 cents/watt for solar panels by the end of the year down form around 35 cents/watt now. This looks a bit far fetched to me. Bridge to India has not done its homework in my view and is just extrapolating past trend. They are basing the price on just hearsay and possible demand fall from China, continued overcapacity and massive losses by Chinese solar panel giants like GCL Poly, Jinko Solar and others. I don’t think the price fall is going to be so steep again.

Also read about Solar Panel Efficiency in India.

However, solar panel prices will keep falling over the long term at a 5% rate at least, given the large number of technology improvements in the pipeline. Solar panels are like the semiconductor industry is some ways as efficiency improvements for solar panels will keep lowering prices and costs for consumers.

The other major factor that should help bring down prices of solar energy in the country is the falling interest rate. Currently interest rates are only around 8-8.5% and have fallen by almost 300 basis points over the last one year. India’s macro stability has increased dramatically leading to a falling trade deficit and inflation. Interest rates have fallen in tandem and the strength of the Indian currency is probably the highest in emerging markets. The new BJP victory in India’s largest state means that there is a high probability that the macro stability will extend to another 5 year term for the BJP till 2024. This will increase the animal spirits, accelerate foreign investment and interest implying that interest rates might fall a bit more and exchange rate stability will increase. This should reduce hedging costs. Further reforms in the economic arena will only be a positive for India’s vibrant solar industry.

India’s solar prices are not an aberration and not an isolated case. Countries such as USA, Mexico and Chile have seen much lower solar prices as their interest costs are lower.  It is not crazy to see Indian solar prices fall to just 2 cents/kWh over the next 5 years as both the major engines of cost reduction – interest rates and solar panel prices work in India’s favor.