Reverse Grid Parity – Solar power cheaper than Coal based power

The solar industry has been trying to achieve the holy grail of grid parity with other forms of energy for many years now. The sharp decline in solar equipment costs driven by strong competition and technological advances has made solar power achieve grid parity in most parts of the world in 2014 itself. With solar prices falling continuously, it has become cheaper in many segmetns and palces in India. This has made the major power generators in India rethink their plans of expanding thermal power capacity given that solar power will become not only cheaper than thermal, but have a substantial gap.

This may cause many of the new plants to be built become stranded in no time, leading to billions of dollars in losses. While earlier, power utilites were building green power capacities to meet renewable purchase obligations imposed by the government, now economics may dictate that these companies build higher percentage of solar power as compared to other forms of power.

NTPC which is India’s largest power generator with more than 40 GW of capacity already, has a mandate to build 10 GW of solar power capacity on its own and procure 15 GW on behalf of state distribution utilities. Now the company is thinking of expanding this capacity for solar power given that solar energy is becoming cheaper than coal.

It makes sense for the company to have a higher percentage of solar energy in the future as it has become quite cheap. India has the lowest equipment and proejcts costs for solar power in the world and would have the lowest tariffs too, if the interest rates in India were lower. However, India still is managing to produce solar power at around 6-7 cents/kWh which is competitive with new thermal power plants being built in the country. With prices of solar power expected to go to 3-5 cents/kWh by 2020, it would make sense for NTPC to plan for higher capacities. Besides being cheap, solar power can be installed fast and does not have to face environmental and social issues which result in huge delays for thermal power plants. These plants also have additional risks such as issues in procuring water for these plants as well as causing deadly mercury poisoning.