India has the Lowest Cost of Solar Power but Should We be Proud of this?

Lowest Cost of Solar Power in India

IRENA has come out with a report which shows that India has shown the least cost of installing solar power plants globally with a cost of just $793/kW. What is strange is that the costs of solar power installation in India are even lower than China which makes the bulk of all the components that go into making the solar power plant. While India has an advantage on labor costs over China, India still has a disadvantage as it imports most of the components from China which mean that the equipment cost in India is higher.

Also, read Guide To Buying Solar Panels

What is also interesting is that countries like Italy, France, and Germany are also on the low end of the scale in spite of the fact that labor and other costs are higher in the European countries. China, in the third place, is at $870/kW. Canada is the costliest place to install solar power followed by Russia and Japan. This could be due to the fact that Canada and Japan had put in policies which implicitly or explicitly protected their markets from imports of solar components.

India, I suspect has the lowest cost because of the inferior quality of equipment being used in a large number of plants. Given that the Indian market is probably the most price sensitive market in the world, the lowest cost may not be a surprise. In order to keep the costs low, the equipment suppliers and the developers would be cutting corners by buying cheaper and lower quality components. This has been the problem for the Indian solar power market for a long time with most industry participants complaining about the poor quality. What should be more important for the industry stakeholders is how to keep the LCOE low instead of focusing on the lowest cost of installation. Using low quality material would lower the LCOE over the long term. There is a real fear amongst the financial circles that a large number of utility plants being built in India at low tariffs might become non-performing assets in the future as the lower quality equipment starts failing after 5-10 years. Given that these assets are financed based on a lifetime of 25 years, this is a huge danger.