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Strategies for India's Solar Power Targets

Paper Type: Free Essay Subject: Environmental Studies
Wordcount: 2284 words Published: 8th Feb 2020

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India has an ambitious plan of 100 GW[1] of solar power by 2022. In May 2017, the solar tariffs in an auction conducted by Solar Corporation of India (SECI) touched ~US 3.40 ¢ per kWh at the Bhadla Power Plant, in the state of Rajasthan, India. However, the tariffs have been rising in subsequent auctions across India, the highest range reached being US 4 to 4.90 ¢ per kWh. In a recent internal memo, the Ministry of New and Renewable Energy (MNRE) is set to cap India’s solar power tariffs at ~US 3.40 ¢ per kWh. The suggestion could be a concern for solar project developers and investors with the newly imposed safeguard duty, the reduction in the project implementation timeline by the authorities, the falling ratings of distribution companies in India, and global factors such as China’s changing policy towards solar panel subsidy.

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During the Financial Year 2017–18 (FY 18), renewable energy (RE) sources (including, wind, solar, bio-energy) contributed 8% and fossil fuel contributed 75% of 1309 TWh of total electricity generated by utilities in India (CEA, 2018a). Electricity consumption in India is likely to increase by 241% between 2016 and 2040. During the same time period, the share of the fossil fuel powered plant in the total supply is to decline to 64% from 77%. The decline will be balanced out by RE which is projected to increase from 5% to 23% (BP, 2018a). In order to support the RE based electricity generation and to facilitate the 100 GW of solar power target, India’s Ministry of Power (MOP) has issued Standard Bidding Guidelines for competitive bidding for solar power on August 3, 2017 (MOP, 2017b). In spite of streamlined policy at the federal and state level and technology optimization, the MNRE has missed the solar targets in both FY 17 and FY 18 (Lok Sabha, 2018a, 2018b). The reason being the cancellation of auctions by various state[2] and federal[3] regulatory authorities in order to renegotiate their contracts for a lower price with the developers. This is the reason why developers and investors are not investing in solar projects in India. Thus, a drastic fall in the tariff prices could be a hindrance in achieving the 100 GW solar power target.

The use of auction policy instrument for solar project is a recent phenomenon when compared to established policy instruments such as tax credits, renewable purchase obligations, and feed-in-tariffs. Pablodel & Pedro (2014) conducted in-depth reviews of auction experiences of 15 countries including emerging economies such as China, India, and Brazil. They concluded that because of the benefits of tariff reductions, an increasing number of countries are adopting auction to make the solar market more efficient. In a best practice study, Pablodel (2017), suggested improvements such as volume disclosure, price ceilings, transparency, streamlined process and penalties for the delays to improve the outcomes of the auctioning system. Thapar, Sharma, Verma (2017) identified the key determinants that impact the developers’ decision. They regressed eleven variables across thirty-two solar tenders issued in India between 2014 and 2017. The determinants such as solar potential, solar targets, utilities’ credentials, cost of funds and the level of subscription came out as strong determinants while making the bid for the project.

Ren 21 (2016) report revealed low (less than ~US 10 ¢ per kWh) auction utility-scaled PV prices in Zambia, Brazil, South Africa etc. As per IRENA (2017), the auction system is driving down the cost rapidly, by as much as 69% in the solar PV sector. However, there is a rising concern among the practitioner and academicians over the viability of low PV prices and deployment effectiveness of low PV prices awarded projects (GTM, 2016; MIT Technology Review, 2015; The Economist, 2016). Dobrotkova, Surana, Audinet (2018) compared competitive auctions for utility scale solar PV in developing countries. Though the study validated the viability of low PV bids and tariff rates, a caution is suggested over the practicality of low-price PV projects. Shrimali, Konda, Farooquee (June 2016) analyzed 20 renewable energy auctions in India to determine whether the auctions have been cost-effective and deployment-effective. They found out that auctions are almost always cost-effective but may not always be deployment-effective, with only 17% of the auctions with greater than 75% deployment. The deployment effectiveness is affected by auction design risk, the risk associated with the commissioning of projects, the risk of developers were not able to raise funds due to low bids and the financial risk of off-takers. Rohankar, Jain, Nangia, Dwivedi (December 2015) evaluated the long-term sustainability of solar projects in India, under various central and state government policies. The authors concluded that the ‘reverse bidding’ may achieve the grid parity but at the cost of long-term sustainability with developers giving up the secured project due to lack of financial viability at such low tariff rates. Shrimali and Rohra (2012) reviewed National Solar Mission (NSM) in the perspective of the power sector reforms. The authors suggest that the NSM failed to provide the necessary institutions required for the implementation of solar projects and achieving the desired outcome.

The most commonly used metric by policymakers, project developers and investors to determine the financial competitiveness of solar PV project is the levelized cost of electricity (LCOE). To determine the economic feasibility of PV projects, Branker and Pathak (2011) have studied methodology for evaluation of LCOE. The authors observed that there is lack of clarity of reporting assumptions, and justifications in LCOE calculations, which produces widely varying and contradictory results. Besides, Bazilian et al. (2013); Branker et al. (2011) showed that with several limitations and overly sensitive to the changes in assumptions, LCOE needs to be considered cautiously. Dobrotkova, Surana, Audinet (2018) suggest that the LCOE cannot explain the winning bid. The winning bid reflects information that is beyond the main parameter of LCOE. The parameters such as country-specific, auction-specific and project-specific parameters need to be combined with the LCOE calculations to understand the winning bids.

Schmid (2012) in his empirical analysis concluded that there is a positive impact of policies such as Electricity Act 2003, Tariff Policy 2006 etc. on the growth of renewable electricity in India. Bhide and Monrou (2011) touched upon the energy poverty in India and suggests that the RE could provide a solution to the problem. However, the paper concluded that in order to solve the energy poverty issue in India, the government should aggressively promote RE technologies. Bhattacharyya (2010) identified the proper management of energy projects is a major challenge for the energy sector in India to be cost effective and time effective. Dudhani et al. (2006) have analyzed the ability of RE to meet the peak power deficit in India. They concluded that with correct government policies RE can meet the peak power deficit. The literature suggests with proper policies and implementation, the RE could meet the rising energy demand in India.

The government authorities are hesitant to sign the contracts with tariffs higher than ~US 3.40 ¢ per kWh. With more and more reverse auctioning the possibility of a race to the bottom with the competitive bidding cannot be ignored. Besides the winning bidders are also admitting that with the new safeguard duty on imported panels and the new services tax (GST) that has increased prices on key solar construction materials, they would quote the price differently than the price that had led to winning the auction. In an interview to the Financial Times, ACME Solar [4] founder and chairman Manoj Kumar Upadhyay said, “When we made our bid, we factored in a price for every solar panel of 30 ¢ per watt of power, but since then it has risen to around 35 cents per watt of power. We have seen the introduction of the new goods and services tax. While the tax on a solar panel is only 5%, that of other materials we use, such as steel or copper inverters, has gone up to 18%.” He concluded, if he was bidding again, “the price would be close to (~US 4.0 ¢ per kWh) ”. With this evidence, the paper is trying to analyze the sustainability of fixed solar tariff (~US 3.40 ¢ per kWh) and its impact on the 100 GW solar power target in 2022.


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[1] The target is 175 GW of the renewable energy-based power by March 2022 of which solar will contribute 100 GW. 

[2] The Uttar Pradesh New and Renewable Energy Development Agency and the Gujarat Urja Vikas Nigam Limited has canceled their 1 GW and 500 MW grid-connected solar project respectively citing high tariffs.

[3] The Solar Energy Corporation of India and the Ministry of New and Renewable Energy cancelled 3GW Interstate Transmission System project auctions.

[4] The winner of auction for the Badal Project, Rajasthan, May 2017


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