Bridge India

Cost of solar for residential sector could be as low as INR 10/kWh

The residential rooftop solar market in India has a huge potential customer base. The levelized cost of energy (LCOE) is currently in the range of INR 10/kWh to 13/kWh. This is still much higher than the (subsidized) tariffs paid by households. But the two figures are rapidly moving towards convergence. For further details, please refer to ‘India Solar Decision Brief’ titled- “India’s Solar Transformation: Beehives vs Elephants” (online downloadable version available here).

  • LCOE will likely decline at around 4% per year
  • In 2015 average LCOE will be INR 11.5/kWh; in 2024, it will be INR 8.3/kWh
  • By 2023 it will be cheaper to generate solar power on site than to generate and deliver power from new coal plants

The LCOE for residential rooftop solar systems is calculated after considering the capacity utilization factor (CUF), the capital cost and the cost of capital. Over time, it will decline as system costs will likely fall. For a landed cost of power (LCOP) calculation, technical losses of 2% are additionally considered.

Table 1: Factors considered for LCOE and LCOP calculation

Parameter

Small rooftop

CUF

17% in 2015 increasing to 17.5% by 2024

Additional grid infrastructure for net-metering

INR 5,000 per system

Capital cost

INR 100,000/kW

Annual decline in system costs

5% – 7%

Effect of net metering

2016 onward

Technical loses

2%

Maintenance cost

1.5%

Annual increase in maintenance cost

5.72%

Interest rate

11.5%

Loan tenure

10 years

Debt ratio

70%

IRR

12%

Grid availability

96%

The LCOE and LCOP has been calculated using BRIDGE TO INDIA’s financial model. For the year 2015, the LCOE is estimated at INR 11.5/kWh, which reduces to INR 8.3/kWh by 2024. LCOP declines from INR 11.7/kWh in 2015 to INR 8.4/kWh by 2024. Residential rooftop is expected to reach parity with imported coal by 2016. Given the strategic nature of the power market and the long-term path-dependency associated with choices such as building new coal-fired plants, it makes much sense for the government to already support distributed solar in its initial stages.

 Figure 1: LCOE and LCOP of residential rooftop solar

 LCOEsept 25th

Is distributed solar a good investment case? India is a diverse country with varying geographical conditions. Additionally, different people have different expectations from their investments. In the sensitivity analysis, three cases have been envisaged – a median, conservative and an aggressive case. Based on these cases, the LCOEs vary for projects across India. We have considered a variation of CUF from 16% to 18% in 2015 going to 16.5% to 18.5% by 2024, interest rates range from 11% to 12% (no prediction of future rates) and return expectations from 10% to 14% (assumed stable over time). For the analysis in the report we have taken the median case as reference.

Figure 2: Sensitivity graph for LCOE

 median case sept25

 Mudit Jain is a Consultant at BRIDGE TO INDIA

1 comment

  • My judgement is that the kind of investment needed to start new mines would be far greater than anticipated. Hence likely coal prices delivered at thermal plant site will be somewhere $120/- plus almost at par with the current imported coal and that would raise the power tariffs at every level. Current local coal prices are based on the investments made several decades back having been fully depreciated and could be the reason for Indian coal prices being as low as $ 55/-ton.
    May I therefore request you to share with me the following-
    Power tariffs in the last 10 years
    Year to year increase in percentage terms including all taxes, duties, fuel charge and demand charge
    And expected increase on similar terms in the coming decade
    Once known the above will help in calculating the real return on investment.