The 750 MW Rewa solar project has seen tariffs fall to a record low of Rs 2.97/ kWh. Levellized tariff works out to Rs 3.29/ kWh, 24% below the previous low of Rs 4.34 seen in an NTPC tender in January 2016. Most of this fall can be attributed to lower equipment cost. Solar module prices, constituting about 60% of capital costs, have fallen by 26% in the last year.
The Rewa auction makes solar PV the lowest cost power source in India. In comparison, new coal-fired thermal power today costs about Rs 5/kWh. Gas power is not viable in India due to high cost (over Rs 6/ kWh) and short supply of feedstock. For wind power, even after auctions, tariffs are likely to stay closer to Rs 4/ kWh. The most exciting part of solar technology is that it is still in early stages of its evolution. Further advancements and growth in industry volumes will continue to make solar power ever cheaper. We are potentially looking at solar power costing Rs 2/ kWh by 2020. On top of that, cost of integrated solar-storage systems with 100% power back up is expected to fall below the critical threshold of Rs 5/kWh by 2020.
Such a dramatic fall in prices is highly likely and would change our energy landscape dramatically in the years to come. In our view, cost advantage trumps everything else in the power sector including COP21 commitments, environmental imperative and regulatory support. That makes solar technology the firm favourite for powering India’s future economic growth. All stakeholders – the government, regulators, DISCOMs, IPPs and consumers – need to take notice and adapt their plans accordingly.
TERI has recently published a report, Transitions in Indian Electricity Sector, which talks about a scenario where India can stop adding new thermal power capacity from now itself. This is a timely and bold report. We already have surplus power supply in the country and instead of planning to add more thermal capacity for future (gestation period of 4-5 years), we should be committing ourselves to achieving a complete transformation of the energy sector.
That means finding ways of solving the intermittency problem of solar power. Storage technology is evolving rapidly and the Indian government should devote more resources to capture future value in this crucial segment with favourable policies and investments in R&D, design, manufacturing and operations. We also need several policy, regulatory and technology related interventions to facilitate this energy transformation – more flexible generation capacity, time of day power pricing to adapt consumer behavior, better forecasting technologies, huge investments in smart grids and transmission systems as well as a redesigned regulatory framework.
Based on current market trends, most of the future investment in renewable power and allied storage and grid systems will come from the private sector. That also calls for financially strong DISCOMs with technical and financial capability to strengthen the last mile distribution infrastructure. Strenuous implementation of the UDAY reform package for DISCOMs is very critical. So far, the financial restructuring part of the package has gone off relatively smoothly but the more challenging aspects of operational restructuring, tariff reform and cutting T&D losses still lie ahead.
The renewable energy age will be as powerful as the industrial age or the internet age. It has the potential to transform our economy, environment and the lives of hundreds of millions of our citizens. Whether we acknowledge it or not, it has already begun.