Bridge India

Why “Swaminomics” is wrong – solar has passed the point of no return in India

On Sunday, 5th June 2015, one of India’s leading economic journalists, Swaminathan Aiyar, in his weekly column “Swaminomics”, wrote that India should wait for five years before trying to implement big plans for solar (refer). He argues that solar is still a comparatively expensive energy generation technology and that because India is an evening peak country, increasing the share of solar would be a “double whammy”, by driving up indirect costs for thermal, peak power generating sources. As a result, he concludes, India should go all out on solar only after it is fully established that the cost breakthrough has been achieved and the technology is more mature. While there are interesting insights in the article, we disagree with his conclusions. Here is why.

  • Solar costs are not as high as Swami claims. In fact, upcoming NSM bids will show that it’s neck to neck with        new thermal projects.
  • India is an evening peak country right now but as the economy develops the peak will move into the daytime          (cooling).
  • Global investors already see the social and economic appeal of solar and are moving out from coal to the                sector.

Let us look at the first part of his argument – that solar is still very expensive. Swami takes the recent signing of PPAs in Tamil Nadu to arrive at the benchmark cost of INR 7.01/kWh for solar power. However, this is not India’s benchmark solar price. Developers signing PPAs in Tamil Nadu take state-specific risks and costs, and expect higher returns. The real cost of utility scale solar can better be judged by the bidding in the upcoming central government allocations in the neighboring state of Andhra Pradesh. Here, the costs are expected to fall to about INR 5.50/kWh or even lower.

These costs should then be compared to the marginal cost of other sources of power, or simply put, the cost at which new conventional power plants are willing to sell power. Recent bids for new thermal power capacity in Andhra Pradesh saw tariffs at INR 4.27/kWh to INR 4.98/kWh (refer). In 2013, in Rajasthan and Tamil Nadu, thermal power prices where even higher at INR 5.41/kWh and INR 5.66/kWh (refer). Add to that the future price volatility of coal versus the locked-in cost of solar (for 20 years), and solar is already far more competitive than Swaminathan would have us believe. Going forward, the largely undisputed trajectory of solar costs is downwards.

The second argument put forward in Swaminomics is that India is still an evening peak country and despite a large capacity of solar, peak power generating stations will still need to be built and they might be required to run at lower utilization rates in the day time due to the availability of solar power. This, he writes, would lead to increased power costs in the country. This is a valid concern but this argument is true for almost all infrastructure sectors. Roads, airports, railways and shipyards are all to be built to handle the peak traffic and not the base (at least they should be!). In the power sector, there are two peaks to consider: The daily peak and the seasonal peak. Hydro power provides some of the lowest cost electricity, but generation peaks during and after the monsoon, while India’s demand peaks during the hot and dry summer months, when – incidentally – solar produces the most. As intermittent sources of power become cheaper and diversification for energy security becomes a necessity, like the rest of the world, India will need to leave the comfort of almost completely relying on steady power sources such as coal and nuclear and develop a “smart” (read: nimble) energy infrastructure. Moreover, India’s peak power requirement will also slowly move to the day time as we grow and develop and cooling will play an every more important role. In the meantime, measures such as dynamic pricing and time of the day tariffs can help.

Should India then wait before making the big solar plunge, as Swaminathan suggests? Let us look at it from an investment perspective. If solar costs will indeed continue to fall in the next five years anyway, making solar ever more competitive, who would want to invest into new coal based power plants with a life of 30 years? More and more investors are betting on a solar future for India and losing interest in coal and other conventional sources. The enormous SoftBank commitment of $20 bn over 10 years is just one of hundreds of new serious investment prospects in solar.

The main argument for investing later is that solar itself will be even cheaper later. However, India’s power demand needs to be met today already. Also, it is crucial that India learns how to integrate volatile solar power into the grid successfully (we are talking about just over 10% of the power mix by 2022). In the past, India had already missed the first bus on semiconductor manufacturing and we know the result of that. The country should be investing in the technology of the future and not into the technology of the past. Creating a domestic market will also encourage domestic manufacturing and we can already see that happening. We believe that solar has already passed the point of no return in India. The results from the upcoming bids will prove that.

15 comments

  • Was taken aback on reading ‘swaminomics’ on sunday…Thanks for a fitting reply..As rightly pointed out ‘The country should be investing in the technology of the future and not into the technology of the past..!’

  • I totally agreed with the view of bridge to india. of course India should not wait for 5 years for solar power in energy starving country or economy .

  • Swaminathan Iyer has seen from a very narrow angle of present day investments in big thermal & other projects. If he understands solar then solar ENERGY is the future and India should be a leader and not a follower.
    We are a follower in almost all fields excepting space and in solar too we can excell. Mr swaminathan Iyer is a respected economist and his views should not be a damper.
    I am saying this out of experience as I have solar net Metering, solar hybrid inverted, direct solar run equipment and I am power cut/energy bill free.

  • The piece by Swaminathan A. aIyer was shocking in its lack of research and INCORRECT facts / conclusions. tHANK YOU FOR SETTING THE RECORD STRAIGHT. UNFORTUNATELY, THE TIMES OF INDIA HAS A FAR GREATER REACH THAN BRIDGE TO INDIA.

  • swami has written the article TO MISLEAD THE audience who are not connected with the power sector. SUCH AUDIENCE DRAW CONCLUSION BASED ON MERE NUMBERS MENTIONED HERE AND I DO NOT BLAME THEM.WHILE SOLAR HAS BEEN ABLE TO SEE A DRASTIC DROP IN TARIFFS OVER THE YEAR, THEY ARE BOUND TO GO DOWN FURTHER. THIS HAS BEEN POSSIBLE DUE TO SCALING UP OF SOLAR ENERGY AND STOPPING HERE WILL BE AN ABSOLUTE NON-SENSE. I WANT SWAMI BE PROMPTED TO WRITE ONE MORE ARTICLE TO CRITICIZE SOLAR IF THE COST COMES DOWN EVEN BEFORE FIVE YEARS.

  • Solar will be cost effective for most of the establishments which work during the day time, if the differential tariff system is adopted like in the west, where it is costlier during the day than in the night. The so-called evening peak is mostly for street lights which is mostly un-accounted and unpaid. LED street lights is some answer. The priority for solar should be rural areas which reduces transmission and distribution losses. Above all solar is a must from environmental considerations.
    The Government publicity of providing 24 hrs. power supply is a dis- incentive for the spread of solar power usage.
    further for storage of solar power during the day we are still using lead acid batteries which have limited life and not cost effective. if higher capacity lithium ion and other type which have long life and efficient are used as in the west solar will be more attractive.
    further the people are not educated and involved in energy and environmental matters.

  • There is no doubt, that india needs energy generated through solar systems. but – if it should be for the benefit of india, the solar technology has to be considerated differently as it is done by now, otherwise the time will come showing the loss of billions of dollars invested in plants with wrong technology. in about 3 years, when the first pv plants installed in india have had a operation time of 6 or 7 years, reality will show what has to happen:
    total system losses.
    When temperatures of 35°c and more occure over a long time, standard pv modules will not survive more than 8 years due to a extraordinary high degradation.
    Suggestion: start to consider technology – made in india – that meets the environmental conditions of india perfectly. The chances are there – it should be taken

  • My views are that India is definitely going to gain from investing now only rather than waiting for 5 years to see that the technology matures. Technology, most of the time, never matures. There is always scope for improvement and new advancements.
    1. Solar power projects provide an annual IRR between 7 to 12%. Generally the breakeven period is 8-12 years.
    2. Solar PV panels efficiency is claimed to be about 90% in first 12 years and then about 80% for upto 25 years
    3. India can save a lot of carbon credits.
    4. Fossil fuels like coal and import of fossils fuels like crude oil to become dearer day by day as the oil reserves depletes.
    5. With more and more research in the solar PV field one can be optimistic that the peak efficiency of PV cells will definitely increase from 14%.
    6. There is huge investment and employment opportunity in the solar field as it is still in the nascent stage in India.

  • I do admire the work being done by Bridge to India, but I am afraid Mr. Iyer is right. What really disturbs me is that no power sector luminary has come anywhere close to making such a cogent argument.

    The unsubsidised cost of solar at present is indeed Rs. 9.5/kWh at the very least. This is without factoring in the greater deployment of transmission infrastructure for each unit of solar as compared to coal. At a PLF of around 20% versus well above 80% for coal, each MW of solar requires up to four times as much line and substation capacity. If for every MW of generation capacity, the related cost of transmission infrastructure is in the region of Rs. 2 Cr, then for solar, the cost of transmission infrastructure should be at least a few multiples of this amount – say Rs. 4 Cr/MW. This is not factored in in the calculation of unsubsidised cost in the Swaminomics article.

    Further, generation from renewables is akin to an “anti-load” and has to be balanced by peaking sources like gas and hydro, which then have to run at suboptimal PLFs. Alternatively, the burden has to be borne by coal based generators, which are not supposed to run as peaking sources, but are still subject to variations in the region of 5-10% to deal with the “goodness” of renewables. This is again a suboptimal operation of other sources brought about by renewables. For supercritical units, the results of such variations are especially astounding.

    To cut a long story short, we are best off utilising primary sources of energy directly, whether solar radiation, wind, water flow, or fuel. The very concept of an electrical grid is that power produced at one location can be most easily transported to a load centre through a power system. No power system can operate solely on renewables. In fact, no present day power system can operate safely when renewable energy as a share of total generation touches 20%. E.g. recent German experience (and of course, case in point in India – Tamil Nadu):

    http://indianexpress.com/article/india/india-others/solar-power-sunny-side-down/

    The costs of coal are exaggerated. India can produce coal at a much lower cost with certain initiatives, including commercial mining. Even with annual escalation, coal based power generation beats solar hands down.

    Then there is the ultimate moral issue of whether a poor and developing nation like India should subsidise solar and other renewables either through subsidies / tax exemptions, or through purchase obligations. This money is literally being taken out of the hands of the poor and given to renewable developers. There is nothing “social” about that.

  • swaminomics is a ‘chai pe charcha type of mulling’ on solar. if we were to be anywhere close to 100 by 2022, we ourselves would play a leading role in pulling the capex down and while we are at it, spawn an entirely new manufacturing sector – global scale and world class.
    and as regards the difference in levelised cost, one has to internalize the incremental cost of coal(specifically – carbon).

  • Very well replied, to add to it I would like to bring in economics, we know the basic economy thing that the “economy of scale” brings down the cost. Lets perceive it in that way, anyways cost will be going down substantially due to mass production and on the other hand if we keep waiting for next 5 years, there may be reduction in price but it would be just marginal.

  • India needs to revise standard parameters of solar panels to make them more realistic considering indian hot hot weather. this one step will pave the way for better understanding of solar energy among ordinary people.

  • compliments – Brilliantly argued article… must read for people who are still scratching the surface and believing the generally accepted principles… we are far beyond the usual.

  • […] The government preferred to push large-scale plants simply because of economies of scale and the potential for cost reduction in solar tariffs. This has worked. Solar tariffs have fallen to incredible (and sometimes unsustainable) lows in the market. The recent bids in January 2016 saw record low tariffs of INR 4.34/kWh. This is now lower than most modern coal-fired power plants. […]