The per unit price of solar power in India has dropped from ₹15 to ₹2.44 in 5 years In fact, it has fallen from ₹4.50 within one year. Has the technology improved so much in the solar sector to facilitate this fall? Has solar become commercially viable and attractive for everyone? Have government incentives enabled this price fall? How much further will prices fall in the next five years? Is this sustainable?
If this sector is in profitable growth mode, why have giants like Sun Edison, Solar World, Sungevity Beamreach, Climate Energy and Mark Group filed for bankruptcy in the past year? Also, Yingli Green Energy, a former world leader in solar panel volume, recorded a loss of $267.1 million in the fourth quarter of 2016 on $294 million in revenue.
So, all is not hunky dory with the industry.
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Viability questions
The per unit price is the price that state utilities pay the developer for power supplied.
If the price of ₹2.44 has to be viable for a developer, it would mean an RoI in 7 years and functioning of the plant for 20 year. Then, the project cost needs to be under ₹3 crore per MW, excluding land and connectivity. Also assumed is that all power generated gets consumed by state-run generation and distribution companies (Gedcos) and all payments due to the installer get paid in 30 days.
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Is it possible to run such projects profitably? The quality of material used is suspect. Interest costs alone can be substantial.
A 60 GW solar capacity, the Centre’s 2022 goal for ground-mounted projects, would need 3 lakh acres and ₹2,50,000 crore in investment. The assumptions are: the average cost per MW would be ₹3.5 crore; and generation of 240 million units a day into the grid.
Assuming average tariff of ₹4.50, it would mean a daily payout of ₹100 crore by a Gedco. Is this feasible, given their financial ill health?
If a state becomes power surplus, it must export solar power generated to other states. Such sale cannot occur at a price lower than the ₹4.50 per unit at which the state has bought the power. If other states can buy power at rates now lower than ₹4.50, the selling state is left with no buyers. Also, who will account for transmission losses and distribution costs? If there is viability gap funding, and if the projected power is not generated after a few years, then the subsidy is wasted.
Imports of China-made solar modules without any duty, irrespective of their efficiency or quality is hurting industry prospects. If the modules fail to generate adequate power after a while and if the firms that supplied the modules with 25 years warranty go bankrupt, what happens to the plant?
What is needed?
Duties based on efficiency of the material imported would discourage poor quality. On arrival of shipment at an Indian port, a sample module must be submitted to an MNRE-approved testing centre for measurement of efficiency and accordingly customs duty should be levied. Lower the efficiency, higher the duty. This will allow quality imports and promote ‘Make in India’ — whose incentives can make benefit the solar industry.
The Centre should also publish the actual quantum generated monthly by each solar power plant feeding into the grid, state wise. A minimum generation criteria per MW is to be fixed. Failure to meet this target should result in a penalty.
All power purchase agreements signed by Gedcos must have a clause such that failure to generate a certain million units per MW a year for two consecutive years would result in cancellation of the PPA and the land recovered.
(The author is MD, Solkar Solar Industry Ltd.)