As Solar Energy Price Falls, Indian Manufacturers Lose to China

Are our domestic manufacturers as happy about falling solar energy prices? Tsk. Can they match cheap Chinese prices?

(Photo: Liju Joseph/ The Quint)

For the first time in India, the price of solar energy is lower than the price of thermal and nuclear energy. This is good news, but not yet for us consumers or Indian solar equipment manufacturers.

This is because solar energy constitutes a minuscule 3 percent of our total electrivity needs. About 85 percent of our energy needs are still met by non-renewable energy means like coal, large scale hydro projects, nuclear, gas and diesel. It will be long before consumers see cheaper electricity bills.

On the other hand, China has over supplied the market with cheap equipment putting Indian manufacturers at the spot.

The government routinely organises auctions where tenders to generate solar energy from solar parks are given. They’re open to both Indian and international companies who make competitive price bids and the lowest bidder wins. This is the price at which the companies sell power to power distribution companies.

Last week, India received a major push for solar energy use when ‘historical bids’ of Rs 2.62/unit and Rs 2.44/unit were made in the latest auctions held in Bhadla Solar Park, Rajasthan, on 9 and 11 May.

(Photo: Aishwarya S Iyer/The Quint)

ACME Solars with the lowest bid of the lot of Rs 2.44 aims to generate 7,500 MW of solar energy by the year 2019.

We are delighted. Our operational experience, execution ability and current improvements in the technology gave us the confidence to put in this bid without compromising on quality. We expect an exponential growth in coming days for renewable energy industry.

Manoj Kumar Upadhyay, group’s chairman to <a href="http://economictimes.indiatimes.com/industry/energy/power/solar-power-tariff-drops-to-historic-low-at-rs-2-44-per-unit/articleshow/58649942.cms"><i>Economic Times</i></a>.

Solar Energy Prices Cheaper Than Thermal, Nuclear

Solar energy accounts for 62% of India’s total renewable energy potential, followed by wind energy, which constitutes 34%. (Photo: Aishwarya S Iyer/The Quint)

Analysts in India and abroad have lauded these falls in prices.

The collapsing cost of solar electricity in India is beyond anyone’s expectations, and the results are now in – solar has won.

Tim Buckley, Director of Energy Finance Studies at the Institute of Energy Economics and Financial Analysis.

Aruna Kumarankandath, Programme Manager, Renewable Energy Programme from Centre for Science and Environment said this was a big achievement for the country.

Cheap Loans Needed to Sustain Low Prices

While some experts believe low tariffs aren’t financially viable, others believe cheaper loans will drive growth.

Right now I am unsure if these low solar tariffs are financially viable. To add on, I don’t know if banks would loan money at these rates. The point is if the company had higher tariffs, they would make more money and be in a position to pay the loan back and on time.

Aruna Kumarankandath, Programme Manager, Renewable Energy Programme from Centre for Science and Environment.

Policy specialist on renewable energy Kanika Chawla from the Council of Energy, Environment and Water (CEEW) says there will be plenty of cheap loans for solar energy.

“Technology is now cheaper and 70% of tariff is the finance. As risk reduces and familiarity increases with solar energy technology, finance is likely to get cheaper. The pace might change, but the trend of cheaper finance is sustainable,” Chawla said.

(Photo: Aishwarya S Iyer/The Quint)

As Price Falls, Indian Manufacturers Lose to China

This, however, is not good news for domestic producers of solar equipment in India. India already imports over 85 percent of its solar energy equipment from China and with lower prices the competition has gotten stiffer.

Policy specialist Kanika from CEEW said there is a concern about domestic solar energy manufacturers.

Currently, it is difficult for Indian solar panels to be competitive, especially when prices are falling the way they are. Indian solar manufacturing is growing, but presently it is still small. Domestic prices are high and so, imports are chosen over Indian products.

Kanika Chawla from the Council of Energy, Environment and Water

China has over-supplied the market with solar energy infrastructure. Tim Buckley said the Chinese are investing rapidly in capacity expansion, even ahead of the growth in global demand, and this is creating a virtuous cycle of ever lower solar panel prices.

“This has accelerated in the last 18 months with prices down over 30%,” Buckley said.

Govt Grants Exemptions, Subsidies & Incentives

Currently, India is a booming market for investment in renewable energy. The government has a target of meeting 175 GW of energy by 2022 and has actively initiated policy changes, subsidies and incentives to boost investor confidence.

The Government of India is offering 25-year fixed price tariff contracts that guarantee solar project revenues. There are also incentives available to all power projects across India, such as corporate tax holidays and accelerated depreciation, which helps minimise taxable income.

Tim Buckley, Director of Energy Finance Studies at the Institute of Energy Economics and Financial Analysis.

Ministry of Energy Boosts Solar Power

• 11 April 2017: Ministry of New and Renewable Energy (MNRE) gave customs and excise duty exemption certificates to all roof-top solar PV Power Projects up to a minimum capacity of 100 KW as a single project or bundled project with immediate effect. This is done to encourage roof-top solar investment.
• 21 March 2017: The MNRE got administrative sanction for enhancement of capacity from 20,000 MW to 40,000 MW for development of Solar Parks and Ultra Mega Solar Power Projects. This move would ensure setting up of at least 50 solar parks each with a capacity of 500 MW and above in various parts of the country.
  
• 24 January 2017: The government launched a mobile app called ARUN to manage and monitor the installation of solar rooftop system.
  

The government has helped gain the confidence of investors through these and various other moves.

While fall in solar energy tariffs is a boost to reach government-set renewable energy goals, there are important implications the government needs to focus on. These include protecting domestic manufacturers that face stiff competition from China and flow of affordable bank loans that match low price bids.

(This article is being republished for Renewable Energy Day on 20 August, it was originally published on 18 May, 2017)