With prices of solar panel components slowly dipping and the cost of conventional energy increasing, India is set to reach grid parity between 2015 and 2017, however Deutsche Bank claims the country has already reached this milestone
By Richa Chakravarty
A Deutsche Bank (Germany) report recently stated that solar power in India has already reached grid parity. This report contradicts the estimates of the Ministry of New and Renewable Energy (MNRE) that targets achieving grid parity by 2017. Industry experts are surprised by this report and are of the opinion that the Deutsche Bank report is a ‘virtual reality’, as on the ground solar power in India is yet to reach grid parity.
According to Raghunandan SS, vice president, PV and Engineering, Kotak Urja Pvt Ltd, “The industry is uncertain about the parameters Deutsche Bank has used to arrive at this conclusion. If we go by the social cost and not the commercial cost, then may be the Deutsche Bank report holds some truth.” The social cost refers to the effect that conventional energy or the activities involved in producing conventional energy have on the environment.
The direct and indirect cost of conventional energy on society is very high. On the other hand, solar power being ‘greener’, its negative impact on the environment is much lower.
K Subramanya, former CEO, Tata BP, and presently a solar energy consultant, is also of the opinion that the Deutsche Bank report cannot be based on commercial costs. “It must have been based on the social cost. The factors for grid parity are not the same in every country, in fact, in India they vary from state to state, as electricity is a concurrent subject here. At some places, electricity is given for free due to various political reasons. Hence, on the basis of commercial costs, India will take a few more years to reach grid parity.
According to a report by KPMG, solar power in India will hit grid parity for each of the scales (low tension and high tension) between 2015 and 2017, which seems more plausible and achievable.”
Says Biju PC, manager, sales and marketing, Emmvee Photovoltaic Power Pvt Ltd, “I am not sure about the parameters Deutsche Bank has applied to evaluate grid parity, however, I believe that it would have reviewed the renewable energy certificates (RECs) to come to this conclusion.”
RECs represent the attributes of electricity generated from renewable energy sources. These attributes are unbundled from the physical electricity, and the two products—the attributes embodied in the certificates and the commodity electricity—may be sold or traded separately. One REC certifies that 1 MWh of energy will be generated from renewable sources. And in Kolkata alone, 1.4 million RECs were offered for sale in just one month—in January 2013.
How soon India will reach grid parity
Solar power must be cost competitive with coal or other sources of electricity without relying on government or corporate subsidies. It is only then, one can claim that solar power generation has achieved grid parity. Recently, the Odisha government floated a tender, and one solar energy provider quoted a tariff of Rs 7 per kWh a rate that would be constant for the next 25 years, which is almost on par with the tariff of coal-based power. For instance, new coal-based plants using imported coal have a tariff of Rs 5-6 per kWh, while domestic coal-fired plants charge Rs 3-4 per unit. And as fuel costs rise, these tariffs are bound to go up.
In countries like Italy and Japan, where the price of electricity is very high, for solar power to reach grid parity is easier than anywhere else. But for a country like India where both state and Central governments are responsible for the generation, transmission and distribution of electricity, and with the cost of electricity being different in every state, reaching grid parity will take some time. The cost of average pool purchase of electricity is as low as Rs 2.60-3 per unit.
Hence, in India, for solar power prices to compete with conventional energy will take some time.
The preliminary aim of the Jawaharlal Nehru National Solar Mission (JNNSM) was that by 2022, solar energy in India would achieve grid parity. When solar technology was introduced in India, the cost of megawatt (MW) solar projects was around Rs 130-140 million. Hence, the cost of producing solar energy was between Rs 13-14 (per unit), which was much higher than the cost of conventional energy at that time (Rs 3-4 per unit).
But over the past two years, the prices of solar components have reduced drastically and the costs of commissioning megawatt solar projects have also come down to about Rs 70 million. So, there is nearly a 50 per cent drop in the commissioning costs alone. This drop has happened faster than it was expected.
“We cannot expect a solar project which has been commissioned at Rs 70-80 million to sell power at Rs 2-3 per unit. Therefore, it will take at least 3-4 years for the solar prices to come down and meanwhile, the price of conventional energy will go up further, since resources like coal are getting depleted fast. So, grid parity can be reached by 2017 and not before that,” explains Biju PC.
Shares K Subramanya, “Not only is the cost of conventional energy increasing, but such projects have also been running into losses. Electricity boards in India have increased the buying price of electricity. In order to survive and sustain business, there has been an average increase of 16 per cent in prices and in some states it has increased by almost 25-30 per cent. So, the cost of buying electricity has gone up.
“In the normal course of events, with every passing year, we assume that the cost of conventional electricity will increase by 4-5 per cent while the cost of solar electricity will reduce by Rs 4-5.
Once parity is reached, it will open up investment opportunities in India. The industry will no more look to the government for support,” K Subramanya concludes.
While India may achieve solar grid parity between 2015 and 2017, there are a few challenges that experts feel are hampering its pace. “Stable policies with respect to creating demand, providing a level playing field, and the creation of a good infrastructure for mass manufacturing are some of the challenges that the solar industry is facing,” says K Subramanya.
