India, the world’s third-largest energy consumer, is cutting solar-power costs to a record by forcing project developers into auctions, helping avoid the spiraling renewable-energy subsidies that have hurt Europe.
The lowest bid in India’s latest national auction on Dec. 2 came from Solairedirect SA, France’s second-largest producer, which offered to sell photovoltaic electricity at 7,490 rupees ($147) a megawatt-hour. That’s 38 percent below the average price set in a December 2010 auction and about 30 percent cheaper than the global average for solar projects.
Governments in Europe including Germany and Spain, the world’s largest solar-panel markets, this year cut above-market rates paid to all plant operators that led to ballooning costs amid an escalating debt crisis. India is staying ahead in driving down costs by forcing companies to compete on price.
“Astonishingly competitive pricing in the latest auction,” Anand Mahindra, managing director of Mahindra Group, whose solar unit won two of the 28 contracts awarded for the solar plants, said in a Twitter feed that was confirmed by his spokeswoman Roma Balwani. “The sun appears to be shining on India’s solar power program.”
Globally, power project developers on average demand to be paid $208 per megawatt-hour to build a solar plant, $78 for a wind farm and $76 for a coal plant, according to Bloomberg New Energy Finance levelized cost of energy analysis.
Competing With Coal
The auction’s results for $700 million of projects shows the price of solar power in India is closing in on the cost of coal-fired generation faster than expected as photovoltaic equipment costs plunge, said Mohit Anand, senior consultant at Bridge to India Pvt., a New Delhi-based advisory firm.
Solar power may equal the cost of fossil fuel-based electricity sold to commercial businesses as early as 2014 or 2015 if prices continue to fall at the rate seen in India over the past 12 months, Anand said. KPMG LLP predicted in May solar power may be as cheap as coal by 2017. The government said in an August report that solar could reach grid parity by 2019.
Under India’s program, the government proposed to buy solar power at 15,390 rupees a megawatt-hour for 25 years. Companies bid to sell at a discount to that price in a process known as a reverse auction. Those offering the lowest rates win and are awarded the rights to build plants with capacities of as much as 20 megawatts each.
The average bid of the 28 winning projects was 8,780 rupees. That’s a nearly 30 percent drop from the average solar power rate set by India’s first auction last December and 35 percent above India’s wholesale price of coal-based electricity on Dec. 2, according to prices on the Indian Energy Exchange. Even at equal prices, coal has an advantage in that it can produce power at nighttime and at full strength under cloudy skies.
Solairedirect’s offer is the third-cheapest on record globally behind a bid for $110 a megawatt-hour in China and $120 in Peru, according to Jenny Chase, the Zurich-based head of solar analysis at Bloomberg New Energy Finance.
In clean-energy auctions this year in Brazil, Uruguay and Peru, wind farm and solar park developers have won contracts to supply power at rates close to or below fossil fuel-based power.
Global solar power prices are plunging because of declining equipment costs, with the spot price of solar panels dropping about 40 percent this year as manufacturers, especially in China, ramped up production, according to Bloomberg New Energy Finance.
“Manufacturers are keen to offer discounts and to defer payments because things are so competitive right now,” Anand said. “Costs are going down and that’s really reflected in these bids.”
18 Nuclear Reactors
The auction awarded 350 megawatts of capacity and was the second under India’s national Solar Mission program that’s positioning the country to become one of the world’s fastest- growing solar markets by installing 20,000 megawatts, equivalent to about 18 nuclear reactors, of sun-powered capacity by 2022.
The biggest contracts for 20-megawatt projects were won by Indian developers who have already begun building smaller plants in the country. They include Welspun Group backed by Leon Black’s Apollo Global Management LLC, Mahindra Group’s solar unit, World Bank-backed Azure Power India Pvt. and Kiran Energy Solar Power Pvt., whose investors include Bessemer Venture Partners, an early funder of Skype Technologies SA, according to Bridge to India’s Mohit Anand.
Article Courtesy: Bloomberg