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APR 29 2017

Will renewables win the grid parity race?

  • Economic Times, ET Bureau / Hyderabad
  • Created: Sat 29th APR 2017

The Indian Government - under the leadership of Prime Minister Modi, has set a target to achieve 175 gigawatts (GW) renewable energy capacity by 2022. This ambitious target was presented initially in the UN in 2015, to display India’s proactive approach, contribution and willingness to reduce carbon emissions. Out of the 175 GW power capacity, 60 GW has been allocated to wind, 100 GW has been allocated to solar wherein 40GW is for solar rooftops. Lately, in order to achieve these targets and attract investments and developments in wind and solar sectors in the country, various forms of subsidies and tax incentives have been made available by the authorities.

Grid Parity: The moot point

The greatest surprise in the recent years has been the speed at which the price of solar panels has reduced. Soon India will witness cost parity. As technology will keep getting cheaper, this trend is likely to be continued. Moreover, with the involvement of new subsidies and incentives, the question is whether these low tariffs can help in achieving grid parity which remains a moot point.

Grid Parity is a term used to describe the point in time when generating electricity from alternative sources of energy like solar and wind, costs more or less similar to the traditional sources. This means that India will reach grid parity when solar or wind can generate electricity at the same rate or equal to thermal power generation and is touted as the turning point of energy generation scenario in the country.

According to few research papers, solar tariffs fell below INR 5 (USD 0.07)/ kWh, gaining parity with other sources of greenfield power. Falling cost has been instrumental in boosting solar demand from the power companies despite total power demand staying relatively weak throughout the year. New bigger capacities are expected in 2017 and would be attracting even more competitive tariff bids. Solar power is likely to become cheaper than or equivalent to conventional thermal energy prices soon and would reach Rs 4 per unit in early 2017. Factors such as decline in capital costs, technological advancements, increase in efficiency, shift towards large scale solar projects and lower return expectations by developers, are positive influences on the growth of the solar industry.

Rooftop solar and large scale renewable showing impressive growth

The year 2016 has been extremely eventful for the renewable energy sector in India with most key indicators growing 2-3x over last year. The country added total solar capacity of 4.9 GW, an increase of 101% over 2015 and crossed the 10 GW cumulative installed capacity mark. New tenders were floated for about 9 GW of grid connected solar projects including 900 MW for rooftop solar systems.

In a recent bid won by a leading organization which resulted in an unprecedented low tariff starting at Rs 3 per unit, has drastically stunned the pricing dynamics of the Indian solar industry. With an intend to install 14.5 megawatts (MW) of solar rooftop plants across 10 states, they are now offering power from these plants at tariffs starting at Rs 3 per unit, which is the lowest bid anyone has ever made in India.

The offer of low tariffs is a significant development. With tariff underRs.5 per unit, debate would continue on the sustainability of low tariffs. However the foreign investors and big domestic corporate houses have started warming up for the huge investment potential in the renewable energy space sensing economic viability with lower capital cost and reduced counter party risk.

The convergence of clean energy targets, strong government-backed policies and subsidies, desire for energy decentralization and continued technical advancements & innovation are the driving factors that will lead to solar global grid parity by 2020.

Tags

TOTAL Grid Renewable Energy Wind Power Generation Tariff Clean Energy Energy Grid Parity Tax Power Electricity India solar power Solar

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