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How Solar Power Is Transforming India’s Energy Market (Part 1)

There is a solar transformation underway in India: record low tariffs, huge investment interest, and real growth. But stumbling blocks remain.

A year ago, the Indian government announced a goal of 100 GW of solar by 2022. Many market participants (including myself) were skeptical. In the last couple of months, however, the mood has changed. The goal appears to become more attainable by the day. This is partly due to Indian solar policies, partly due to rising overall investor confidence in India, and partly due to the dynamics of global markets — generally, and in terms of energy and solar. However, not all is good. I cover the challenges in Part 2 (coming tomorrow).

First, these are my main reasons for being optimistic:

Real growth on the ground: A key accusation often made against the Indian market in general and India’s solar plans in specific was that it is all words and no implementation. That has now been proven wrong. In the last three years, the Indian market grew by 1 GW per year. This year, India is expected to add as much as 5 GW (1.1 GW already commissioned). Until recently, our estimate was 3 GW, but now revised our projections upwards (see our India Solar Handbook). In 2016, India may add 7–10 GW of solar (the government plans to auction 10 GW this year).

Radical fall in tariffs: The most competitive bid in October 2014 was INR 6.01 kWh or US$ 0.0875 for a 40 MW plant by US-based First Solar. In Madhya Pradesh bids, opened last week, the highest winning bid was INR 5.64/kWh for a 50 MW plant by Indian developer Hero Future Energy and the lowest bid was an incredible INR 5.05/kWh or US$ 0.0795 for a 50 MW plant by Canadian developer SkyPower Solar.

Globally, the current lowest tariff is from developer ACWA Power in Dubai at $ 0.06 per kWh. If you take into account that interest rates in India are around 7–8% higher than in the UAE and that the state utilities of Madhya Pradesh have a very low credit rating, the aggressiveness of the tariff by global standards becomes clear.

It brings utility-scale solar in India to a point where it may no longer need government support. Think about this: the benchmark tariff set by the government, against which project developers can bid for a capital subsidy amount (“Viability Gap Funding”) in the upcoming National Solar Mission auction is INR 5.45/kWh. Given that the central government is a far more bankable off-taker than the Madhya Pradesh state utility, at this rate, bidders should offer the government money to sign power purchase agreements instead of drawing a subsidy!

Consider also, that the price for new thermal power from coal in India is between US$0.70 and US$0.90 per kWh (as based on recent PPAs signed). In the future, as solar project sizes will further rise and costs fall, and as grid bottlenecks will be reached in certain regions, we will probably see the market turn towards providing “dispatchable” solar power, where solar is complemented by, for example, wind, grid storage, and natural gas.

An interesting side-effect of this fall in solar tariffs and the competitiveness of the auctions is that it can expose insider business and corruption wherever solar deals are signed without bidding. Indian developer Adani, for instance, had signed a PPA with the state of Tamil Nadu directly (i.e. without a bidding process) for a 648 MW project at a tariff of US$0.11 per kWh just weeks before offering solar power at 2 cents less to Madhya Pradesh for a much smaller project size. Differences in off-take risk, irradiation, or land costs can hardly explain this difference.

New players in the market: The Indian solar market is maturing fast. A good sign of that is the rapidly rising interest of large, professional international players. A game-changer in the market was the announcement by Softbank (Japan) to invest $20 billion into the Indian solar market over the next 10 years together with partners Bharti (India) and Foxconn (Taiwan). This was followed by announcement by Russia’s Rosneft to build up to 20 GW of solar in India. In addition, there is significant interest from global solar companies including Sun Edison and First Solar from the US, from private equity investors, and from European and US utilities. Some of this interest is linked to shifting global dynamics in the energy markets, but the larger part is due to renewed investor confidence in India.

While this is all very encouraging indeed and points towards India becoming one of the most dynamic solar (and, in fact, energy) markets in the world, there still are some stumbling blocks. I look at these in the second part or this series.

By the way, a great way to stay up to date with India’s energy market is to subscribe to the free Bridge To India newsletter.

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Written By

is working towards a low carbon world. He believes that this is a great opportunity rather than a sacrifice and that it will be driven by business and economic fundamentals rather than by political directive. Developing countries, who can still make a choice about their future energy infrastructure, are in a particularly good position to get the most out of the renewable energy and energy efficiency solutions available. The good news is: A global energy transition is inevitable. The bad news is: current market designs in most countries are not conducive enough and could delay this inevitable transition for just too long to save our climate. So that is what we need to work on: better market designs. (Disclaimer: views in motion...) Companies I am involved with: TFE Consulting ( (sustainability solutions for India), (helping consumer go solar in India), (the business platform for the global renewables industry).


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