Originally published on RenewEconomy.
Two stunning auction results in India and Chile in the last week have underscored the extraordinary gains that large-scale solar has made against its fossil fuel competitors.
In both countries, solar is now clearly the cheapest option compared to new coal-fired power stations. In Chile, where the auction was open to all technologies, fossil fuel projects did not win a single megawatt of capacity. And the auction produced the lowest ever price for unsubsidised solar – US6.5c/kWh.
In India, US firm SunEdison won the entire 500MW of solar capacity on auction in the state of Andhra Pradesh, quoting a record low tariff for India of INR 4.63/kWh (US7.1c/kWh). Again, this was unsubsidised. And again, it beats new coal generation, particularly generation using imported coal.
These bids follow an auction in the US last month by the Texas city of Austin, which contracted to build 300MW of large-scale solar PV at a price of less than US4c/kWh. Even after backing out a tax credit, this is still less than US6c/kWh, and still beats gas and new coal plants, if anyone was planning to build one.
As Greentech Media reported last month, and we have signalled in the past, that means utilities are choosing large-scale solar over new peaking gas plants. Solar PV is beating gas on fuel costs alone, and is acting as a safe hedge against fuel price volatility.
The significance of the India auction was not just in the price, but in the quality of the bidder. Far from being an unheard of upstart who has bid low in previous auctions, SunEdison is the biggest renewable energy development company in the world.
Other close bidders are also substantial names. Second place went to Japanese firm Softbank, much-touted for its announcement of investing US$20 billion in India’s renewables market, which is thought to have offered INR 4.80/kWh.
Other parties to beat the previous record (of 5.05/kWh) and bid below the 5/kWh mark were Italian giant Enel Green, Reliance Power, the Indian power group that recently announced it was selling its coal mines to focus on solar, and Renew (no relation to this website), along with three others.
Such prices were predicted just last week by analysts including from Deutsche Bank, who predicted prices of 4.7/kWh and predicted that the India solar market was “ready to take off.”
Still, the actual bidding results still took some analysts by surprise, with some suggesting that the prices will not allow for significant returns.
The same thing was said about the ground-breaking solar result in Dubai earlier this year, but companies are clearly grabbing territory to develop supply chains that can further reduce costs. It is a story that has been repeated over and over across the world, and underlines the power of the auction system.
And these results certainly have major implications for future energy choices in India, and elsewhere.
Jasmeet Khurana, senior consulting manager at analyst firm Bridge to India, said solar projects are now in the same range of electricity prices as wind projects and even new greenfield coal-fired power projects, which tend to have tariffs ranging between INR 4.50/kWh and INR 5/kWh.
“I think this changes the paradigm, not just for the solar sector, but also for the power sector in India,” he told PV-Tech. Even the Indian government was delighted, with energy minister Piyush Goyal tweeting: Delighted that Solar Tariffs in India have broken Rs 5/kWh level.”
The results were comparable with bids the previous week at an auction in Chile, where renewable energy cleaned up and took all the capacity on offer.
Large-scale solar PV projects won with bids of between US6.5c/kWh and US7.8c/kWh, bettering two winning wind farm bids at US7.9c/kWh.
And it is not just solar PV that is undercutting fossil fuels. Solar tower technology with storage also won a significant amount of capacity after bidding a price of US9.7/kWh ($US97/MWh)
Abengoa is already building one hybrid plant near the city of Calama, combining a 100MW solar PV farm with a 110MW molten salt power tower designed to run 18 hours without sunlight. That will be paid on a tariff of $US115/MWh, with no subsidies, when the whole complex is complete in 2017.
Abengoa has proposals to build a “twin” of this project in another city, as well as a bigger, triple-tower, 315MW project near Copiapó.
SolarReserve, which has built Crescent Dunes in Nevada, the world’s biggest solar thermal power tower project optimized for energy storage which recently delivered power to the grid for the first time, is also building a similar hybrid plant in Chile.
It is proposing, also near Copiapó at the southern end of the Atacama Desert, a plant that would combine a pair of 130MW salt towers with 150MW of solar PV.
CEO Kevin Smith says his company will offer power from its Chilean hybrid PV-thermal solar projects as a bundle, and promises it will sell for “well under” $US100/MWh.
That is even cheaper than the $US125/MWh for power it will supply from the Redstone 100MW solar tower facility it is to build in South Africa, also adjacent to two solar PV arrays already in production.
That $US100/MWh mark is a key metric. It is where the Australian roadmap for solar thermal – set out by the Australian Renewable Energy Agency – hopes to take local generation costs.
It also suggests that the estimated costs of a plant to replace the Port Augusta coal-fired power station – at more than $200/MWh – are grossly inflated.
In Australia, many gas-fired peaking power stations operate at a significantly higher price than that.
If the solar tower and storage technology can get a foothold in Australia any time soon – possibly via the ACT government’s “next generation” solar auction – then it has the potential to rapidly transform Australia’s electricity grid, working with battery storage to allow for more flexible capacity to fit in with the increasing penetration of renewables.
Reprinted with permission.