Solar sector gets the short shift in hunt for cheaper power

The solar power sector faces a hurdle in meeting its ambitious growth target as cash-strapped distribution companies (discoms) are purchasing cheaper electricity from the exchanges and via e-auction.

Some discoms are simply resorting to power cuts as they cannot afford to even purchase power at low rates on the exchanges. The increase in renewable energy (RE) capacity addition has caused some solar power curtailment issues in Rajasthan and Tamil Nadu, where discoms have flouted the “must run” status of solar power, affecting developers.

Currently, power is traded at Rs 2.40 to Rs 2.50 a unit on exchanges and on e-auction platforms compared to Rs 4-Rs 5 a unit for solar power under power purchase agreements (PPAs).

Raj Prabhu, chief executive of Mercom Capital Group, said the curtailment was still not widespread, but the issue has to be addressed immediately before it hurt investor sentiments. “The problem is more pronounced in Tamil Nadu, especially in high wind energy density areas when wind and solar generation peak simultaneously. In Tamil Nadu, curtailment is mostly due to the utility opting to buy cheaper power from exchanges rather than paying Rs 7 a unit for solar (the state has signed PPAs for that rate),” he said.

R V Shahi, former power secretary, said the comparison between price of conventional power and solar power is not for total price of conventional power but only marginal cost of variable charge. “This means discoms have started considering whether they should buy under PPA thermal power at variable cost of Rs 1 (domestic coal) and Rs 2 (imported coal), which is an option, or buy solar at Rs 4 or Rs 5 a unit under must-run condition. This consideration is not irrelevant, keeping in view the financial conditions of discoms. Simultaneously, average price of thermal power, which will operate at lower plant load factor (PLF), will also increase and further burden discoms.  Even now many generators are not getting sufficient dispatch of solar power,” he added.

Rajesh K Mediratta, director (business development), Indian Energy Exchange Limited, said there was a serious conflict from economic signals coming from framework for solar. “We pay to solar generators at feed in tariff for each unit generated. So, if preferential tariff for a RE generation is Rs 5 per unit, the discom has to pay Rs 5 for each unit of marginal generation. Whereas, marginal cost of generation is zero. Therefore, we need to apply same mechanism as Germany where RE generators sell through exchanges at zero marginal cost and get paid for green premium through government common funds. Such mechanism can only mitigate problem of discoms curtailing power from RE generators,” he said.