A question of viability

Fall in solar power tariffs is not without its disadvantages

A sharp slide in solar power tariffs from a high of nearly Rs 18 a unit in 2010 to a record low of Rs 3 is not an unmixed blessing for this up-and-coming sector. In fact, the downside of the price crash may in some respects outweigh the anticipated gains. Though moderation in prices was vital to make solar power competitive against other forms of conventional and non-conventional power, a price crash of this order without concomitant advances in basic technology may prove baneful. Theoretically, cheaper costs can make solar power one of the key forms of energy in the future with positive environmental implications. Besides, it may boost demand for solar power as it would come in handy for power distribution companies (discoms) to augment supplies to domestic and agricultural consumers even at the government-imposed low charges rather than resorting to power shedding.

A noteworthy point is that the tariff fall is not entirely the outcome of enhancement in the efficiency of converting solar radiation into electricity, though admittedly, the cost of solar equipment has been dropping due to gradual improvements in the manufacturing technology. Of the several other factors contributing to the rate meltdown, at least two are highly significant. The first is the aggressive bidding by solar energy producers in the government-sponsored system of “reverse auction” (where the lowest bidder bags the project) that is designed specifically to bring down the tariff. The second is the dumping of cheap solar cells and modules by China where manufacturers enjoy huge state subsidies to enable them to resort to predatory pricing. Even credit is available to them at rates as low as two per cent or less in some cases. Such a situation may not last forever.

Indeed, competitive cost is just one of the several prerequisites for the smooth growth of the solar energy sector. The economic viability of the projects is equally important. Unduly low rates may adversely impact returns on investments, thus, making solar power unattractive for prospective entrepreneurs. Banks are already turning wary of lending to projects which offer meagre returns or seem financially unviable. Going by experts’ opinion, rates below Rs 4.50 or so may put the financial viability of solar power production at risk regardless of government support. Many investors who had bid for lower rates are reportedly having second thoughts. Even though solar plants don’t have any substantial recurring costs as no fuel or feedstock is needed to run them, they certainly need to incur maintenance expenses. Besides, like other renewables, solar power output, too, is seasonal in nature and has a highly variable capacity utilisation factor. In parts of Europe, where sunshine is limited, solar panels usually work at around 15 per cent capacity. Though India-specific data are not readily available, but with an average of 300 sunny days in a year, the capacity factor here is likely to be relatively higher though it may still fall considerably short of its fossil fuels-based competitors. Given India’s global commitment to raising the share of renewable energy in total power generation to 40 per cent by 2032, with 100 Gigawatts coming from the solar sector alone, well-judged policy interventions seem imperative to ensure commercial viability of solar power generation.