Vandana Gombar: Another month, another milestone

Record low renewables tariffs could head even lower, despite slowdown in global investment this year

Global investment in renewable energy is slowing down this year as the world’s largest investor in clean energy — China — pauses for breath after a hectic 2015. However, that has not stopped the raft of “record low tariff” announcements from projects around the world, enabled by factors ranging from access to low-cost finance to economies of scale and government guarantees. Last month, it was the offshore wind sector that had its smash moment.

The four tariff records making the news so far this year are:

• Offshore wind, the Netherlands (8.1 US cents)

Offshore wind power breached its own aspirational target of breaching the EUR 100/Mwh target (11 US cents per unit) by 2020. Dong Energy bagged a contract to develop a 700 Mw offshore wind farm by offering to supply power at about 8.1 US cents per unit, excluding connection fees. This makes it competitive with onshore wind in most of Europe, according to the Bloomberg New Energy Finance (BNEF).

Over four Gw of new offshore wind installations were commissioned in 2015, mostly in Europe, with Germany taking the lead, followed by the UK. Outside Europe, China is emerging as a significant market.

India unveiled an offshore wind policy in October last year,sans any target build however.

• Solar, Dubai, UAE (2.99 US cents)

Solar tariffs breached the three US cents mark for the first time in May, when a consortium of Spanish developer Fotowatio and Masdar bid to supply power to the Dubai Electricity and Water Authority at 2.99 US cents per unit from a proposed 800 Mw plant. Is this the new normal? This project gets the benefit of incentives that may not be available to other plants, so it will certainly not be the new global benchmark tariff for solar, though it dominated headlines when it was announced.

The lowest tariff bid for solar power in India has been 4.34 rupees per unit (6.49 US cents) by Fortum Finnsurya, for a 70 Mw project in Rajasthan earlier this year. With an expected softening in solar panel prices ahead, another record could be set in the second half of the year.

• Solar, Zambia (6.02 US cents)

A World Bank programme — Scaling Solar — enabled the fast-tracking of Zambia’s first solar auction and yielded a tariff that is the lowest in sub-Saharan Africa. Other countries like Senegal have signed into the programme.

It is interesting that this tariff is lower than the Indian one.

• Wind, Morocco (three US cents)

The lowest bid for wind — as per our most updated information — came in Morocco for an 850 Mw plant. The bidder was Enel Green Power, which has been bidding aggressively in emerging markets in the recent past. The company hinted that India could be its next big market.

Solar tariffs are forecast to head lower in the next few months, as China slows down new build. The country set a capacity record in the first half of the year, connecting over 20 Gw of solar plants to the grid over the six-month period. This rush-to-build was partly driven by the move to a lower feed-in tariff in the second half of the year. The mismatch between panel demand and supply in the latter half of the year is expected to dampen prices.

India is a large market for Chinese cell and module makers, and accounted for almost a fifth of their exports in the first five months of 2016, according to BNEF data.

India could also see competitive tariffs in wind, with auctions replacing generous feed-in tariffs, which have catapulted the country to the fourth position globally in terms of cumulative installs.

The author is editor, Global Policy, for Bloomberg New Energy Finance; vgombar@bloomberg.net