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Record low bids for solar in India underscore its vast commercial viability

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IEEFA

Commercial-Solar-Panels

This week as India was crossing the 50-gigawatt threshold for cumulative installed renewable energy capacity (excluding large hydro), the initial bids for its first major solar auction of 2017 were announced—and came in at a record low Rs3.59-3.64/kWh.

That’s down 16 percent year on year against the previous record low bid.

This trend is not occurring in a policy vacuum. India’s new draft National Electricity Plan, released in December, calls for a fivefold expansion to 258GW of renewable capacity by 2027, an expansion that would reduce thermal power capacity share to 43 percent of India’s total from 66 percent today.

The solar-auction results mean this target just got substantially easier and more cost effective to implement. Costs per unit of power to purchase are tumbling, and—of critical importance—it can now be shown that these prices are not only commercially viable but likely to beaten again in 2018, and again in 2019 as total solar costs continue to decline globally at a rate of 10 percent annually.

The implications for global renewable energy uptake, and the ongoing structural decline of seaborne thermal coal are clear.

Some detail:

Initial bids for the 750MW Rewa solar park in the Indian state of Madhya Pradesh came in at Rs3.59-3.64/kWh (US$53/MWh), against the previous record low bid of Rs4.34/kWh (US$64/MWh)accepted from Fortum of Finland for a 75MW project.

Fortum’s bid was 25 percent below the bids being lodged a year earlier, and there was consistent comment at the time that the bid was neither commercial nor sustainable, and would not be replicated. Subsequent solar bids consolidated at Rs4.50-5.00/kWh.

So these bids are not only commercially viable, they are replicable and sustainable.

We see Indian uptake of solar growing, and we think a key indicator in support of our outlook is that the  Rewa solar tender was ten times oversubscribed, with 7.5GW of total bids from firms as diverse as India’s leading power conglomerates (e.g. the Adani group, Aditya, Hero), innovative global conglomerates (SoftBank of Japan in a joint venture with Foxconn of Taiwan), leading global utilities (Enel of Italy, GDF of France), and specialist Indian renewable firms (such as ReNew Power) backed by global financiers (ADB, Goldman Sachs and JICA of Japan). Sovereign wealth funds (Abu Dhabi Investment Authority) are also leveraging the rapidly developing global Green Bond market.

A whole host of factors are driving down the delivered cost of solar electricity in India, which is second in population only to China:

  • Solar module costs have by dropped 30 percent over the past year. 
  • The Reserve Bank of India has delivered a succession of rate cuts since 2015 as inflation has fallen almost by half after Prime Minister Modi’s 2014 election, driving down the cost of finance.
  • The Indian exchange rate has stabilized, allowing U.S.-dollar module costs to translate directly into the lower rupee cost of solar. 
  • Access to global capital for renewable infrastructure projects in India is rapidly expanding. 
  • Indian installers are learning by doing, and are now putting up the largest solar projects in the world (Adani’s 648MW Tamil Nadu project, commissioned in mid-2016), using the latest technologies.
  • Solar tenders are backed by the Solar Energy Corporation of India (SECI), a central government entity providing an entirely bankable counterparty, circumventing the un-bankable state utilities (DISCOMs).
  • Initial tariffs have a partial inflation protection mechanism via indexation.

Behind all of this is Energy Minister Piyush Goyal’s “TLC” policy on solar— transparency, longevity and certainty.

The investment needs of the Indian electricity sector over the next decade will approach US$1 trillion, presenting an opportunity that is now attracting the attention of the global majors who have historically overlooked India’s 1.3 billion people and its 7 percent annual economic growth rate.

The clear conclusion in the government’s December electricity-development plan is that India need not build any new coal-fired power capacity over the next decade. This conclusion was reinforced with the Central Electricity Authority this week reporting a drop in the average thermal power plant utilization rate in the nine months to December 2016 fell to a decade-low 59.6 percent.

Goyal’s target to cease thermal coal imports into India looks like a commercial certainty—imported coal-fired power generation is the risky, high cost option. Renewable energy capacity is targeted to increase fivefold to 258GW, and investment in other zero emission technologies (nuclear and large hydro) are targeted for a near doubling, to 94GW.

Indian solar tariffs of US$54/MWh are likely to continue falling by 5 to 20 percent annually for the next decade.

All this news from India bodes ill for international coal markets, and raises questions about an Australian project we have followed closely.

With the Adani group announcing this week it targets USD$2bn of investment in solar in 2017 alone, one must clearly question if there is any remaining strategic or commercial merit in Adani Enterprises’ ongoing pursuit of the remote and now stranded low-quality export thermal coal proposal at Carmichael in Queensland’s Galilee Basin.

In IEEFA’s view the only way the Carmichael proposal can proceed is with a massive government subsidy to underwrite as much as AU$10 billion of project risk involved. While the North Australia Infrastructure Fund (NAIF) has been pushed to provide a subsidy of $AU 1 billion, the balance remains unfunded and is a key project risk.


Tim Buckley is IEEFA’s director of energy finance studies, Australasia. 

  

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  • Brunel

    Fantastic!

  • FIFO69

    This article is misleading at best and downright manipulating at worst.

    India’s new draft National Electricity Plan ALSO shows that demand from India for coal will increase significantly (Section 9.3 page 9.11). It shows that demand for coal is projected to continue to ramp up in India massively to 677Mtpa in FY2122 and then up to 900Mtpa in FY2627.

    This is an undisputed fact.

    Lets hope they down burn low quality domestic coal to meet this demand hey Tim!!

    Australia’s coal on the other hand is high quality which when burnt results in lower CO2 emissons than other types of low quality coal like Indias.

    Australia’s total thermal coal exports are about 200Mtpa.

    There is a clear demand for thermal coal in India. Australia could literally ramp up our thermal coal exports by 4.5 times over the next 10 years to meet this demand.

    Once constructed, every tonne of coal from Carmichael that is burnt in India will offset a tonne of rubbish Indian coal, resulting in reduced CO2 emissions and reduced global warming (and reduced impacts to the Great Barrier Reef).

    If anyone wants to reduce GHG emissions and help the reef should be cheering Adani on rather than opposing it.

    • GlennM

      Good luck with your coal shares…

      • FIFO69

        Don’t you care about the environment?

        • Tim Buckley

          FIFO69 – you better tell the Indian Energy Minister Piyush Goyal his plans are all wrong. He should stop increasing domestic Indian solar and coal production and import coal more. But wait- didn’t Indian coal imports drop 25% yoy to 14Mt in December 2016? Maybe your hopes are not actually being matched by the facts that are occurring in India.

          • FIFO69

            Yeah I might give him a buzz later, I’m on the phone with your mum at the moment

          • Tim Buckley

            You probably should get back to your day job at the QRC, Ian needs a hand calling his mates back in Canberra to lobby for more coal subsidies and handouts.

          • FIFO69

            I don’t work for the QRC, I have a real job adding value to society, unlike you in your home office manipulating the public and sending out anti coal anti Australian propaganda media releases all day

          • FIFO65

            I dont work for the QRC, I have a normal job, i leave the house and go to work everyday and contribute to Australian economy and scoiety.

            Not all of us can get paid by overseas interests sitting in our home offices all day, cherry picking data and sending media releases with the aim of misinformaing the Australian media and killing the Reef.

          • solarguy

            Once again your an IDIOT!

          • FIFO69

            You’re

          • FIFO65

            Excellent example of use of selective data to create the illusion of a decrease in coal use in India.

            So imports are down, presumably this means use of low quality domestic coal in India has increased over the same period, resulting in greater CO2 emissions than would have otherwise been the case and greater impact to our Great Barrier Reef.

            So answer me this, why do you hate the Great Barrier Reef so much?

        • solarguy

          Better start working out how to eat coal and cash.

          • FIFO69

            Why is that?

    • solarguy

      Idiot!

  • Tim Buckley

    As an update to this report, FRI afternoon has the release of second round bids on this REWA 750MW tender and pricing has moved even more dramatically lower still – as low as Rs3.13/kWk (US$47/MWh) – down 28% lower than the record Rs4.34/kWh taken by Fortum in India in January 2016. No official announcement as yet, pricing is still moving. This is staggering news, and game over for unbankable, low quality thermal coal export proposals from Australia – Carmichael’s project can’t compete with the massive solar deflation evident in India. http://energy.economictimes.indiatimes.com/news/renewable/solar-power-rate-touches-record-low/57073817

    • FIFO69

      That’s great, reverse auctions always end well, especially ones involving large scale unproven technology. I’m sure the successful bidders will be very happy with their decisions. I look forward to following this story.

      • Brunel

        Do you mean proven technology?

  • Marcus

    This is great news. Thermal coal is dead without government i.e. taxpayer subsidies. They will receive them as that what the coal lobby pay for in political donations.

    Even so, the model dead, it’s like end of whaling, or the horse drawn carriage. Lots of people need to transition and resistance as below, is natural. However, the economics are driving this.

    We are off grid here, with a 10kWh battery from LG. The ROI is 10%! Next year for the same price the battery will be 20kWh, ROI then, 20% if energy prices are the same. It’s the economy stupid.

  • solarguy

    The Indian government must be applauded, it shows what common sense and determination can do. Makes Turdbull and his cronies look like the lunatics they are.

    Well done India, the light on the hill!

  • David leitch

    As good as this is I can’t help wondering if enough is being done to promote community solar for non grid connected Indians. The distributed nature of solar should play so well to those 70 m people.

  • Jason Van Der Velden

    Well, when will coal o belly up? All these great articles showing coals imminent demise “tomorrow, no sorry day after tomorrow” yet the consensus is coal isnt going to die tomorrow or next week.

    • FIFO68

      It’s just scare mongering by the anti coal propaganda machine and misrepresentation of data aka tim buckley, aimed at discouraging investment in any new coal infrastructure.

    • FIFO68

      It’s just scare mongering by the anti coal propaganda machine and misrepresentation of data aka tim buckley, aimed at discouraging investment in any new coal infrastructure.