Matching the Grid Parity

<span style="font-weight: bold;">Renewable energy’s lower tariffs and increasing share in the energy mix due to growth in such capacities has increased its importance among power distribution companies.</span><br />
<br />
Renewable energy tariffs for both·solar and wind power·have touched grid parity from 2HFY17. The levelised tariffs dropped to Rs 2.44/kWh in solar energy and Rs 2.65/kWh in wind energy after the bidding in 1HFY18. These tariffs are lower than the average power tariff (Rs 3.30/unit for FY17) of NTPC, which is India’s largest coal-based power generation utility. These tariffs are also substantially lower than the regulated tariff for new thermal power plants. Moreover, these solar tariffs could move lower than the variable cost of generation in some regulated thermal power plants. Thus, cheaper renewables could lower the scheduling of the coal-based power and lower the interest on the part of discoms to continue with long-term PPAs. <br />
<br />
The sharp decline in per unit solar tariffs from a high of Rs 9- Rs10 in FY11 has been due to lowering of both capital cost and cost of capital for the sector. Capital cost for solar power reduced due to a decline in module and invertor prices. Whereas the wind sector has seen a tariff fall due to the sector transitioning from a feed-in tariff regime to tariff-based competitive auctions along with declining wind turbine prices.<br />
<span style="font-weight: bold;">Ashish Khanna, Executive Director and CEO, Tata Power Solar</span> says, ‘The good part about lowering tariff is that the solar industry is now being acclaimed as being competitive. I firmly believe that no business house ever takes commitment of a project, that too for 25 years, unless it is profitable in their model.÷ However, as for the success of these projects, ‘We will know in the next 12 months as to which assumption is likely to come true,’ he adds. <br />
<br />
<span style="font-weight: bold;">Competitive bidding</span><br />
As for the Bhadla projects, it is likely that this tender submission will get delayed again and the reverse auction will take place early next year. Whether tariff bids will be as competitive as in the previous Bhadla auction is debatable. Developers such as Acme, who won 200 MW at a tariff of Rs 2.44/kWh (4=) in the auction, has recently expressed ‘regret’ as Chinese module suppliers have increased pricing over the last three months, lowering return expectations. Other costs have also gone up on account of GST implementation. If there were to be an auction today, Bridge to India would expect tariffs to move up to Rs 2.80/ kWh. But rising tariffs will create another problem: the DISCOMs may walk away creating even more problems for the sector. <br />
To this,<span style="font-weight: bold;"> Uday Bhende, Managing Director, Kirloskar Solar Technologies Pvt Ltd</span> says, ‘Frankly, we have tried the entire math and just cannot get this PPA rate to work. I have asked almost everyone from the industry that I have met, and investors too, but have not received a satisfactory answer yet. Therefore, I would continue my search for a justification of such a price point.<br />
&nbsp;<br />
‘Most projects under construction will not be affected, but new tender and auction activity is stalled and most developers are taking a pessimistic view of the recent developments,’ said <span style="font-weight: bold;">Priya Sanjay, Managing Director, Mercom Communications India.<br />
<br />
Ivan Saha, President and Chief Technology Officer, Vikram Solar</span> was in for a rude shock and is yet to recover. ‘We are fortunate as we did not bid for this project, he says. ‘I am surprised how a player can take the risk, despite the anti-dumping duty (ADD) looming large over us.<br />
<br />
Here, <span style="font-weight: bold;">Manish Narula, Senior Director, Business Development, Jinko Solar, </span>cautioned the developers from bidding for such low price. ‘Since the developer has to bear the cost for 25 years at least, there are equipment which will take money out of your pocket if you do not plan and design properly, he says.&nbsp; <br />
<br />
Moreover, he suggested that the module contains 60 per cent of the first parameter (project cost) only. For the rest of their modules, one has to be careful about choosing the right type of company by observing if it is bankable and is making profit.<br />
In the end, in the whole process, it is the vendors who are always at the receiving end. <span style="font-weight: bold;">Sachin Upadhye, Marketing Manager, Kynar PVDF </span>opines that the recent low tariffs are not good for India. To support his claim, he mentioned that his company, due to price pressure from all quarters has reduced the price of backsheet that they manufactured and is running into losses. <br />
<br />
<span style="font-weight: bold;">Growth in Renewable Capacities</span><br />
Capacities in renewable power have strongly grown in the last three years in view of the energy’s competitiveness and the government’s focus on green energy. India’s renewable capacity was 60.2 GW up in 1HFY18 (FY15: 35.7 GW).<br />
<br />
Although the effective renewable capacity at 20 per cent plant load factor was only 7 per cent at FYE17 of the coal-based capacity at 85 per cent plant load factor, renewable capacity grew at 20 per cent-30 per cent per year compared to thermal capacity’s growth of below 5 per cent for FY17. Furthermore, Ind-Ra believes that growth in renewable capacity would continue, given the Indian government’s revision of its renewable target to an ambitious 175 GW by 2022. The overall target includes 60 GW for wind and 100 GW for solar, under which India needs to add about 6 GW of additional annual wind capacity and about 17 GW of solar from FY18-FY22. India added around 5.5 GW of wind capacity and around 5.4 GW of solar capacity in FY17.<br />
<br />
Discoms are also favouring renewable energy to reduce their overall cost of energy using the single-part tariff structure compared to the two-part tariffs structure (under long-term PPAs) for coal-based plants. In accordance with the increase in the renewable capacity addition, the share of power generation increased substantially to around 8.6 per cent in 1HFY18 from around 5.6 per cent FY15.<br />
<br />
Ind-Ra believes that after adding about 5.4 GW wind capacity in FY17, there could be a substantial dip in capacity addition in FY18 to 1-1.5 GW only owing to unwillingness of state discoms to sign long-term PPAs at higher feed-in-tariffs. However as the wind sector has also shifted to competitive bidding, auctions can pick up from FY19 in the agency’s view. Growth in the solar capacity addition is likely to continue on account of its levelised tariffs at sub Rs 3/kWh level.<br />
<br />
Additionally, we are still in a zone of oversupply for solar panels and hence the prices are likely to decline further giving further push to solar adoption and hence the battle between coal and renewables would continue.<br />
<br />
The future adoption of solar and wind energy would hinge upon technical advancements which could help i) predict solar and wind generation with greater accuracy resulting in greater grid stability and ii) store power from these sources in a cost-effective manner. A successful movement on these two fronts would result in the accelerated adoption of renewables as a viable means of meeting the base load demand.<br />
<br />
Due to the higher capital costs in the past and the green nature of the power, renewable energy projects were provided a must-run status. Although these plants were not scheduled for the entire power initially, given the high tariffs and grid congestion, they would become competitive and receive higher scheduling with the decline in capital costs and consequently tariffs even if the must-run status is discontinued. The discoms by the virtue of the must-run status are bound to schedule this power, though grid constraints prevent full scheduling. However, once the tariffs fall further such that the cost of generation from wind is lower than the variable cost of generation of the coal-based plants, the wind and solar plants would move higher up the merit order dispatch schedule and become extremely competitive.<br />