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By 2017-18 Solar power is likely to become cheaper than or equivalent to conventional thermal energy prices over the next 2-3 years and reach Rs 4-4.5 per unit

COIMBATORE: Solar power is likely to become cheaper than or equivalent to conventional thermal energy prices over the next 2-3 years and reach Rs 4-4.5 per unit by 2017-18, India Ratings and Research has estimated.

“This will be driven by a decline in capital costs (solar modules and other balance of plant), an increase in efficiency, a shift towards large solar photovoltaic projects leading to the economies of scale and lower return expectations by developers,” it said.

Solar photovoltaic prices have fallen nearly 80% since 2008, according to the International Renewable Energy Agency. Solar module efficiency has witnessed an annual increase of 3.5%-4.5%.

 

“The increasing size of projects to 10 MW and above from 5 MW earlier also leads to economies of scale in component procurement and better absorption of fixed costs,” India Ratings said.

“Moreover, the return expectation of developers is likely to moderate as the market matures, leading to a reduction in overall tariffs,” it said.

The recent solar bids conducted by MP Power Management Company where per unit prices hit a low of Rs. 5.05 per unit is an indication of the emerging trend, the agency stated. In a recent bid, NV Energy, a Nevada-based utility, agreed to purchase 100 MW solar power under a fixed-price 20-year power purchase agreement at 3.87cents per unit, which works out to Rs. 2.43.

India Ratings expects a strong pick-up in solar power installations over the next 4-5 years, driven both by the government impetus of 100 GW of solar power by 2021-22 (60 GW through grid connected solar projects) and a decline in solar power generation costs.

“These factors will increase the affordability of solar power for distribution companies and eliminate the requirement of government support by way of subsidies or viability gap funding (VGF),” the agency said.

India Ratings sees limited possibility of support by way of VGF, greater focus on infrastructure creation for the evacuation of solar power and higher possibility of distribution companies meeting their renewable purchase obligation.

The solar space has already seen a significant decline in tariffs. The feed-in-tariffs (FITs), outlined by respective state electricity regulatory commissions based on the cost-plus return on equity model, have also seen a significant decline.

FIT for solar energy in Gujarat has come down to Rs 8.03 per unit in 2014-15 from Rs 12.54 in 2010. FIT for solar energy in Rajasthan has declined to Rs 6.74 per unit for 2015-16 from Rs 15.32 in 2010-11.

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