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NEW DELHI: Solar power prices in India have hit rock bottom, but it is not all good news for the electricity-starved country as the phenomenon has hit investor confidence and threatens the country’s effort to push its green credentials.
Cutthroat competition has driven prices down to unsustainable levels, undermining the booming sector’s viability, according to experts.
After the US withdrew from the Paris climate deal last week, India said it would stick to its huge renewable energy program.
India is the headquarters of an international solar energy alliance and Prime Minister Narendra Modi is keen to reinforce the notoriously polluted country’s green credentials. But the price slump could hinder India’s efforts to meet its solar energy goals and limit temperature-raising emissions.
Delays in generating more electricity also mean that nearly 250 million Indians without power will remain in darkness, analysts said.
Indian authorities hold regular auctions for power supply companies and the most recent, in May, saw a bid of 2.44 rupees — less than four US cents — per kilowatt hour.
That was a record low for India at a fifth of the price at the start of the decade and Energy Minister Piyush Goyal called it a step to a “green future.”
The price is cheaper than coal-powered electricity, which overwhelmingly dominates the power grid.
However, the effect of the falling cost of solar modules, cheaper financing, aggressive competition and a surplus power supply in some states has been to unleash chaos, with companies and state governments clamoring for suppliers to match the new, low prices.
“Prices have come down too much, too soon and that does not bode well for the overall health of the sector,” said Vinay Rustagi, managing director of renewable energy consultancy Bridge to India.
“In the past 17 months, tariffs are down nearly 50 percent and this is leading to buyer’s remorse for projects already built and under development,” he added.
“There is a reasonable chance that these projects will face some trouble in the future.”
Modi turned to renewable energy to meet the vast needs of an economy that grew by 7.1 percent last year.
The government has set an ambitious target of harvesting 100,000 megawatts (MW) of solar power by 2022 — but has installed just 12,500 MW so far.
Of India’s 329,000 MW of installed capacity, 67 percent comes from coal and gas. The rest is a combination of nuclear and renewables including, hydro, wind and solar.
India is the fastest-growing of the world’s major economies and needs uninterrupted electricity to maintain its expansion.
It also needs renewable energy to meet its 2015 Paris commitment to reduce emissions relative to gross domestic product by up to 35 percent by 2030 from 2005 levels.
The state governments of Jharkhand, Andhra Pradesh and Haryana have refused to sign purchase agreements to buy power at the rates of 4-5.5 rupees a unit reached at auction over the past year, hoping to secure a cheaper deal.
This is “creating uncertainty,” said Rustagi.
“Ethically we should not do that,” said Sanjay Sharma, general manager at the state-run Solar Energy Corporation of India (SECI) which conducted the latest auctions. He warned that the government could “lose the confidence of the foreign bidder who is investing in India.”
Critics also question if the new contract winners can provide low price electricity and remain viable.