November 1, 2017 Read More →

India and China ‘Now Setting the Pace for Solar Development’

Financial Times:

For many in the Indian energy industry, the Bhadla auction confirmed that the country is undergoing a generational shift from coal-fueled power to solar and wind.

This shift is being noticed by some of the world’s biggest foreign investors, many of whom are looking to India for high-yielding green infrastructure projects, given that the pace of solar development in almost every other market has slowed this year.

Masayoshi Son, founder of SoftBank, has said he plans to invest $20bn in the Indian solar power industry. (The other investors are Taiwan’s Foxconn and Indian company Bharti.) Ministers in New Delhi have calculated that hitting their renewables targets will require $160bn in capital overall.

“India, along with China, is now setting the pace for solar development, and Europe is having to follow,” says Tim Buckley, director at the Institute for Energy Economics and Financial Analysis. “That has profound implications for energy markets around the world.”

In 2015, the government of Narendra Modi caught the world by surprise by setting startlingly ambitious targets for building new renewable power. By 2022, explained the finance minister Arun Jaitley, India would build 175 gigawatts of new renewable power, of which 100 gigawatts would come from solar. The solar plans alone are equivalent to 25 large nuclear plants.

Six years earlier, India and China had been blamed for “sabotaging” a meaningful deal at the UN climate talks, but Mr Jaitley’s announcement confirmed India was now at the centre of global efforts to develop cheaper renewables and tackle climate change.

At first, the country struggled to build new capacity as quickly as the targets required, but over the past two years, a string of record low bids for new solar power projects have fuelled optimism that it could soon catch up.

According to an analysis by Bridge to India, a consultancy focused on renewable power in the country, developers are expected to build 8.8 gigawatts of new solar capacity in 2017. This would be 76 per cent more than in 2016 and enough to make India the third-biggest solar market worldwide.

Underpinning that growth has been a dramatic fall in the prices solar developers are charging for energy. In August 2015, the record low was Rs5.49 per unit of electricity. A month later, it fell to Rs5.09. The following January, it was Rs4.34, and a year after that, Rs3.30.

When Acme Solar bid Rs2.44 for Bhadla in May, it meant prices had dropped 50 per cent in two years and over a quarter in just three months. It also meant that solar was now substantially cheaper than coal: when the Bhadla bid was announced, India’s largest power group, state-backed NTPC, was selling its coal-fuelled power at an average rate of Rs3.20 per unit.

The successful bid raised some eyebrows in the industry. “It is good to see people are being very efficient with their systems, but honestly the Rs2.44 number — I don’t think anyone has come forward and said that it makes economic sense,” says Inderpreet Wadhwa, chief executive of Azure Power, which also bid for the Bhadla solar park. “We feel it is super-aggressive.”

However, the companies behind the bid defend the offer.

“We were not surprised at all by the result of the auction,” says Manoj Kumar Upadhyay, the founder and chairman of Acme, one of a handful of companies competing for solar projects against many established Indian and multinational conglomerates. As Mr Upadhyay suggests, there are good reasons the price of solar power in India is so low.

In addition to its strong and reliable sunlight, the price of Chinese-made solar panels has tumbled in the past few years as a manufacturing boom has created over-supply.

Moreover, India’s notoriously high cost of capital has been reduced by strong government involvement in the solar power sector. At parks like Bhadla, the government acquires the land — removing one of the biggest hurdles in a country where land rights are difficult to negotiate — as well as guaranteeing grid connections and providing payment guarantees should state utilities default.

More: Reality Dawns on India’s Solar Ambitions

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