Another Record Low Solar Auction Builds on Wider Momentum Across India

Yet another record low Indian solar tariff—this time in Uttar Pradesh in Northern India —is news of note, highlighting the rate of energy-transition change in India and underpinning the inevitability of a technology-driven, deflationary global electricity-sector transformation.

Adani Group and solar developer Azure Power have each been awarded 50 megawatts of solar capacity with winning bids of Rs4.78/kWh (US$0.07) in the 100-megawatt auction. Granted, a solar auction result of Rs4.43/kWh last week (compared to an auction that yielded a winning bid of Rs4.63/kWh in late 2015), was every bit as notable—and drew an even lower bid. But the pricing on the Adani and Azure deal sets a record low for the state of Uttar Pradesh, which has lower solar irradiation, and occurs even though the project developers have to procure their own land and grid connections (these two expenses were taken on by the state governments in other recent auctions).

And while this deal is “only” a 100-megawatt auction, it builds on the almost weekly solar project tenders being completed across India. IEEFA forecasts a more than doubling, to 2.5 gigawatts, of solar installs in 2015-16 (up 150 percent year over year), a more than doubling again, to 6 gigawatts, in 2016-17 and then an additional 10 gigawatts in 2017-18. This momentum is driven by Indian solar now being priced below new import-coal fired power, building India’s electricity sector viability with a more domestic, diversified sourcing of generation. It should also be noted that the Adani group is the leader in this tender—even as the group continues to trumpet potential in the low-energy, high-ash Carmichael coal development in Australia, Adani is well aware of the rate of change evident in its home market, and is well aware, too, of the increasing risks for its rapidly fading international coal-expansion strategy.

IEEFA sees solar energy contributing 10 percent of India’s electricity needs by 2021-22, up from almost nothing in 2014-15. Put another way, solar will contribute almost 25 percent of the net expansion in Indian electricity demand over the seven years to 2021/22, with wind energy contributing an additional 20 percent of the demand growth. This trend will dramatically shrink the rate of growth in India’s demand for new thermal coal, and with Coal India Limited’s growing domestic success, Indian demand for thermal coal imports is now on a path to zero.

IEEFA also see total Indian solar auctions rapidly closing on the Government of India’s ambitious 2021-22 solar target of 100 gigawatts. The scope for financial markets surprise is clear. The International Energy Agency (IEA) only last month forecast India would miss this key government solar target by nine years, with the agency might not hit it solar target until 2030. The IEA will belatedly revise this assumption, and will continue to downgrade its forecasts for coal demand. A failure to factor in this massive deflationary solar technology impact will keep global traded coal markets in a state of oversupply, prolonging the already evident financial distress that is continuing to collapse equity prices of coal companies.
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.