How low solar prices can go, asks Bloomberg New Energy Finance

Here is an interesting article/analysis by Vandana Gombar from Bloomberg New Energy Finance. In this article, she wonders how low solar prices can really go.

And goes on to show that the Rs 4.63/kWh by SunEdison is not exactly an oddity.

Interesting article, read it from here

While on this topic, it is instructive to note that, under optimal costs for the various components – capital cost and interest costs, mainly – it is indeed possible today to have LCOEs in the range Rs 4.5/kWh, especially for medium and large scale power plants (50 MW and above), even without the benefit of accelerated depreciation. Such an optimal set up would perhaps also necessitate the use of trackers, which could result in CUFs as high as 21% (about 19 lac units / MW/year).

That said, of course, even if the LCOE is sub-4.5/kWh, the tariff bid needs to include a reasonable profit, and it is difficult to see how they can get decent double digit project IRRs at less than Rs 5 / kWh. Unless of course, two other things happen:

One, they are able to get sub-10% interest rates.

Two, some costs are borne by the offtaker (in this case NTPC). If land costs, substation bay extension costs and grid extension costs are taken care of by the offtaker, the LCOE for medium scale solar power plants with trackers could indeed be significantly reduced.

With the above two factored, the LCOE for a 50 MW solar power plant could indeed have been much lower than Rs 4.5/kWh, thus making Rs 4.63/kWh just about possible.

What do you think?

Now, while Rs 4.63/kWh might be OK for 50+ MW solar power plants with significant concessions from the government and an excellent lending rate, most of these are not applicable for power plants in the range 1-5 MW, which can be considered small grid-connected power plants, in this context.

What could be the lowest LCOEs and the optimal tariffs for power plants of these scales? See here for the blog post from Solar Mango discusses this… .

If you review the post linked above, you will see that, for the cost data of a solar power plant of good quality as of end 2015, with no out-of-the-ordinary incentives, solar power plants of 1-5 MW size cannot expect LCOEs less than Rs 4.8/kWh (this for power plants with trackers), and more likely about Rs 5/kWh. And the lowest tariff bids for a 13% project IRR / 16% equity IRR will be in the range Rs 5.5-5.75/kWh, for projects really well designed and with trackers. More likely to be about Rs 6/kWh.

I am afraid tariffs of Rs 4.63/KWh or whereabouts are just not feasible for small scale solar power plants with no extra incentives. Kindly note however that we have not included accelerated depreciation benefits in this, as most developers we come across are those who are not right now running a profitable business to take advantage accelerated depreciation.

If accelerated depreciation benefit is availed of however, LCOEs in the optimistic scenarios could fall as low as Rs 4/kWh and a sub-5/kWh tariff bid will work out.




8 thoughts on “How low solar prices can go, asks Bloomberg New Energy Finance

  1. Pingback: Solar Power Price in India Rs 4.2/kWh by 2020, Says KPMG, and Rs 3.69/kWh by 2025 - Solar Mango – #1 guide for solar

  2. Girish Vidhan

    Costs of solar have already started plateauing. It is fashionable to say that solar costs could be significantly lower than what it is in the next five years, but I don’t see that happening. Once the decreases in material and module costs stop or become very small, it is mainly labour costs (for installation) that remain.

    And labour costs will only increase – this means that very soon the costs for solar will hit a bottom and then it could even start increasing.

  3. Rajeshwari

    Solar costs in India will be of course much lower than those in the US and Europe.

    But costs of solar power in south america will start to look like costs in India…especially Brazil and Chile and countries like that

  4. Ravi Seshan

    Solar Prices will continue to decrease as long as solar Panel Prices continue to decrease as Panels still constitute over 50% of the total solar PV system Price. Even the inverter Prices are decreasing, so that is good news too for solar Prices

  5. Seshadri Rajan

    Solar power is already at grid parity for many regions in the world for select sectors. In India for example, solar power is already cheaper than grid power for most sectors in Maharastra and Gujarat states. I am saying that it does not matter what solar power price is, what matters is relative price, its price relative to other power alternatives such as coal power, nuclear power and wind power.

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