Is cheaper clean energy sustainable?

India is presently undertaking the world's largest renewable energy expansion programme and therefore is poised for an energy transition from conventional to renewable-based system with the opening of new business and employment opportunities. This has resulted in a significant fall in solar and wind tariff.

Focusing on better forecasting-scheduling systems, strengthening transmission capacities, promotion of e-vehicles, hybridising solar-wind etc. may be the country's prime agenda now. However, issues relating to sustainability of solar and wind project should not be overlooked as they are directly associated with the developers’ interests.

The solar tariff discovered on account of reverse auction process has fallen to a record low. Despite the continuous downtrend, the tariff of Rs 2.65/kWh in the latest 500 MW auction in Gujarat represents a slight increase on the Rs 2.44/kWh tariff discovered in the Bhadla Rajasthan bid. The underlying reasons for this — such as Gujarat having less intense solar radiation than Rajasthan, and the developers in the former case having to acquire land on their own — may find some merit.

However, evidence of the rise in module price in China in the past few months, since the Bhadla auction, has also contributed to a rise in tariff, which may put solar power project at risk. Given that module costs account for nearly 60-70% of project's total cost, even a slight upsurge in the module price triggers sustainability concerns for solar projects that were bided at aggressively low tariff and are in the commissioning stage.

According to some analysts, the record low tariff of Rs 2.44/kWh at Bhadla was estimated assuming the module price will fall to around 23 cents per watt. It was around 32 cents per watt at the time. Also, the government move with regard to 'antidumping' investigation, in order to protect the business interests of domestic module manufacturers, would be detrimental to assessing the sustainability of solar PV projects.

The reverse auction method has resulted in the discovery of extremely competitive low solar tariffs, much lower than the CERC determined levellised tariff. Off late, however, there have been concerns that some of the winning bids may not be tenable. State and Central government subsidies and programmes, in facilitating solar parks, infrastructure, waiving-off several charges etc., along with accessibility of low-cost foreign funds have assisted remarkably in a sharp decline in tariff. The solar developers and investors, being engaged in price wars, will eventually disrupt their profit margins and therefore question the project viability in the long-term.

While feed-in-tariffs have been the norm for wind projects, the Central government has also initiated competitive bidding for wind, which has resulted in the discovery of tariff as low as Rs.3.42/kWh which further fell to Rs.2.64/kWh in the subsequent bid. The wind industries have been resisting, fearing that competition-driven price discovery would erode their profit margin.

Furthermore, some states, such as Karnataka, recently reduced feed-in-tariff of wind from Rs.4.50/kWh to Rs.3.74/kWh, which many project developers believe is unfavourable. While India installed 5.4 GW of wind in 2016-17 and 3.4 GW in 2015-16, a record high exceeding even their respective year target, the concern of the wind developers needs to be addressed seriously because it added only around 0.25 GW in the first quarter of the current year (2017-18).

There have been instances wherein power discoms have stopped signing PPAs for wind projects agreed upon earlier when the tariffs were higher (Rs 4-6 per kWh). States even went for buying cheaper spot power from the exchanges, prompting the renewable developer to back down their generation. In addition, delay of six to nine months has become the norm in making payments to the wind developers, posing them operational and financial risks.

While the Center has fixed an ambitious target of 175 GW of renewables by 2022, the growth of renewables is not uniform across the states, which further are marked by weaker enforcement of RPO obligations. While grid-connected solar PV projects have gained some attention, there is slow progress on solar-rooftop. Having a target of 40 GW rooftop solar by 2022 with just around 2 GW of installation at present clearly indicates that the developers still do not find major interest in the solar-roof-top business.

Given that the renewable technology is still in evolution stage, further developments and growth in the segment are likely to make clean energy cheaper and thereby further reduce tariff. The falling tariffs should be welcomed, but it remains to be seen if developers can deliver on those grounds on a sustainable basis.