Though India is well-known for having the lowest solar power prices in the world, that might actually be hurting the solar energy industry. Feed-in tariffs were replaced by auction-determined prices in a bid to reduce prices and make solar power cheaper and more accessible, but at the same time, low prices have driven DISCOMs into crippling debt with energy providing companies.
In case one needs a comparison, take a look at how the private telecom business has fared. India boasted of the lowest call rates in the world but more than two decades after launching in the country, two of the four major players are sitting on a mountain of debt, the third is being thrown a lifeline in the form of a merger while the fourth is yet making money though it may end up as a monopoly.
In lieu of this, the Andhra Pradesh government’s recent directive to energy companies to renegotiate PPAs-or-else will not help matters. Reducing the tariffs might help increase adoption of solar and wind energy to some extent, but the lowered prices might worsen the DISCOMs’ debts due to the poor collections and reduced prices.
Although the reverse-auction system is useful in a country where average incomes are low, it has also driven solar power prices so low that DISCOMs are struggling to break even. The adoption of renewable energy needs to be much, much wider if such low prices are to be sustainable. In the current scenario, a number of tenders for SECI (Solar Energy Corporation of India) have either gone unanswered or have seen an unenthusiastic response.
Removing the tariff cap on auction bids would be a good start to making solar energy more lucrative for energy companies. Instead, the government ministry (MNRE) has ruled out the possibility, and merely raised the cap by a mere Rs 0.08, to Rs 2.93/kWh. By imposing a tariff cap on a reverse-auction process, the MNRE seems to be cutting itself off at the knees: having a higher starting point will of course result in a higher tariff, but it will also sustain producers’ interest in remaining in the market. Furthermore, the promise of higher returns will encourage more (and possibly local) players to enter the market, and with the increase in supply, tariffs will automatically fall.
“The transition from feed-in tariff to auctions has disrupted the industry. After two and a half years, the new system has failed to bring material capacity on grid. Sales, project development and production cycles have become serialized, costs have increased, and the industry is fighting for its survival,” said U.B. Reddy, managing director of Enerfra Projects (India) Pvt. Ltd, speaking to Mint.
If the government is adamant about sticking with reverse auctions, then there needs to be far more involvement from its side to drive-up adoption of solar energy (and renewables in general) on the part of the consumer. Higher prices (under the PPAs signed by AP’s previous government) discourages adoption, while unreasonably low prices meant low collections- both contributing to the crippling debt under which the state’s DISCOMs now find themselves.
Right now, there is little effort from the government – beyond the occasional official statements – while there is little knowledge about the financial incentives for rooftop solar and other renewable energy sources. There is simply no drive to begin the shift from thermal power (based on coal) to renewables.