Sumant Sinha, chairman and CEO of Renew Power, a company which delivers solar and wind power solutions, says while solar power costs are coming down in general, it is nowhere close to Rs 4.63. "I would think that the proper pricing of solar power is still there, in excess of Rs 5," he says.
Earlier this month, a US company offered to supply power at Rs 4.63 per unit to the state of Andhra Pradesh. This event signals that solar power has now become nearly competitive with thermal or coal-based power.
But Sumant Sinha, chairman and CEO of Renew Power, a company which delivers solar and wind power solutions, says while solar power costs are coming down in general, it is nowhere close to Rs 4.63 per unit. "I would think that the proper pricing of solar power is still there, in excess of Rs 5 per unit. If you properly cost all the risks of forex, execution and so on and therefore Rs 4.63 per unit is an indicator," he told CNBC-TV18.
On November 4, SunEdison, a US company successfully bid to supply solar power to Andhra Pradesh at Rs 4.63 per unit. Actually, nine of the 28 companies that participated bid to supply power below Rs 5.
This compares with bids of Rs 11-13 per unit that one unit of solar power cost in FY11.
Sinha adds solar power is sitting on a reducing cost curve. But going ahead, price reductions will happen mostly because of technology improvements of which there still will be quite a bit. Earlier, there was a demand-supply mismatch. But now, it has evened out and hence there is some degree of price stability.
"I believe that solar costs will keep reducing maybe at the rate of 2-4 percent every year and if we extrapolate that over let us say a 10 year time period then it is very conceivable that solar costs might very well go down by at least 30-40 percent from where we are right now," Sinha says.
However, if power can be generated on our rooftops, and that too competitively, are we entering a brave new world where power will be available minus political and grid problems that accompany grid power?
According to Sinha: "Ground mounted solar is probably about Rs 5.60-5.70 per unit and rooftop solar is probably Rs 6.25-6.50 per unit level — is where the proper pricing with proper returns, with long-term sustainable business models really would be at, at this point in time."
Globally, solar power costs have fallen by 200 times from USD 100 per watt in 1975 to 50 cents per watt this year.
Analysts estimate costs may fall another 50 percent by 2020.
Tony Seba, a scholar on disruption and clean energy from Stanford University, estimates solar power has achieved grid parity in 100s of markets and will achieve 80 percent parity globally by 2017.
Costs of storage of energy have also been crashing at the rate of 16 percent per year since 2010.
Tesla, Foxconn and LG Chem are rapidly setting up battery factories. Tony Seba again estimates storage costs may fall to USD 1.2 per day by 2020.
Are we therefore reaching a stage when power will be generated and stored on our rooftops or in our neighbourhood and the average consumer will no longer be dependent on the politician and the babu for a power connection?
The Secretary of the Central Ministry of Renewable Power Upendra Tripathi, says: "In some places if the cost of capital is low and the solar resource quality is high and the scale is big, the prices will come down.
... If you get panels much more efficient than what we have today, suppose with nanoparticle or non-silicon base material, the cost may further go down."
Arvind Kumar, the energy secretary of the state of Telangana, says the state has witnessed a decline of about Rs 1.60 just in a year's time. "In Telangana, last six months we have finalised two bids totalling about 2,500 megawatt and I must say in a year’s time, last year our rate was Rs 6.45 per unit and this year in the latest bid of 2,000 megawatt, the lowest rate quoted is Rs 5.17."
Below is the verbatim transcript of Upendra Tripathi, Arvind Kumar and Sumant Sinha's interview with Latha Venkatesh on CNBC-TV18.
Q: First some jargons need to be cleared. Sumant, you as the industry expert, we are talking of two different sets of power is it. Solar power which is generated in farms and that supplies to the grid and solar power generated by photovoltaic (PV) cells on our own rooftops, both of them, costs have come down below Rs 5 per unit?
Sinha: No, I would not exactly say that. I think even the recent bid that you alluded to is far below where the market actually is at. I would think that the proper pricing of solar power is still there, in excess of Rs 5. If you properly cost all the risks of forex, of execution and so on and therefore Rs 4.63 is an indicator. In general, solar costs are going down but I would not say it has come down to that level. So, that is point number one as far as where the ground mounted utility scale solar is at.
If you look at rooftop solar, rooftop solar pricing is just a little bit higher than where the ground mounted solar is at and that in fact is in one way the beauty of solar that even if you come up with much smaller size installations, the cost does not go up that dramatically as it might have otherwise. So, if I look at rooftop installations, the cost today is in the range Rs 6-6.50 per rooftop installation and of course it depends on the size and the nature of the roof, the orientation of the roof and so on. However, I would say that if you ask me honestly, I think ground mounted solar is probably about Rs 5.60-5.70 and rooftop solar is probably Rs 6.25-6.50 level is where the proper pricing with proper returns, with long-term sustainable business models really would be at, at this point in time.
Q: That is the cost now, but we know that just in the last five years costs have fallen from something like Rs 11-12 per unit to even Rs 5-5.50 that you are saying now. If you have to draw the graph further down to 2018 or 2020 where will the cost go?
Sinha: I would certainly think we are sitting on a reducing cost curve. I think that in the earlier part, a lot of the cost reduction came because there is oversupply on the band of manufacturing side globally and so cost crashed as a result of that. I think now we are at a point where demand and supply are relatively balanced and therefore prices have more or less stabilized. I think from hereon we are going to see price reductions happening mostly because of technology improvements of which there still will be quite a bit.
So if you ask me, I believe that solar costs will keep reducing maybe at the rate of 2-4 percent every year and if we extrapolate that over let us say a 10 year time period then it is very conceivable that solar costs might very well go down by at least 30-40 percent from where we are right now. I think that is quite possible given the nature of the manufacturing efficiencies, the technology research that is going on.
So, from that standpoint you could argue that solar cost let us say 10 years out, could be at Rs 3.50-4 as well in today’s rupee terms and that I think is really where the transformational power of solar really comes in.
Q: What is it that your consultants and your experience is telling you? Are they telling you that we have to wait for 15 years or given the governmental push that 100,000 megawatt should be generated through solar power before 2020, given this kind of a government support do you think we will advance this date?
Tripathy: What our consultants, some of them tell us, apart from the roadmap for 100,000 megawatt which is a world record by 2022, two things that we miss in this debate about grid parity, the price and cost, now what is hidden behind this solar energy is the type of input we use and the future input cost. It is free, it is usable and the second thing its impact on environment. For example, every one megawatt of solar that we put, either on the roof or ground mounted, there are 50 vehicles which are going off the road and in places like Delhi and all that where the quality of air is bad, it means a lot.
Q: Are you getting a sense that costs can fall faster, what are your consultants telling you? Will we see the bids go down from Rs 5 to below Rs 5?
Tripathy: The cost is a function of volume. Cost is a function of your capital cost and cost is a function of where you are locating your solar plants. It is not uniform all over the country or all over the world. In some places if the cost of capital is low and the solar resource quality is high and the scale is big, the prices will come down. You correctly pointed out that the cost of storage is going down, cost of panels is going down and there are very exciting R&Ds happening. If you get panels much more efficient than what we have today, suppose with nanoparticle or non-silicon base material, the cost may further go down. So, it is exciting world to come.
Q: What has been the experience, your neighbouring state of Andhra Pradesh was the one that set this record, at least in India a record of getting a bid at Rs 4.63 per unit? Are you likely to prefer renewable power over non-renewable?
Arvind: I must say we are in exciting times because as you mentioned that in Andhra Pradesh, the bid floated by NTPC got a record price of Rs 4.63. Let me explain, primarily because it was in a solar park, so it is at one location where land is provided and then it goes directly on to the grid. So, the problems associated with land acquisition and other problems were not there and that is why this price could be achieved.
Secondly, the process of bidding which was followed by ministry of power was unique, in the sense that it was put online. All bidders could see the lowest price and they kept kind of calibrating the price accordingly. So, this is a new method and I guess it is going to be the future.
In Telangana, last six months we have finalised two bids totalling about 2,500 megawatt and I must say in a year’s time, last year our rate was Rs 6.45 per unit and this year in the latest bid of 2,000 megawatt, the lowest rate quoted is Rs 5.17. So, we are already seeing a decline of about Rs 1.60 just in a year’s time.
Another challenge for us is to build transmission lines in accordance with the solar generation which is taking place because unlike thermal, solar generation can take place in a year’s time whereas if we want to add transmission line accordingly that takes about 18 months to two years. So, that is our challenge that we need build infrastructure to take care of solar generation.
When I talk about Telangana, we have gone for reverse bidding where land is to be acquired by private bidders. So, what we have done is in our solar policy which was introduced in June this year, we have provided certain enabling clauses, things like any land where solar generation is being setup is exempted under Land Ceiling Act. There is automatic deemed conversion to non-agriculture usage, they can apply in the single window clearance. What I am trying to say, earlier they used to take eight months to one year time for getting all clearances, now they can get within a span of one month. So, this extra 11 months, they save on their cost, working capital, interest, so, all this adds up to lowering the cost.
Q: When you set up solar panels in buildings, technically even the windows and doors can be made of PV cells. Is there something that municipalities can do in terms of offering incentives for new construction or buildings to get into solar power or disincentivise people from depending on the grid?
Sinha: Today we do not have any transparent solar panels and so you cannot really install solar panels on windows and generate power from that. That will happen at some point in the future, I am sure somebody is already researching that area and we will probably start having full glass facades coming out of solar panels and that will have its own sort of revolution.
As far as the current opportunities are concerned, you can actually put solar panels only on rooftops provided that the facing and so on is right. However, the problem is, the cost that most residential customers pay in India for their power is a little bit subsidised and so they are paying typically Rs 3-4.50. As I said earlier, the cost of installing a solar rooftop for residential customers is about Rs 6.50 or thereabouts. So the economic viability for residential customers is not yet there. It will come about in the next let us say two-three years time.
The question is, what can the government do right now to incentivise and bridge this gap. One of the things that the government can very easily do is that if somebody installs a solar panel and spends Rs 5-10 lakh doing that, perhaps the government can give that person an income tax break on that money and that itself will for example reduce the cost of that solar capital expenditure (CAPEX) by 30 percent at the marginal tax rate and that will then immediately bridge that gap and immediately lead to much more installation of solar panels.
The second thing is that you need to have net metering because in the day time, in the peak time, I may produce more power than I actually consume because I may be at work, my kids may be in school etc. in which case I need to be able to feed that extra power into the grid and therefore I need to have a net metering system, where if I feed power into the grid, the grid actually pays me for the extra power that I supply into it. So that is the second thing that is happening, but certainly those policies have to come into some better alignment so that it becomes more economically viable.
The third thing that needs to happen really in terms of doing all of this is that certain business models have to come into play such that there are many installers that set up. So, just like you have people who come in and set up ACs in your house, you need to have a whole ecosystem of people who can just come in and set up solar panels in your house and that ecosystem will start developing, and start getting financed as well.
Latha: What can be tax incentives that the government is already thinking or can contemplate to make both solar parks as well as rooftop solar power generation more viable?
Tripathy: Out of 100,000 megawatt, 40,000 megawatt by 2022 we are planning to bring under rooftop because, number one, it does not require new transmission lines to be built. There is no transmission loss in the rooftop because they are very close to the grid and number three is it is also more green power. It is a tax free income type, there is no transmission loss.
Now just take the example of Delhi Metro. They have gone in a very large way for rooftop. It is because prior to having rooftop, they are paying around Rs 9 per unit of electricity, now they have got for Rs 6 per unit and that is why they are planning to put 500 megawatt even outside and bring their solar power into Delhi. Now in rooftops if you go to other areas, we have around 60 cities where we give a lot of emphasis to rooftop. There are 16 states almost now who have brought in the net metering rules. For example in Karnataka, if you have a rooftop solar and you sell it to the grid, you will get Rs 9 per unit which is much more than what you pay. In Gurgaon for example, they have brought a rule that any new house that you build beyond a size, the rooftop is compulsory.
We have written to most of the state governments to make some clause where both incentive in terms of electricity tax reduction or disincentive in terms of compulsion will be put in, and most states have been very progressive in this; some are giving new floor area ratio (FAR) for solar tops and we find that a lot of demand is coming for rooftop not only because they save cost, but also it helps in stabilising that nearby grid and it helps when there is outages, in schools, in hospitals. In terms of tax incentives, number one, now the ministry of finance has issued a circular to all the banks that whenever they take rooftop, this loan for rooftop will be a part of the housing loan, if it is a new house and if it is an old house, it will be in home improvement loan. It will come under priority sector lending and the interest rate will be less like the home loan.
Apart from bringing it in the priority sector, all the banks are now requesting to earmark a particular percentage of their credit, which will be earmarked to us popularising rooftop and solar. That apart, we are also going from state to state creating awareness about the environmental benefit of rooftop.
Latha: What is looking like Telangana can offer and make solar power more attractive?
Arvind: On this solar rooftop, I must admit that we have gone ahead and as Sumant said, new models are to be worked out. So in phase one, we have surveyed all government buildings and PSUs in Hyderabad city and we have got an area of about 5 million square feet which we are going ahead in reverse bidding model. So the idea is to make it attractive for the bidder also to put solar rooftop. So instead of individual households putting where cost economics often does not work out, we have compiled all the available rooftop under government buildings into one single bid and we are going ahead with 5 million square feet of solar rooftop and we are likely to get very good rate, so it is being worked out and bid will be out very soon.
Second point, I just want to mention here is that various distribution companies (discoms), there has to be a model which is acceptable to them because what is happening is the moment individual rooftop owner gets a solar rooftop at a cost lower than what he is paying, he wants to shift to solar rooftop. Whereas discoms, they are losing their prime customers which often cross subsidises their low cost customers. So there has to be a model which is workable, which is acceptable and then in the long run, that is where the solution lies. I think solar rooftop in Hyderabad after phase one of government buildings, next phase depending upon the rate which we are getting, we will be targeting private institutions, and third phase will be private individual rooftops where we are saying 'please give us your rooftop'. We will go for a single bidding where rates will come down and under net metering they will ultimately benefit