Whether or not the world leaders will be able to provide a legally-binding treaty on climate change in the forthcoming UN Paris summit remains to be seen but none the less a lot of emphasis has been laid on renewable power and its prospects. In the recent past, two headlines found more attention than most others:
- The record bid of Rs 4.63/kWh by the US based SunEdison for a 500 Mw solar park in Andhra Pradesh.
- The ambitious 100 GW solar power generation target by the Government of India by 2022.
Before we get into the financials and nitty-gritties of Solar power generation, here are a few basics:
- kWh (Kilowatt Hour) represents energy consumed while kW (Kilowatt) represents power. In other words, if an electric motor of 1 kW is switched on for one hour it consumes 1 kWh of energy. The cost of switching on the motor shall be Rs 4.63 which is the supply price bid by SunEdison.
- 1 GW = 1000MW, 1MW = 1000 kW while 1kW = 1000 W.
So here are answers to a few questions that come to mind first:
What does the 100GW solar target translate to in terms of money?
This would mean it requires an investment of around Rs.6.5 trillion over the next five years. Piyush Goyal, Minister of Power, Coal and Renewable Energy, India puts the figure at $250 billion (Rs 16.25 trillion) as investment opportunity in the renewable energy space.
What does the price bid of Rs 4.63/kWh mean?
Companies like SunEdison, Canada’s SkyPower Ltd, Energon and SunSource Energy are aggressively bidding to develop Solar parks and to supply . Companies like Adani, Rattan India, Reliance and SoftBank are also in the foray. The cost of capital and equipment, modules, inverters, BOP—balance of plant costs have come down. Hence, the price bids have dropped from Rs 12.76/kWh in 2011 to Rs 4.63/kWh in 2015. To give a perspective, a residential household pays to Torrent Power (coal based power) a rate of Rs 7.40/kWh.
Great! Does this mean we’ll soon get cheaper power?
Although the price bids have dropped below the Rs 5/kWh levels, the profit making ability of these projects is yet to be seen. Many industry experts believe these recent bids are untenable. Also since the projects are small (500 Mw being biggest) the impact of these projects on overall supply to the grid is minuscule. Total peak power demand in the FY 2015-16 in India is estimated to be 156,862 Mw. So hold your horses for now, because the impact of these project might take a few years to reach you.
Okay. Is there a business opportunity here?
If you really want to invest in solar, look at the solar roof top segment in the industry. The government plans 40 GW energy from roof-top and distributed generation projects. Since 2010 solar installations in the U.S. have increased six-fold—from 2,000 to more than 12,000 megawatts worth. The boom continues in the US roof top solar installations despite sluggish growth in other solar sectors. In India, with the government committed to its targets and promise of savings to household on electricity bills, the next revolution just might yellow.
When we talk about Solar, it is also important to look at ancillary industries like energy storage systems, low iron glasses, inverters, electrical equipment. Remember, Ashok Leyland was the biggest benefactor of the coal allocations. It is good time to get into one of the ancillary industries as well.
Where else will solar power have an impact in India?
We are set to reduce our carbon footprint in ever increasing polluted cities. New Delhi is the most polluted city in the world, a ranking we do not appreciate being on the top. Solar power also offers power to remote villages which are off grid presently. Social indicators shall improve with power to everyone. Because in the end, it is not all about the money.
The coming year is set to bring in a whirlwind change in the way we look at solar energy. The nonviable philanthropist solar energy is all set to become the common man’s respite very soon. So put your shades on and keep an eye on the sun!
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