Low bids in Indian auction show utility-scale solar is cheaper than imported coal

The results of India’s latest solar auction have confirmed that solar PV is cheaper than imported coal when it comes to generating electricity for Indian users.

A tender for 500MW of solar capacity in the south-eastern state of Andhra Pradesh resulted in First Solar submitting the cheapest bids of just over 8 cents US per kilowatt-hour – $0.086/kW/h for 40MW and $US0.087/kWh for another 40MW.

In local currency terms, the bids – developers had to bid the tariff rate for power generated for the first year of the proposed plants operation – came in at INR5.25/kWh and INR5.35, below the price required to make coal imports economically viable.

All other bids for the auction, which was oversubscribed by more than double – 63 bids, totalling 1291MW in proposed solar developments – ranged from $SU0.092 to $US0.132, with projects ranging in size from 3MW to the upper limit of 100MW.

These remarkably low bids illustrate how quickly large-scale solar is coming down the cost curve in India – in February last year, a Rajasthani solar auction produced a lowest bid equivalent to A11.6c/kWh.

They also confirm that generating power from a large-scale solar plant is now cheaper, in India, than power from new-build coal, particularly those that rely on imported coal from countries like Australia.

According to a research note from the Institute of Energy Economics and Financial Analysis (IEEFA), a PPA of between A10c/kWh and A11c/kWh would be required to build a new coal-fired generation plant using imported coal.

“We estimate that a PPA of Rs5.4-5.70/kWh would be required, plus price indexation of 4%pa to justify the construction of … a US$4bn coal-fired power project,” IEEFA says.

“This is double the last reported average sales price of electricity across India of Rs3/kWh and treble the domestic coal-fired power PPA signed over recent years.

Basically, says IEEFA, the required wholesale power price for imported coal is prohibitive relative to domestic coal or renewable energy.

“Wind, solar and hydro facilities can be built faster and / or at lower PPAs. Additionally, the use of renewable energy incorporates a zero fuel cost, such that there is an inbuilt deflationary driver – i.e. zero indexation.

“Given the recent drive by the Reserve Bank of India (RBI) to prioritise the sustained reduction in inflation, renewables support a series of GoI / RBI targets. Importing thermal coal achieves none of these goals, and more likely contradicts them.”

IEEFA analyst Tim Buckley said that, while the imported coal price may come down, lowering the generation price to around 9c/kWh, there was no way developers could bank on prices staying that low, considering the uncertainty surrounding thermal coal.

“(India’s) proposed new coal generation plan is showing signs of significant financial stress and is likely to deliver far lower than expected levels of new supply over the next five years.”

Top image: Solar resource map of India, via Wikipedia

© 2014 Solar Choice Pty Ltd

Giles Parkinson