Solar power is soaring in India as prices plummet. A recent auction for 500 megawatts (MW) of capacity at Bhadla solar park in Rajasthan saw a record-low tariff of 2.44 rupees per kilowatt-hour (kWh) – that’s around four cents in dollars. Solar tariffs have fallen by more than 25 percent in the past three months. But this isn’t all good news; some experts worry that as tariffs get so low, many solar projects in India could become unviable.
The Government of India’s Ministry of New and Renewable Energy announced the incredibly low tariff in a May 12 press release, describing the moment as history in the making. The figure beats out coal prices: India’s biggest power company NTPC sells electricity from coal-fired plants at 3.20 rupees per kWh. The country is set to become the world’s third biggest solar market this year as capacity hits 8.8 gigawatts, which is a 76 percent increase over the year before. Consulting firm Ernst & Young said the country has the second best market on Earth for renewable energy investments.
But Quartz India said they aren’t all celebrating in the solar sector. The industry is seeing cutthroat competition; around 33 groups participated in an April auction for 750 MW of capacity at Bhadla. Such reverse auction processes – where sellers try to underbid each other for the work – lowers tariffs more.
One problem with super low tariffs is at a certain point developers won’t make a profit. Quartz India spoke with Reliance Securities senior analyst Rupesh Sankhe who said if a developer hopes for a return on investment of 14 percent, solar tariffs should be between 4.5 and five rupees per kWh. He told Quartz India if the tariff dips below three rupees per kWh, “the return will be zero. No matter what they do, they won’t make profits.”
Some companies may not be taking into account risks like grid curtailment, or times when power-generating units aren’t allowed to send electricity to the grid. And as more renewable energy goes on grid, in line with India’s goals, some companies may not end up making the money they expected.
Via Quartz India