Cheaper-Solar-Power
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Solar power in India is expected to become cheaper than imported coal-based power by 2019, according to a recently released report by Climate Policy Initiative and the Indian School of Business.

The report, titled ‘Reaching India’s Renewable Energy Targets Cost-Effectively,’ said that while the cost of wind power in the country was already competitive as compared to imported coal, in case of solar power, the levelised cost of electricity at Rs.7.74/kWh was 11.79 per cent higher than imported coal in 2015. It added that the gap would narrow over time as the learning effects drive solar capital costs down and fossil fuels become progressively more expensive due to inflation and increased transportation costs.

India aims to install 60 GW of wind power capacity and 100 GW of solar power capacity by 2022, which is considerably more than the current installed capacities of approximately 22 GW and 3 GW, respectively. The country’s energy mix is dominated by fossil fuels, with 68 per cent of total power generated from coal. Currently, natural gas is the most expensive source of fossil fuel-based power in India. However, it constitutes just 8.6 per cent of the country’s total energy mix due to supply constraints. It is highly unlikely that natural gas-based power plants will be deployed at a significant scale over the next few years.

Imported coal
After natural gas, imported coal is the next most expensive fossil fuel in India. Its share as a percentage of total coal consumption has risen steadily from 8.7 per cent in 2006 to 16 per cent in 2012. Imported coal accounts for 18 per cent of total electricity, which is higher than the country’s target of 15 per cent of generation from renewable energy by 2020. Hence, in all likelihood, imported coal will be replaced by renewable energy.

The report said that capital expenditure for solar power or the cost of setting up a solar plant in India would decrease by approximately 1.83 per cent each year. It expected the capital cost to decrease from Rs.71.25 million per MW in 2015 to Rs.62.6 million per MW in 2022 and the capacity utilisation factor for solar energy to remain constant at 20.5 per cent.

The report pointed out that the levelised cost of solar energy would be driven downwards by decreasing capital expenditure as the capacity utilisation factor was expected to remain constant.

In the case of imported coal-based power, the report forecasted that capital expenditure for a coal plant would rise by about 2.86 per cent per year from Rs.56.6 million in 2015 to Rs.68.9 million in 2022. It expected imported coal prices to increase 2.12 per cent each year, from $98 per ton in 2015 to $114 per ton in 2022, driven by global demand and supply. Taking into account the increasing capital expenditure and fuel prices, the report forecasted that levelised cost of electricity from imported coal would increase over time.

CPI is a team of analysts and advisors that works to improve the most important energy and land use policies around the world, with a particular focus on finance. The ISB is a global business school offering world-class management education across its two campuses – Hyderabad and Mohali.


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