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Feature

India powers toward renewable energy: Part III


SAROSH BANA

In this third and final segment, the author weighs the impact of tariffs on the renewable energy business in the country.

 

In parts I and II of this special feature, Sarosh Bana identified the primary issues impacting the renewable energy market in India. The author wraps up this series with a discussion on the impact of renewable energy tariffs.

Indian solar tariffs have plunged over 40 per cent over the past four years, and for the first time have attained grid parity. When the first tender for solar PV power was opened in 2010, the lowest tariff was Rs10.85 (18 cents) per kWh, and it dropped to Rs7.49 (13 cents) the following year, when new bids were opened. Tariff for the JNNSM Phase II batch I tender floated by MNRE’s Solar Energy Corporation of India (SECI) was fixed at Rs5.45 (9.2 cents) per kWh for those bidders opting for the least VGF and at Rs4.75 (8 cents) for those availing of the AD benefit. Tariffs for solar CSP have averaged Rs12-13 (20-22 cents) per kWh.

The JNNSM Phase II tender signalled the heightening investor interest in Indian solar when 68 bids were received from 58 developers, both domestic and foreign, earlier this year for 122 projects of a cumulative capacity of 2,170 MW, oversubscribing almost three times the allocation target of 750 MW. Of these, 36 projects with a capacity of 700 MW were bid for under the Domestic Content Requirement (DCR) and the remaining 86 projects of 1,470 MW, under the open category. DCR obliges developers to use locally made equipment, whereas the open category has no such restriction.

The lowest bid under DCR was for Rs1.35 crore (US$228,814) by Swelect Energy Systems for 10 MW and the highest was Rs2.49 crore (US$422,034) by IL&FS Renewables, also for 10 MW. The lowest and highest VGF sought for projects outside DCR were Rs1.7 million (US$28,814) by Gujarat Power Corporation Ltd (for 10 MW) and Rs2.49 crore (US$422,034) by Madhav Infra (also for 10 MW). The highest bid under the non-DCR category was Rs2.45 crore (US$415,254) by Tata Power Solar. Under this category, power purchase agreements (PPAs) will be signed with 15 project developers for 24 projects totalling 375 MW.

Ajay Goel, CEO of Bangalore-based Tata Power Solar, explains that VGF helps bridge the gap between the dictated project rate and that incurred by the developer, pushing solar providers to quote the lowest rate, irrespective of the quality of delivery. Coupled with accelerated depreciation, this makes the developer recover costs early in the cycle, leaving no incentive for his plant to perform in the long run.

Contending discrimination against US exports, Washington has taken India’s DCR issue to the World Trade Organisation (WTO). Maintaining that its solar programme is WTO-compliant, India’s Commerce ministry stresses that India needs to create domestic manufacturing capacities, or else it will end up importing forever. It notes that the programme involves huge subsidies and public money should not be used to finance imports. Though JNNSM mandates DCR, it is only for crystalline PV technology and not for wafer, or thin film, PV technology. Thin film accounts for close to 60 per cent of the panels installed in India, though they have a mere 14 per cent share globally.
 
Chandra Bhushan, deputy director general of CSE and head of its RE Unit, says the US has used loopholes in JNNSM as well as climate finance to the advantage of its manufacturers who have gone on to sell highly subsidised solar panels to India. “This has rendered Indian solar manufacturing companies uncompetitive, with 80 per cent of them in a state of forced closure and debt restructuring with no orders forthcoming, while American manufacturers are getting orders from Indian solar power developers,” he explains. “The US has been able to do so by using the climate ‘fast start financing’, a US$30 billion fund set up under the United Nations Framework Convention on Climate Change (UNFCC) in 2009 for helping developing countries deal with climate change impacts.” 

Bhushan notes that the US Exim Bank and Overseas Private Investment Corporation (OPIC) have been extending low-interest (3 per cent) loans to Indian solar developers on the condition that they buy equipment, solar panels and cells from American companies. (note: Indian bank loans have interest rates of 14 per cent or more.) CSE cites that about half of all solar modules installed under JNNSM have been manufactured by US companies.

“Interestingly, the US has imposed anti-dumping duties on solar equipment imported from China because of alleged subsidies Beijing is giving to its solar manufacturers, but is itself doing the same in India by subsidising loans for buying American equipment!” argues Kushal Yadav, CSE RE lead.

Investors' appetite 

According to “Investor appetite and private investments in India’s RE sector have distinctly increased over the last one or two years,” says Venkataraman Rajaraman, director of infrastructure and project finance at Fitch Group’s India Ratings & Research, in Chennai. “Banks have been positive to fund wind energy projects, not necessarily because of the perception of better asset quality, but of the need to diversify their intra-sectoral investments after their lending to thermal energy turned sour.”

On financing for solar, Rajaraman sees contrarian views. He points out that initial equipment costs, as for imported solar panels, are funded through buyer’s credit through short-term forex loans tied up with the equipment supplier. “This gives the impression that financing for solar projects is difficult to obtain, but my personal interaction with banks reveals their interest,” he explained. 


State agencies IREDA and Power Finance Corporation Ltd (PFC) have backed the industry as a stable market with assured off-take and no marketing challenges. As capital costs in India are also among the lowest, the country is emerging as a vibrant hub for the supply of towers, blades, generators and convertors.

Renewable energy projects also have the major share in India’s Clean Development Mechanism (CDM) projects, the country being a favoured destination for CDM projects and also a very active participant in CDM, using revenues of carbon credits to finance RE projects. Mahesh Makhija, director of business development (Renewables) atCLP India Pvt. Ltd, says wind accounted for 628 of the 1,469 CDM projects registered in India until February 2014. “India is next only to China, which led with 1,497 registered wind projects,” he notes. CDM projects are registered with UNFCCC and are eligible to receive CERs.

Renewable sources can fit in rather efficiently in a well-planned system. Many European countries efficiently operate their power systems with a much higher renewable energy penetration through coordinated generation planning, sophisticated forecasting tools, and better system operation techniques. In the Indian context, managing variability associated with renewable energy sources is no different than managing consumer demand which keeps varying throughout the day and also during the seasons.

Though conventional energy sources such as coal, gas and diesel provide greater control in terms of their usage and energy production, they are limited in availability and are not environment friendly. Renewable energy sources such as wind and solar are universal, limitless and are not adverse to the environment, advocates say. It is thus helpful to maintain a balance among different energy sources, based on their pros and cons. Using advanced technologies such as hybrid systems and cheap energy storages, renewable sources can operate with a high degree of flexibility and better control.

In that regard, observers say it is unfair to discriminate against renewable energy sources on the basis of low PLFs and high cost of production. Rather, one needs to take a holistic view on the advantages and disadvantages of increased penetration of renewable energy sources vis-à-vis continuing with the conventional sources of energy generation by comparing both on parameters such as energy security and independence, environmental effects and, most importantly, life-cycle costs of electricity generation.

Renewable energy is hence destined to take its place alongside coal and gas in India and penetrate ever deeper into the country. Its unexploited resource availability has the potential to sustain its growth for years to come. After all, the nation’s security — and that of its 1.2 billion people — depends on it.

ABOUT THE AUTHOR 

Sarosh Bana is the executive editor of Business India. Launched in 1978, the magazine provides the complete picture on Indian business and the economy. Covering includes in-depth and analytical articles focusing on different areas of interest and a variety of subjects which have a bearing on the mainstream of business.

 

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Comments

ANUMAKONDA JAGADEESH said

10 July 2014
Excellent third part just like the other two.
There is much interest in India on Large Solar Projects.
Here I present the status of solar and other renewable with conventional cost of generation of power.
NTPC to set up 300-MW solar park in Guntur
I am glad to read the News:

Wednesday, July 9, 2014 | 09:09 PM IST
NTPC to set up 300-MW solar park in Guntur
Press Trust of India | Hyderabad
July 8, 2014 Last Updated at 21:05 IST
Goverment-run power producer NTPC will set up a 300-MW solar park in Andhra Pradesh's Guntur district through competitive bidding so that the state is able to get solar energy at a low tariff.
Here is a news item that appeared in 2011:
Ten firms to set up solar power plants in Anantapur
Staff Reporter
Anantapur: The district is getting huge investments after being identified as the ideal location for the setting up of solar-based power projects, along with four other districts in the State.
Ten companies will be investing nearly Rs.10,000 crore to produce more than 50 mega watts of solar power. With a series of solar power projects being set up in Kadiri area in the district, the ‘Solar City' as it is called, is bracing for industrial development.
The solar power projects will be spread in 2,000 acres. Sunborne Inc, Lanco Solar, AES Solar and Titan Energy that have already signed memoranda of understanding with the State government for setting up units in Kadiri where the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) has allotted 2,000 acres of land for the purpose.
Originally, the ‘Solar City' was planed in 10,000 acres of land, but until now, only 2,000 acres has been acquired.
Other firms that are evincing interest in setting up solar plants are — I. Tagh Energy Systems, Sri Power, and Welspun, APIIC (one mega watt plant in Gooty industrial park), Amit Jai Ventures Private Limited at Kadiri, Lanco Solar Private Power Limited at Atmakaur and Amaduguru, J.R. Housing Developers at Peravali in Singanamala, Sri Sai Basava Taraka Rama Energy Private Limited, Hyderabad, at Kadiri, Surya Chakra Power Ventures Private Limited at the ‘Solar City'.
Titan Energy Systems has formed a special purpose vehicle in collaboration with global renewable energy developer, Enfinity of Belgium, for setting up 1,000-MW of photovoltaic installations on 3,000 acres of land in the district over a period of five years. The APIIC has allocated the land to the firm on a long lease.
Several applicants
AP. Transco Assistant Divisional Engineer (commercial) V. Prabhakar told The Hindu that they had received applications from several solar firms which would be setting up solar projects. He said that the district was suitable for producing non-conventional energy, including Solar and Wind energy.
The plants are being established at Kadavakallu, Singanamala, Alankarayanipeta and Uravakonda and Vajrakakrur in the district.
(The Hindu,March 29,2011)
It is a fact that among Renewables solar pv is expensive for power generation. Here is cost comparison data of power generation from renewable in different countries.
The cost of electricity (typically cents/kWh, euro/kWh, euro or $/MWh) generated by different sources is a calculation of the cost of generating electricity at the point of connection to a load or electricity grid. It includes the initial capital, discount rate, as well as the costs of continuous operation, fuel, and maintenance. This type of calculation assists policy makers, researchers and others to guide discussions and decision making.
Cost factors
While calculating costs, several internal cost factors have to be considered. (Note the use of "costs," which is not the actual selling price, since this can be affected by a variety of factors such as subsidies and taxes):
• Capital costs (including waste disposal and decommissioning costs for nuclear energy) - tend to be low for fossil fuel power stations; high for wind turbines, solar PV; very high for waste to energy, wave and tidal, solar thermal, and nuclear.
• Fuel costs - high for fossil fuel and biomass sources, low for nuclear, and zero for many renewables.
• Factors such as the costs of waste (and associated issues) and different insurance costs are not included in the following: Works power, own use or parasitic load - that is, the portion of generated power actually used to run the stations pumps and fans has to be allowed for.
To evaluate the total cost of production of electricity, the streams of costs are converted to a net present value using the time value of money. These costs are all brought together using discounted cash flow.
Calculations
Levelized Energy Cost (LEC, also known as Levelized Cost of Energy, abbreviated as LCOE) is the price at which electricity must be generated from a specific source to break even over the lifetime of the project. It is an economic assessment of the cost of the energy-generating system including all the costs over its lifetime: initial investment, operations and maintenance, cost of fuel, cost of capital, and is very useful in calculating the costs of generation from different sources.
It can be defined in a single formula as:

where
• = Average lifetime levelized electricity generation cost
• = Investment expenditures in the year t
• = Operations and maintenance expenditures in the year t
• = Fuel expenditures in the year t
• = Electricity generation in the year t
• = Discount rate
• = Life of the system
Typically LECs are calculated over 20 to 40 year lifetimes, and are given in the units of currency per kilowatt-hour, for example AUD/kWh or EUR/kWh or per megawatt-hour, for example AUD/MWh (as tabulated below). However, care should be taken in comparing different LCOE studies and the sources of the information as the LCOE for a given energy source is highly dependent on the assumptions, financing terms and technological deployment analyzed. In particular, assumption of capacity factor has significant impact on the calculation of LCOE. For example, Solar PV may have a capacity factor as low as 10% depending on location. Thus, a key requirement for the analysis is a clear statement of the applicability of the analysis based on justified assumptions.
System boundaries
When comparing LECs for alternative systems, it is very important to define the boundaries of the 'system' and the costs that are included in it. For example, should transmissions lines and distribution systems be included in the cost? Typically only the costs of connecting the generating source into the transmission system is included as a cost of the generator. But in some cases wholesale upgrade of the Grid is needed. Careful thought has to be given to whether or not these costs should be included in the cost of power.
Should R&D, tax, and environmental impact studies be included? Should the costs of impacts on public health and environmental damage be included? Should the costs of government subsidies be included in the calculated LEC?
Discount rate
Another key issue is the decision about the value of the discount rate . The value that is chosen for can often 'weigh' the decision towards one option or another, so the basis for choosing the discount must clearly be carefully evaluated. See internal rate of return. A UK government study in 2011 concluded that the appropriate discount rate to analyse UK government programs was not the actual cost of capital, but 3.5%.
Marginal cost of electricity
A more telling economic assessment might be the marginal cost of electricity. This value would serve the purpose of comparing the added cost of increasing electricity generation by one unit from different sources of electricity generation .
Avoided cost
The US Energy Information Administration has cautioned that levelized costs of non-dispatchable sources such as wind or solar should be compared to the avoided energy cost rather than the levelized cost of dispatchable sources such as fossil fuels or geothermal. This is because introduction of fluctuating power sources may or may not avoid capital and maintenance costs of backup dispatchable sources.
Germany 2013 estimates
In November 2013, a new report on Germany levelised generation costs was published by FRAUNHOFER. PV power plants reached LCOE between 0.078 and 0.142 Euro/kWh in the third quarter of 2013, depending on the type of power plant (ground-mounted utility-scale or small rooftop power plant) and insolation (1000 to 1200 kWh/m²a GHI in Germany). New nuclear power is not considered as an option anymore.
Germany energy costs for different generation technologies in EUR per megawatt hour (2013)

Technology Cost range (EUR/MWh)
brown coal 38-53
hard coal 63–80
CCGT power plants 75-98
onshore wind 45-107
offshore wind 119–194
PV power plants 78-142
biogas 135–250
UK 2010 estimates
In March 2010, a new report on UK levelised generation costs was published by Parsons Brinckerhoff. It puts a range on each cost due to various uncertainties. Combined cycle gas turbines without CO2 capture are not directly comparable to the other low carbon emission generation technologies in the PB study. The assumptions used in this study are given in the report.
UK energy costs for different generation technologies in pounds per megawatt hour (2010)

Technology Cost range (£/MWh)
New nuclear 80–105 (92.50 guaranteed from 2023)

Onshore wind 80–110
Biomass 60–120
Natural gas turbines with CO2 capture 60–130
Coal with CO2 capture 100–155
Solar farms 125–180
Offshore wind 150–210
Natural gas turbine, no CO2 capture 55–110
Tidal power 155–390
Divide the above figures by 10 to obtain the price in pence per kilowatt-hour.
More recent UK estimates are the Mott MacDonald study released by DECC in June 2010 and the Arup study for DECC published in 2011.
French 2011 estimates
The International Agency for the Energy and EDF have estimated for 2011 the following costs. For the nuclear power they include the costs due to new safety investments to upgrade the French nuclear plant after the Fukushima Daiichi nuclear disaster; the cost for those investments is estimated at 4 €/MWh. Concerning the solar power the estimate at 293 €/MWh is for a large plant capable to produce in the range of 50-100 GWh/year located in a favorable location (such as in Southern Europe). For a small household plant capable to produce typically around 3 MWh/year the cost is according to the location between 400 and 700 €/MWh. Currently solar power is by far the most expensive renewable source to produce electricity, although increasing efficiency and longer lifespan of photovoltaic panels together with reduced production costs could make this source of energy more competitive.
French energy costs for different generation technologies in Euros per megawatt hour (2011)

Technology Cost (€/MWh)
Hydro power 20
Nuclear (with State-covered insurance costs) 50
Natural gas turbines without CO2 capture 61
Onshore wind 69
Solar farms 293
Analysis from different sources

¦ Conventional oil ¦ Unconventional oil ¦ Biofuels ¦ Coal ¦ Nuclear ¦ Wind
Colored vertical lines indicate various historical oil prices. From left to right:
— 1990s average — January 2009 — 1979 peak
— 2008 peak

Price of oil per barrel (bbl) at which energy sources are competitive.
• Right end of bar is viability without subsidy.
• Left end of bar requires regulation or government subsidies.
• Wider bars indicate uncertainty.
Source: Financial Times
A draft report of LECs used by the California Energy Commission is available. From this report, the price per MWh for a municipal energy source is shown here:
California levelized energy costs for different generation technologies in US dollars per megawatt hour (2007)
Technology Cost (US$/MWh)
Advanced Nuclear 67
Coal 74–88
Gas 87–346
Geothermal 67
Hydro power
48–86
Wind power
60
Solar 116–312
Biomass
47–117
Fuel Cell
86–111
Wave Power
611
Note that the above figures incorporate tax breaks for the various forms of power plants. Subsidies range from 0% (for Coal) to 14% (for nuclear) to over 100% (for solar).
The following table gives a selection of LECs from two major government reports from Australia. Note that these LECs do not include any cost for the greenhouse gas emissions (such as under carbon tax or emissions trading scenarios) associated with the different technologies.
Levelised energy costs for different generation technologies in Australian dollars per megawatt hour (2006)
Technology Cost (AUD/MWh)
Nuclear (to COTS plan
40–70
Nuclear (to suit site; typical)
75–105
Coal
28–38
Coal: IGCC + CCS
53–98
Coal: supercritical pulverized + CCS
64–106
Open-cycle Gas Turbine
101
Hot fractured rocks
89
Gas: combined cycle
37–54
Gas: combined cycle + CCS
53–93
Small Hydro power
55
Wind power: high capacity factor
63
Solar thermal
85
Biomass
88
Photovoltaics
120
In 1997 the Trade Association for Wind Turbines (Wirtschaftsverband Windkraftwerke e.V. –WVW) ordered a study into the costs of electricity production in newly constructed conventional power plants from the Rheinisch-Westfälischen Institute for Economic Research –RWI). The RWI predicted costs of electricity production per kWh for the basic load for the year 2010 as follows:
Fuel Cost per kilowatt hour in euro cents.

Nuclear Power
10.7 €ct – 12.4 €ct
Brown Coal (Lignite)
8.8 €ct – 9.7 €ct
Black Coal (Bituminous)
10.4 €ct – 10.7 €ct
Natural gas
11.8 €ct – 10.6 €ct.
The part of a base load represents approx. 64% of the electricity production in total. The costs of electricity production for the mid-load and peak load are considerably higher. There is a mean value for the costs of electricity production for all kinds of conventional electricity production and load profiles in 2010 which is 10.9 €ct to 11.4 €ct per kWh. The RWI calculated this on the assumption that the costs of energy production would depend on the price development of crude oil and that the price of crude oil would be approx. 23 US$ per barrel in 2010. In fact the crude oil price is about 80 US$ in the beginning of 2010. This means that the effective costs of conventional electricity production still need to be higher than estimated by the RWI in the past.
The WVW takes the legislative feed-in-tariff as basis for the costs of electricity production out of renewable energies because renewable power plants are economically feasible under the German law (German Renewable Energy Sources Act-EEG).
The following figures arise for the costs of electricity production in newly constructed power plants in 2010:
Energy source Costs of electricity production in euros per megawatt hour

Nuclear Energy 107.0 – 124.0
Brown Coal 88.0 – 97.0
Black Coal 104.0 – 107.0
Domestic Gas 106.0 – 118.0
Wind Energy Onshore 49.7 – 96.1
Wind Energy Offshore 35.0 – 150.0
Hydropower 34.7 – 126.7
Biomass 77.1 – 115.5
Solar Electricity 284.3 – 391.4
(Source: Wikipedia)
In summary small renewable energy projects are preferred as they can be completed in short periods and power demand can be met. For example a MW wind turbine can be erected with in 5 days(excluding foundation).
Also Procedure for Power plants erection both Conventional and Renewable should be streamlined as at present for erecting a power plant one has to take so many clearances. As a Cynic from US put it 'You Indian guys are better than Bill Gates in creating Windows'.

No Power is costlier than No Power – Dr.H.J.Bhabha
Dr.A.Jagadeesh Nellore(AP),India
Renewable Energy Expert
E-mail: anumakonda.jagadeesh@gmail.com

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