Solar power to become cheaper in the next few years, report says

Friday July 24, 2015 , 2 min Read

Solar power is likely to become cheaper and reach the level of the conventional thermal energy prices over the next two-three years, rating agency India Ratings has said.

In a report, the agency said it expects the prices of solar power to touch Rs 4-4.5 per kw-hour by FY18. “The price correction will be driven by a decline in capital costs (solar modules, plant), an increase in efficiency, a shift towards large solar photovoltaic projects leading to the economies of scale and lower return expectations by developers,” the report said.

According to the International Renewable Energy Agency, solar photovoltaic prices have fallen nearly 80 per cent since 2008. Additionally, solar module efficiency has witnessed an annual increase of 3.5-4.5 per cent. Increasing the size of projects to 10 mw and above from 5 mw earlier also leads to the economies of scale in component procurement and better absorption of fixed costs.

The report further said the return expectation of developers is likely to moderate as the market matures, leading to a reduction in overall tariffs. “We expect a strong pick-up in solar power installations over the next four-five years, driven both by the government impetus of 100 gm of solar power by FY22 (60 gm through grid connected solar projects) and a decline in solar power generation costs,” it said.

It added that these factors will increase the affordability of solar power for distribution companies and eliminate the requirement of government support by way of subsidies or viability gap funding (VGF). “We see a limited possibility of support by way of VGF, greater focus on infrastructure creation for the evacuation of solar power and higher possibility of distribution companies meeting their renewable purchase obligation,” it said.

The feed-in-tariffs (FITs), outlined by respective state electricity regulatory commissions based on the cost-plus return on equity model, have also seen a significant decline, it noted.

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