Plunging solar pricing likely to continue

The year 2017 has a been a record breaking one for solar PV industry. The sector is overwhelmed as well as under shock by a series of low bids that has drastically astounded the pricing dynamics of the Indian solar industry.

It began with a bid with a levellised tariff of Rs 3.30/kWh at Rewa, Madhya Pradesh, in February followed by Rs 3.15/kWh for 250MW in Andhra Pradesh in April and in May at Rs 2.44/KWh for 500MW at Bhadla (Rajasthan), which is the lowest bid anyone has ever made in India.

Interestingly, this trend is likely to continue, and the sector will witness a further decline in new bids in the near future. Now, developers are hoping the further reduction in solar power tariff to Rs 1.5 a unit. The new rate of solar power is even below the average rate of coal-based power produced by state-run National Thermal Power Corporation (NTPC) at Rs 3.30 per unit.

The Balance of system costs key to further solar system cost reductions: Until recently, the main reason behind such rapid project development and declining cost was due to reduction in PV module prices, seen around $0.30 to $0.35 per watt peak capacity (Wp).

However, now, only major innovations in BOS (Balance of System) as a whole will keep the prices controlled and therefore only way to reduce the system cost will be by keeping cost of BOS low, which will now be the primary push toward more economically competitive solar.

A solar PV Balance-of-System or BOS refers to the components and equipment that move DC energy produced by solar panels through the conversion system which in turn produces AC electricity.

The BOS components include the majority of the pieces, which make up roughly 10%-50% of solar purchasing and installation costs, and account for the majority of maintenance requirements. Essentially, it is through the balance-of-system components that we can control cost, increase efficiency, and modernise solar PV systems.

A study by the International Renewable Energy Agency (Irena) estimates that by 2025, the average PV electricity costs could experience a decrease of 59%. As a result, the global average cost of electricity from PV and onshore wind would be roughly $0.05/kWh to $0.06/kWh by 2025.

In the USA, during 2010-11, 65% of an average project’s total cost was in the PV module, but today (H1 2017) it is seen that more than 65% of the project cost resides in BOS, which includes a variety of structural and electrical components, labour and soft costs. This scenario is exactly where India is heading now.

The BOS manufacturers, especially electrical and structural components, are being squeezed as the market landscape becomes more crowded with increasing demand of solar installations in all the sectors, be it commercial, utility or residential.

Large projects

Although there is focus on innovations and development for different products based on the market requirements, the cost of BOS is competitive in India with cheap labour availability. Even with the inflow of large solar projects, this is keeping the market crunched for further developments in new products to reduce the costs.

The study points to policy makers, highlighting the need to understand that future cost reductions are expected to be highly dependent on BOS (for example, inverters, racking and mounting systems, civil works, etc) rather than PV modules, despite continued cost reductions expected from modules through 2022.

The speed at which price of solar panels has reduced has surprised the entire industry recently. The convergence of clean energy targets, desire for energy decentralisation, robust government-backed policies and subsidies, and continued technical innovations and advancements are the driving factors that have put solar sector in the limelight.

All is expected that the global weighted average installed cost of utility-scale solar PV could fall by around 70% to 80% driven by continued technological improvements, competitive pressures and economies of scale and the convergence of BOS costs towards best practice levels.

To conclude, given the state of the global solar PV market, the sector requires much of the industry's attention towards BOS manufacturers to be able to achieve the step-function reductions needed to help solar power deliver energy at or below costs of other generation resources.

(The writer is CEO, Ganges Internationale Pvt Ltd)