Expect grid parity between normal and solar power between 2017-19: KPMG

The Solar PV industry has seen dynamic changes in the last 12 months. Module prices have seen precipitous fall thereby encouraging forecasts of early grid parity; while at the same time, this has raised concerns about the health of the manufacturing sector and sustainability of the cost reductions, says KPMg India in a report, The Rising Sun.

In its last report released in May 2011, KPMG India anticipated utility-scale grid parity in the time frame of 2017-2019 for India.

"We now believe it is likely to occur at the earlier end of that range and therefore solar power presents a potential disruptive change in our energy scenario," says Arvind Mahajan, partner and head, energy and natural resource, KPMG India.

"This could help India leapfrog the energy technology space, and enable solar power to make a meaningful and substantive contribution to our energy scene by the end of this decade," says Mahajan.

Policy makers need to take a serious note of this potential, he adds.

The point at which grid parity occurs is  a function of two variables – the rate of increase in conventional power prices and the rate of decrease in solar power prices.

The consulting group believes the following could be the key trends:

• KPMG expects landed cost of conventional electricity to consumers  to increase at the rate of 4 per cent per annum in the base case and 5.5 per cent per annum in an aggressive case. This factors the increasing proportion of raw material imports, cost of greenfield generation, and higher investments in network assets to improve operational efficiencies of the utilities.
• It expects solar power prices to decline at the rate of 5-7 per cent per annum. This is after factoring the increasing economies of scale in equipment manufacturing and advancements in product technology, which improves solar-to-electricity conversion efficiency. Emergence of low cost manufacturing locations are expected to aid this trend.

The National Solar Mission has triggered the development of solar ecosystem capacity in India in the last two years. India's solar capacity has grown from less than 20 MW to more than 1,000 MW in the last two years, the report notes, quoting figures from the ministry of new and renewable energy.

The tariffs discovered in the highly competitive bidding in the recent rounds of auction under Jawaharlal Nehru National Solar Mission (JNNSM) and state level programs are already comparable to the marginal power tariffs applicable for industrial and commercial power consumers in some states in India, the report says.

The seeds have been sown and the investments in capability building have been made. What is now needed is that the 'green shoots' have to be nurtured; else, we could see them die away, putting significant national resources to waste, the report warns.

It says the government should keep the momentum going by providing sufficient clarity on the market, announcing the next phase of the NSM quickly and addressing some regulatory issues which can open up the private contract markets.

Given the financial position of the power utilities, the report says that rooftop market for customer segments that already see parity with utility power tariffs has the potential to be a game changer in the coming five years.

Within rooftop, the solar lease model is becoming attractive in the Indian market.

Given the fuel, land and environment challenges that the country is facing in setting up new power capacity, the report suggests that state governments, utilities and regulators should encourage this market to realise its potential by providing critical enablers such as net metering infrastructure, banking facility and developing an ecosystem for rooftop market installations.