<b>Vandana Gombar:</b> Cost down, efficiency up

A host of companies secured solar power projects at lowest-ever tariffs. They insist low tariffs are sustainable

When Canada's SkyPower bid to supply solar power at Rs 5.05 per unit for 25 years - with no price escalation - it established a new record low for solar tariffs in India. The usual questions are being asked: Is this tariff feasible? Can it be replicated? How does this compare with coal power prices?

SkyPower's bid was in response to a 300 megawatt auction by Madhya Pradesh last month. The state received bids for over 10 times that capacity, indicating strong demand. SkyPower bagged three projects of 50 megawatts each, with the tariff ranging from Rs 5.05 to Rs 5.30. Other companies which secured projects in the auction include ReNew Solar Power and Hero Solar.

ACWA Power holds the global record for placing the lowest-ever bid for solar electricity - at 5.845 $-cents - for a 200-megawatt solar plant in Dubai earlier this year. In an interview with Bloomberg New Energy Finance, Paddy Padmanathan, ACWA Power's president and chief executive officer, said the competitive bid was made possible by:

High leverage: Debt is 86 per cent of the project cost rather than the more typical 80:20 financing.

Long tenure cheap debt: Twenty seven-year debt at an all-in rate of under four per cent.

Efficient panels from First Solar: This will enable more generation per dollar invested.

Efficient engineering, procurement and construction (EPC) contractor: Spanish company TSK.

Operations and maintenance savings: Making use of ACWA's operations and maintenance subsidiary, NOMAC.

Chief Executive of SkyPower Kerry Adler, in an interview, attributed the savings to the following:

Low capex: This is managed through an efficient system design and bulk purchase of equipment.

Low weighted average cost of capital.

Both ACWA Power and SkyPower claim that these record tariffs are replicable. In general, tariffs can be pushed lower for larger-scale projects. ACWA Power reportedly offered to lower the tariff even further if it were allowed to build a larger plant. First Solar, along with a utility industry group, recently funded a study that found that rooftop solar could cost more than double that of large ground-mounted power plants in some states in the US. In countries where land is not easily available or is very high-priced, smaller rooftop projects can be built at lower costs.

For solar plants in India, it is down to $1 million per megawatt, from $1.3 million two years ago - a decline of 24 per cent. This includes the cost of the land, the modules, the inverters and the balance-of-plant equipment, as well as the EPC costs. This is lower than the global photovoltaic capex benchmark estimated by Bloomberg New Energy Finance, which is at $1.39 million per megawatt currently, down from $1.70 million per megawatt in 2012. It is projected to touch $1.09 million per megawatt by 2020.

The results of another solar auction in the southern state of Telangana for 2,000 megawatts of capacity - the largest auction so far -showed that winning bids were all under a tariff of Rs 6 per unit. SkyPower bagged a contract to develop 200 megawatts by submitting a bid of Rs 5.17 while Acme won contracts to build 436 megawatts at Rs 5.82 and Rs 5.88. Mytrah Energy sealed a deal for 327 megawatts at Rs 5.75.

SunEdison, the largest clean-energy developer, agreed to provide 90 megawatts of solar power to Tata Power Delhi Distribution at Rs 5.93 per unit and another 90 megawatts at Rs 5.97 per unit last month under a 20-year power purchase agreement. The solar plants will be built in Madhya Pradesh.

Next-generation technology could further drive down the cost of solar energy while increasing efficiency. One view is that solar panels made from materials called perovskites could replace the silicon-based panels that are in use currently, in the next couple of years.

The author is editor, Global Policy for Bloomberg New Energy Finance