There are two distinct trends all over the world, in relation to power generation. Either of these two will decide whether you will end up buying power at Rs 30 or Rs 3 per unit in the next 10 years.
The first trend is of rising cost of conventional power, the generation of which is heavily skewed towards thermal power. Thermal power uses coal as its core raw material and the usage of coal is coming under pressure from different quarters. One, within India, the opening up of newer coal mines is facing stiff opposition from environmentalists and tribal groups. India's biggest import partner Indonesia has also announced a policy to reduce and gradually stop all exports of coal, to preserve its own resources for their captive use in the future. Second, coal-based power plants are highly-polluting and the recent Copenhagen Summit on environment will result in the government levying more penalties on such power plants. When over 75 per cent of all power produced is from thermal power plants, all of these factors could only escalate the cost of power for the end consumer.
The second distinct trend is of increasing focus on generation of solar power. Solar power is generated by silicon cells when directly exposed to sun. And, like with all silicon-based products, the cost of silicon power generation cells is only falling. The benchmark pricing of silicon solar cells was about Rs 250 per watt of power produced about 2 years ago in the international markets and it has since fallen to about Rs 110 per watt now. And, as the demand and production of solar cells rises exponentially, we could see these rates fall to even about Rs 40 per watt in the next 3 years. Consequently, the cost of generated solar power will keep falling exponentially. Will we see a similar progression as we saw in computers and mobile sectors?
Now, the issue that will decide the cost of power in the future years, is what percentage of total power produced is from thermal power plants and what percentage is from solar power plants.
As of March, 2009, the total power produced in India was 147,402 MW. (1 MW is 1,000 kilo watts; and 1 KW is 1,000 watts). All the power projects, predominantly thermal again, that are under development currently, are expected to add a capacity of over 50,000 MW in the next 3 years, taking the total power produced to over 200,000 MW.
This is against the current demand of 200,000 MW in the country. As dependence on energy continues to rise, the demand of power is projected to rise to 400,000 MW by 2020 and to 950,000 MW by 2030. This substantial rise in demand is surely not going to be met by coal-based, hydro, gas-based or even nuclear power plants. The sources that one will look forward to are wind and solar power. Now, with all uncertainities relating to wind speeds across the country, the biggest fall-back is obviously solar power.
Now, when you receive power in your homes or in your offices or in your factories, you don't know whether it is coming from a thermal power plant, or a gas-based power plant or a nuclear power plant. It is plain electricity. Power produced from all kinds of power plants is generally fed to the national grid, attains a common form and reaches you through local power distribution companies.
If 150,000 MW of the total 200,000 MW of power produced is going to come from thermal power plants, the cost of your power will directly depend on the cost of production of thermal power. Thermal power producing companies across the world have been hiking power tariffs, with or without the presence of regulatory bodies, from 10 per cent to 25 per cent every year. In South Africa, a local producer has already announced plans to raise power tariffs by over 45-50 per cent every year over the next three years.
Thermal power plants are under pressure not only because of rising cost of coal, but also the imminent penalties and cost of buying carbon credits (certified rights to pollute the environment).
Through the union budget presented recently, the Indian government has already set up the National Clearn Energy Fund, which would be built from funds generated through penalties levied on, predominantly, thermal power plants. At the recently-held SAARC Summit, Indian Prime Minister Manmohan Singh also announced the formation of "India Endowment for Climate Change in South Asia".
It is clear that funds will be transferred from thermal power plants to solar power plants in the form of generation-based incentives or subsidies/grants or low-interest bearing loans.
Consequently, reports of power producing and distribution companies wanting to hike their tariff frequently will keep appearing in national papers. This will only become more acute in the future, as the Kyoto Protocol's Clean Development Mechanism (CDM) gets enforced across the world.
Hermann Scheer, member of the German parliament, president of EUROSOLAR and general chairman of the World Council for Renewable Energy (WCRE), frequently warns that thermal power plants will become economically unviable in the years to come, and that any new thermal power plant looking at payback after eight years will surely collapse. By then, he assumes, the cost of thermal power will be higher than the cost of solar power. And, the fun with solar power plants is that these require a high one-time capital investment, while the operating costs are almost non-existent for the life of the plant of over 30 years.
This could have a fatal impact on a thermal power plant only if solar power plants produce enough power to meet all demand, and can replace thermal power in a significant way. At least in India, this does call for solar power generation capacity to be increased not just exponentially, but dramatically.
The recently-announced Jawaharlal Nehru National Solar Mission from the Ministry of New and Renewable Energy, aims to do just that - raise the solar power generation capacity in India from the current under 200 MW to 20,000 MW by 2022. If one goes by the current benchmark cost of Rs 15 crore per MW of solar power produced, this mission would call for an investment of about Rs 300,000 crore (about $66 billion) in the next 12 years.
From a different perspective, this Mission is all about the capacity which the government would support financially. In the next three to five years, as the cost of the silicon PV power cells falls exponentially, industries could see far more value in setting up their own solar power plants, even if their projects are not supported financially by the government. This will become easier because of two reasons - solar power plants can be set up for any capacity - from even 100 W to 100 MW or even many times more. And, the second is wheeling of power (the process of producing power at one location and getting it to use at another location, through the National Grid). This would remove all problems relating to storage of power (and hence, cost towards batteries) and space constraints at factories or even offices. The guidelines for the implementation of the Jawaharlal Nehru National Solar Mission are surely addressing these issues.
The Mission's target of 20,000 MW is huge and ambitious by any standard. However, it pales when compared to the projected demand of 400,000 MW of demand by 2020.
How much market share will be attained by solar power in the national grid, will then completely depend on to what extent companies/end-users set up their own captive solar power plants. Even if they set up 100,000 MW of capacity, at an estimated lower benchmark pricing of Rs 7 crore per MW (against the current Rs 15 crore per MW), this would call for an investment of Rs 700,000 crore.
How this will impact the final cost of power - Rs 30 or Rs 3 per unit - will need to be seen.
But, it is evidently clear that we are entering the Solar Energy Revolution age, and the country's economy will be driven by solar energy in the years to come.
The author is CEO of energy auditing and consulting firm REECODE Energy Solutions. He can be reached at bhupesh@reecode.in
