Price puzzle

Getting the cost-tariff equation right is tricky  

 
Last Updated: Sunday 28 June 2015 | 11:25:17 AM

Price puzzle

The conference room on the fourth floor of the Chandralok building on Delhi’s Janpath road was filled to capacity on February 10. The Central Electricity Regulatory Commission was holding a public hearing to finalize tariffs for solar projects under the national solar mission. Everyone in the solar business who counts was present.



The commission had to hear 52 submissions, oral and written, before deciding whether to revise its tariffs set last year for the two commercially used solar technologies—Rs 18.40 per unit for solar-photovoltaic (PV) and Rs 13.50 per unit for projects using the nascent solar-thermal technology. This tariff assumed capital cost to be Rs 17 crore per MW for solar-PV and Rs 13 crore per MW for solar-thermal. The solar-thermal group at the meeting wanted costs revised sharply upwards.

Solar thermal: costs uncertain
In case of solar-thermal, companies presented a range of estimates. Coal giant ntpc, which plans to generate 250 MW of solar-thermal power, pegged the cost at Rs 25 crore per MW. Acme, SunBorne Energy and Entegra proposed between Rs 16 crore (without energy storage) and Rs 17.70 crore per MW (with energy storage). Tata Power estimated the capital cost at Rs 20-22 crore per MW, while Spanish thermal major Abengoa wanted Rs 28 crore.

India’s first and only solar thermal developer with a power purchase agreement, Dhruv Batra of Cargo Power and Infrastructure, explained that costs are unclear because this technology is still developing in India. Vijay Lakhanpal, chief operating officer of the Forum for Advancement of Solar Thermal, said the cost of the thermal system will also differ with technologies used in building solar-thermal.

Tower and Dish-Sterling systems can give better efficiency at a lower cost but they are yet to be commercially proven. Parabolic troughs may be more expensive but they also have more commercial success, he said.

The three-member commission noted that roughly half the cost of setting up a solar-thermal unit is for the solar field. Equipment needed for the solar field—like concentrating mirrors and receiving tubes—are not made in India. But there are options for indigenization and cost efficiency in building the power block.

After considering the estimates the commission decided to benchmark capital costs of solar-thermal at Rs 15.30 crore per MW for projects signed on or before March 31, 2011, and commissioned by March 31, 2013.

Solar-PV: cost is more and less
The solar PV lobby is more experienced in cost estimates. Its aim was to explain the components. Land was the most contentious of all projected costs. The requirement of land is roughly five acre (2.2 ha) per MW of power generated. The commission had estimated land at Rs 1 lakh per acre. Developers said this was too low because projects have to be close to grid substations where land is expensive. The commission agreed to revise rates to Rs 3 lakh per acre.

PV modules, consisting of solar cells, constitute roughly 60 per cent of the total cost. The commission had fixed their cost at US $2 per Watt-peak (Wp), that is under ideal conditions. At current exchange rate this translates to Rs 9.15 crore. Tata-BP Solar said the cost of solar modules, backed by a 25-year warranty and with 86 per cent power availability at the end of the 25th year, would be US $2.2 per Wp. Now, modules can be crystalline or thin film. The commission observed the cost of crystalline-PV modules varies considerably. Thin-film PV modules are cheaper but also have lower efficiency. It fixed the cost of a PV module at US $2.2 per Wp. The commission then considered other costs—like that of mounting structures and the power conditioning unit—to arrive at the final capital cost of Rs 16.90 crore per MW for projects cleared in 2010-11.

In end-April, the commission revised tariffs. It reduced the solar-PV tariff to Rs 17.91 per unit and increased the solar-thermal to Rs 15.31 per unit. Solar experts say the PV group now faces the challenge of cutting costs, while improving efficiency. They also caution that the capital cost and tariff for the next big thing, solar-thermal, is much lower than costs abroad. Clearly, much more is needed to learn the cost-technology equation in the solar market.

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