India Successfully Scaling Up Solar Generation

New York Times
December 28, 2011

In Solar Power, India Begins Living Up to Its Own Ambitions
Vikas Bajaj

Two years ago, policy makers in India said that by the year 2020 they would drastically increase the nation’s use of solar power from virtually nothing to 20,000 megawatts. So far, India’s solar capacity is only 140 megawatts. But India is scaling up quickly, taking advantage of a large drop in the global price of solar panels and aggressive government subsidies. India has wisely opened up the electric generation business to competition from private players, while continuing to have the government handle rate-setting and electricity distribution. And rather than following the “feed-in tariff” approach used in Germany – whereby prices paid to solar providers are locked in for decades – India uses an auction approach to determine the price at which its state-owned power trading company would buy solar-generated electricity for the national electric grid. In the most recent auction, the average winning bid was about 16.5 cents per kilowatthour (kWh), which is about 27 percent lower than the auction from a year ago and considerably less than the 23 cents per kWh paid by Germany for solar power. Moreover, the procurement contracts used in India are not open-ended, and will allow India to benefit from lower prices in the future as the cost of generating solar power continues to decline.

India gets more than 300 days of sunlight annually, and is an ideal place for generation of solar power. Moreover, the ability to site solar plants throughout the country will help to overcome the lack of infrastructure that plagues the Indian economy. The sun shines virtually everywhere in India, and there will be less need to make the investment in extensive transmission infrastructure to move the power to where it is needed. While solar is still about twice as expensive as the coal-fired power plants used to generate most of India’s electricity (7.5 cents versus 16.5 cents per kWh), the gap is narrowing. And when all the costs are considered – including the environmental impacts of generating with coal and the necessary investment in transmission facilities to move power from centralized generating plants to load centers – the gap may be very narrow indeed. This is strong evidence that even in the absence of an international agreement on emissions reductions, the developing nations are acting on their own to move to cleaner energy supplies.