Friday, 31 August 2012

Can a Solar Energy Power Project become Financially viable without Subsidies or Incentives?

(Recent updates of 09th Mar 2015 below)

The driving force behind JNNSM to encourage Solar Energy Power Projects was the depletion of domestic fossil fuel resources, reliance on imported fuels - a drain on foreign currency, environmental concerns and the need for a better power portfolio for the Country which can solve several problems including overcoming the problem of T & D losses (Decentralized Power Systems). While several Incentives and Subsidies have been announced under JNNSM and other State-level initiatives - it should be noted that what would happen in case of absence of these subsidies or incentives.

Can a PV Solar Power Project become viable without subsidies or incentives being offered by the Government? The answer is yes it can. Presently it can very well work for Industrial Plants who are looking for PV Solar as a source for captive power generation. Industrial plants are paying quite a high tariff for grid power which will keep on rising - even if India were to meet all of its power demands today - due to natural growth of economy.

(Interesting Read - Energy Audit :: Why Should a Plant go for it?)

While PV Solar remains a topic of interest among many it is worthwhile to note that it is commercial viability which matters for an Investor or Captive Power user or an Independent Power Producer. We carried out an analytical comparison between various Power sources and below is the graph depicting the Cost of Power (INR / kWh) from each source of Power i.e. PV Solar Project, Utility Grid and D.G. Set. For PV Solar power since there is nearly ZERO running cost, the INR per kWh value has been obtained by amortising the cost of Project over a period of 10 years although trouble-free life of a PV Solar Project is around 25-30 years.
Solar Energy Photo Voltaic Power Project Cost per Unit
INR per kWh Comparison of Solar Power with Grid and D.G. Set
(Above Diagram taken from our FREE Solar Energy Report)

It should be noted that NO Government subsidies and incentives for Solar Project have been considered here. If the same is considered then INR per kWh for PV Solar can be much lesser possibly lesser than INR 3.00 per kWh.

(Suggested Reading - 30% Subsidy on Solar Projects)

Moreover INR 5.0 per kWh has been considered as the present grid price. In most of the cases across India this is true and INR per kWh for Grid Power is in the range of INR 6.0 to INR 7.0 as well. In some rare cases it can be lesser than INR 5.0 per kWh. For a plant using Grid + D.G. Set the landed cost will be certainly much above INR 5.0 per kWh.

Typically a PV Solar Project has a life of 25-30 years (with appropriate warranties in place) and its Project IRR is quite attractive at 16% (minimum) and can be as high as 20% as well. In fact equity IRR of 75% (minimum) and a maximum of 95% ensures that Equity is recovered from the project within 2 years of investment - on Tax benefits alone !

(You may also like - Is Solar Energy the Answer to India's Power Problems?)

Updates on 09th March 2015
With falling PV Solar prices the capital cost of project for PV Solar is nearly the same as that for a wind power project. The obvious benefit of Solar project over wind project is that a Solar project requires minimal maintenance and hence negligible OPEX.

Additionally the predictability is much higher in PV Solar as we can accurately extrapolate the expected kWh through
  1. Onsite Solar radiation analysis during site survey.
  2. Analyzing Solar radiation map of the region.
  3. Software simulation of the project.

Consequently cash-flows from a PV Solar project can be more accurately projected.

As is known, PV Solar can be ideally used across the Country as against other technologies which could only be used in certain parts. For eg. Wind projects could only come up with areas which fall in the wind-pocket zones. Hydro projects could be installed only in areas with river beds etc.

The rising grid prices is another reason for worry for Industrial power consumers. Some of the States (Maharashtra, Karnataka, U.P., M.P. etc.) have already hiked industrial power tariff or announced their plans to hike the same in 2015. With the recent re-allocation of coal blocks at 5x to 10x the original prices would be another cause of worry for consumers as eventually the added cost would be passed on to the consumers. These factors would result in further rise in power tariff., making Solar power project more viable.

The above driving factors is resulting in rising popularity of PV Solar projects and the grid-parity will be achieved much sooner than was earlier anticipated. MNRE in it's recent directives has hinted that subsidy to PV Solar projects is likely to be discontinued. Even if no subsidies are considered a PV Solar project could payback for itself in 3-5 years for a Industrial or Commercial facility if

If the entire life of a PV Solar project is considered for simple amortization then cost of power from PV Solar project is less than INR 3 per kWh - without subsidies.

Monday, 13 August 2012

Solar Energy Report (FREE)

We have recently released our First FREE Solar Energy Report for Indian Industrial Plants.

The FREE Solar Energy Report titled - Why Indian Industrial Plants should opt for Photo Voltaic (PV) Solar takes a look at Indian Power Scenario, Indian Renewable Energy Scenario, Indian Industries - Power Outlook and a deep insight into Solar Energy i.e. Photo Voltaic Solar and the practical applications from an Industry viewpoint including a touch up on Viability aspects.

Primarily any Industrial Plant Manager would look to reduce cost while maintaining optimum production level through a consistent and quality power. This Solar Energy Report strengthens the view that an Industrial Plant should have an Ideal Power Mix or Portfolio to reduce its reliance on a single source of energy. By this report we do not intend to say that an entire Industrial Plant can run on Solar Energy - not practical and feasible in the near term. However adding PV Solar Power as part of the Power Mix would be an ideal solution as we believe Solar Energy can indeed be an answer to India's Power Problems.

We are offering our Consultancy Services in Solar Energy (Photo Voltaic) for  several Industrial Plants across India (majority of them leaders such as Reliance Group, Aditya Birla Group, Emami Group, Cement Plants, Chemical Plants etc.) and the findings have been quintessentially interesting. Every Industrial Plant that we audited has the potential to have a PV Solar Project installation of 500 kW to several MW for both rooftop and Ground-mounted systems. This was carried out as part of our Solar Energy Consultancy Package. The project are all viable and feasible under various subsidies and incentives offered by the Government under Jawaharlal Nehru National Solar Mission. Even in the absence of subsidies the project RoI is very much attractive due to rising grid power prices, inconsistent power supply, unreliable fuel supply etc. The findings of the Industrial Plants will be captured in our Next Report.

(Interesting Read - Energy Audit :: Why should a Plant go for it?)

If you wish to download the Free Solar Energy Report - please Contact Us.

Do you want a FREE Assessment of your Site for Energy Saving Potential?

You may also find it interesting to read our other posts -
  1. Solar Energy Training
  2. Solar Energy Capacity to exceed Wind Energy?
  3. Energy Audit - How much Energy could you save?
  4. 30% Subsidy on PV Solar Power Projects
  5. Can a PV Solar Power Project become viable without Subsidies?
  6. Is Solar Energy Really Affordable?
  7. How and Why PV Solar scores over other Renewable Energy Technologies?