According to a KPMG report published this month, the price of solar power has declined more than was many analysts expected since January this year. In India currently, the price of solar is within 15% of coal process on a levelised basis. In their report titled ‘The Rising Sun-Disruption of the horizon’, KPMG contends that while the current price of solar doesn’t include grid integration costs, even after taking them into consideration, solar would still be competitive with coal. They forecast that the price of solar power could be approximately 10% less than that of coal by 2020.
KPMG calculates a generation price of INR 4.2/kWh by 2020, and INR 3.59 kWh by 2025 (at today’s prices), and anticipates that wind and solar generation could constitute 20% of India’s energy supply mix by 2025. The biggest potential factor in solar power pricing in India could be rooftop solar, especially if it is supported by the continuing evolution of storage technologies. KPMG predicts that rooftop solar could provide 10 GW within 5 years and 49 GW within 10 years, and could mitigate as much as 275 million tonnes of carbon emissions in 2025. Thus it would make a sizeable contribution to India’s INDC which included a 33-35% reduction in emissions intensity of its GDP by 2030 from 2005 levels.
In addition to price forecasts, the KPMG report promotes a need for stakeholders to address and understand the impacts falling solar prices will have on the coal industry. A new planning paradigm that takes into account a significant renewable energy input scenario (including storage and smart grids) is needed in India, with the report also suggesting that the Government focus on bolstering planning policy, institutions, resources, and protocols. Appropriate incentives for investment in the integration of solar into the grid and balancing services should be implemented early, and consideration should be given to storage technologies being promoted in a similar fashion to the way solar power was encouraged through the 2009 National Solar Mission.
In flagging the significant competition utilities are likely to face from distributed rooftop solar, KPMG suggests they get into rooftop solar themselves and develop new revenue models based on the relationships they have with existing customers. If they don’t confront the competition, they could face losing customers and may need to rely on subsidies to remain solvent. They will also need to examine their power procurement portfolio and look at how they contract incremental capacities. The cost structures of new capacities should be scrutinised closely prior to committing.
On the basis that solar power in India would be at a sufficient scale from 2022, the coal sector would come under pressure
On the basis that solar power in India would be at a sufficient scale from 2022, the coal sector would come under pressure. To meet that challenge, the sector should focus on cost efficiency and flexibility, according to KPMG. Imported coal prices could be influenced by a number of factors including slowing growth in China, energy efficiency (on the demand side), and a fall in the commodities cycle. KPMG further recommended that Coal India Limited conduct a study of long run costs and add flexibility to its operations so it can adjust to different demand and price scenarios as they arise.
A framework for encouraging private investment in ancillary services needs to be urgently addressed, according to KPMG’s report. The solar sector represents significant investment opportunities, including storage solutions, demand response and grid balancing, however the significant ramp up needs are such that the availability of sufficient domestic capital may represent a challenge. It is also suggested that international funds and domestic bond markets should be investigated by investors. Given that solar is approximately four times as capital intensive as coal on a per kWh basis, a global economic recession could have a potentially significant impact – not just in terms of the availability of capital, but also in terms of falling fossil fuel prices which would make solar potentially less attractive. If shale gas or clean coal technologies become more prominent they could also pose a threat.
In KPMGs opinion, solar power has the potential to be a significant part of India’s energy mix in the next decade. Solar is clean and will reduce coal consumption over time, which will help India’s fight against the effects of climate change. Rooftop solar can take the pressure off distribution grids, which are of lower quality especially in rural areas according to KPMG. The continued evolution of storage technologies could lead to further development of electric vehicles in India, which in turn would reduce oil consumption and could possibly increase energy self-reliance. From a global point of view, reduced oil consumption and storage technologies offer the potential for increased energy security which is critical for every nation.