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Sunrise industry

K.R. Balasubramanyam        Print Edition: Jan 8, 2012

In warm climates, the demand for electricity drops in the winter. But on November 29, the peak spot rate for South India on the country's largest electricity trading platform, the Indian Energy Exchange, was Rs 9 per kilowatt-hour, or kWh (NTPC's average is Rs 2.63). The shortage of fuel at coal-fired thermal power stations had sent prices up.

In 10 years, coal will be in even greater demand than it is today. Thermal power is still likely to dominate, but solar power is expected to grow rapidly . Signs of that are already visible, with the central government aggressively pushing its agenda to build grid-connected solar capacity of 20,000 megawatts (MW) by 2022. Only megawatt-scale plants are eligible for government subsidy. In the past two years, solar plants with a cumulative capacity of 144 MW have begun pumping electricity into the grid. The bulk of these came up only in 2011, and the pace is picking up. State government initiatives are expected to create another 10,000 MW of solar capacity, also by 2022.

India has potential for some 5,000 trillion kilowatt-hours (kWh or 'units') of solar energy. Most parts of the country get radiation worth four to seven kWh per square metre daily. Actual conversion of solar radiation into electricity depends on the efficiency of the technology. The global conversion average is about oneeighth of radiation received. Currently, solar power costs much more to produce than thermal, but this is expected to change.


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Thermal power is generated by burning gas or coal. Gas is cheaper, but even so, the cost of creating capacity is Rs 3 per unit (that is, Rs 3 crore per MW), and the gas itself costs another Rs 3.50 per kWh. The cost of creating solar capacity is currently Rs 10 crore per MW, and the input - solar radiation - costs nothing. As technology improves, solar power will cost less to generate (already it is down from Rs 16 crore two years ago). Better technology will make thermal power more efficient in the future, too, but rising fuel costs are likely to offset much of the gains.

This is a good time to beef up solar capacity. Solar panel or module manufacturers in China and the United States have excess capacity. Huge stocks have piled up in Europe, too. Thanks to a sharp decline in panel prices, project costs have fallen by as much as 40 per cent over the last two years. "I can see signs of solar power stabilising at Rs 8 in 2014,'' says S. Ramesh, Chief Engineer with the Karnataka Power Corporation.

Ramesh bets that, in the next 10 years, the cost of solar power will drop to match or even beat grid power. Grid power refers to any power carried by a transmission line, and could be of any type, including thermal, hydroelectric, nuclear, wind, or solar. According to the central government's estimates, the cost of solar and thermal power will align by 2030.

Most industries that depend on grid power are expected to have captive solar plants, which would be more viable than plants that currently run on diesel. Thomas Maslin, analyst at Washington-based global consultancy firm IHS Emerging Energy Research, cautions that the Indian practice of awarding projects by auction creates uncertainties with regard to incentives and revenue streams in solar power generation. The availability of affordable finance remains an issue, he says.

Maslin estimates that India could, at best, build 10,000 MW of capacity by 2025. This is much lower than the Indian government's target, but it would still be a substantial improvement on the country's installed solar capacity - just12 MW - two years ago.

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