The proliferation of solar power farms will give the Indian electricity market a jolt in the next five years. Already, in the past three years, India's installed solar capacity has gone from a puny 10 MW to more than 1,000 MW. It is a remarkable feat, given that every megawatt of capacity cost Rs 11 crore to Rs 12 crore to build. By terms of installed capacity, wind energy is bigger than solar by a factor of 18 today, but a change in depreciation rules for wind energy and the lack of generation-based incentives make it less attractive than solar energy.
Development is so-called thin film technology in solar power make it the energy source to bet on, too. Two events turbocharged India's solar effort: the Centre's Jawaharlal Nehru National Solar Mission (JNNSM) targeting 20,000 MW of grid-connected solar capacity by 2022, and Gujarat's pioneering policy to get 500 MW online. The latter has, in fact, awarded projects adding up to 968 MW, and is aiming for another 1,000 MW. Like Rajasthan, Gujarat has high levels of solar radiation, and it has promised investors returns of Rs 15 per unit for the first 12 years.
Investors' response to JNNSM's programme under the first phase of 1,100 MW has been overwhelming. The government awarded projects in two batches to those who offered the biggest discounts to the benchmark tariff of Rs 17.91 per unit. The average tariff discovered through bids was Rs 11.80 per unit in the first round, and Rs 8.88 in the second. Over the past two years, most other states have joined the party, coming up with their own solar policies. In recent weeks, Tamil Nadu and Andhra Pradesh have stunned the industry by announcing 1,000 MW worth of projects each.
Innovations and the steep fall in the prices of solar panels have spurred hopes that by 2017, solar power will match pooled electricity on cost. As coal prices shoot up, this could happen sooner rather than later.