India’s solar tariffs have fallen 40 per cent in just 16 months, an unprecedented rate way beyond any market forecasts, and its energy transformation will have a ripple effect, as is already seen in the UAE, South Africa, Australia and other countries….writes Vishal Gulati
The Indian government’s striking policy shift towards renewable energy sources — away from more expensive and polluting fossil fuels — is a strong global endorsement of the country’s leadership, Tim Buckley, Director at the Cleaveland-based Institute for Energy Economics and Financial Analysis (IEEFA), said in an interview.
Indian solar power tariff hit a new low of Rs 2.62 per unit this week — 12 percent below the previous record just three months ago. Moreover, shifting rapidly towards low-carbon economy is a step towards the 2015 Paris Climate Agreement that aims to cut greenhouse gases from burning fossil fuels.
“It was just 16 months ago that the financial markets were questioning the sustainability of Fortum of Finland’s then record low solar tariff of Rs 4.34 per kilowatt-hour (kWh), itself a 25 percent decline on the previous low set in 2015,” Buckley said.
Tapping renewable energy sources is a great opportunity, said Buckley.
“It’s a source of new, diversified domestic electricity generation and so it improves energy security. The move away from thermal fuel imports improves the balance of payments, helps improve the currency and hence reduces imported inflation generally,” said Buckely, who is with IEEFA’s Energy Finance Studies.
India has also highlighted how deflationary renewables are. “Not only does the tariff drop 10-20 per cent annually, but India’s renewables power purchase agreement are generally zero indexation prices, so they decline in real terms every year over the 25 year life of the contract.”
According to him, renewables in India are seeing a massive scaling up of in-bound investment.
“The global endorsement of major financial institutions like Brookfield, Macquarie Group, Goldman Sachs, Morgan Stanley and SoftBank and major global utilities like ENGIE, Enel, EDF, Fortum et al is clear and very positive. This is funding strong growth in jobs and investment,” Buckley said.
India’s draft “Ten Year Electricity Plan” calls for a staggering 275 GW of renewable energy by 2027, in addition to 72 GW of hydro and 15 GW of nuclear energy.
Buckley, who is based in Australia, said “that is a very ambitious but doable target”.
As for the impact of energy transformation on other global economies, he said it would have a significant ripple effect on other transforming markets, as is already being seen in markets as diverse as the UAE, South Africa, Australia, Chile and Mexico.
On the possible ramifications of the Trump administration’s executive order that attempts to dismantle the Clean Power Plan on emerging economies like India and China, Buckley said this could undermine the positive momentum globally.
“Or it could isolate the US,” he said. “Let China and more recently India take on a positive global leadership role, a move away from the US political and economic dominance of the last 60 years.”
Transition to clean energy is now inevitable, he felt.
“Five years ago the US move could have destabilsed and undermined the global momentum. But when we are now reading about the first zero-subsidised offshore wind farms being planned in Europe and solar farms in India, policy helps, but technology and economics are now so advanced and this transition is now inevitable.”
“Policy can slow momentum, but can’t stop it,” a farsighted Buckley added.
The government said this week that India’s renewable energy capacity has crossed 57 gigawatts, with an increase of 24.5 per cent being registered in the last fiscal.
The capacity addition in solar energy in the last fiscal was the highest-ever at 81 per cent.
“India Solar Handbook 2017” by Bridge to India, a consultant in the clean technology market, in its report this week said India is set to become the third-biggest solar market globally and will overtake Japan this year.