Grid Parity Unleashes Another Solar Surge Globally

26 Aug, 2019 by Sneha Shah

The long-awaited grid parity had arrived in the last couple of years in multiple places such as India where both solar and wind prices are now below that of fossil fuel power prices. This is not multiplying to other places and situations as the prices of solar technology continue to trend lower and lower each year while the costs of fossil fuel continue to increase.

This trend is leading to subsidy-free solar projects being built at a rapid pace. Europe which was the initial home and driver of solar energy in the early parts of the decade is again returning to prominence as the key market with large projects being built at prices which are lower than the wholesale electricity prices being seen in the European markets. Spain is leading the surge with annual solar installations expected to be 4 GW this year which is a massive growth from the around 300 MW installed in 2018. Spain had seen a huge solar boom in 2010-2012 driven by high feed-in tariffs leading to a massive surge. This was similar to what was seen in Germany, Italy and Czech ultimately leading to the massive solar crash in 2012, which drove solar panel prices lower making China and USA as huge new markets.

Also, read Solar plus Storage Becomes Hot In Australia

Now, Europe is seeing fast growth in solar energy, as not only solar but solar plus storage is also becoming cheaper than the grid prices. While Germany is leading the solar plus storage installations in homes, thanks to high retail electricity tariffs and incentives for self-consumption, other places such as Italy and Spain are also seeing rapid growth as their high solar radiation makes solar plus storage even more viable than Germany.

Just like solar energy, the solar plus storage technology is not going to see “grid parity” at one particular date or region but will be spread out over many years, depending upon the geography, tariffs, etc. Solar plus storage could reach the economic tipping point where it is cheaper than buying power from the grid. It is expected that this will happen in Italy and Germany in 2020 and 2021 followed by France and the UK in 2024.

Fossil fuel power plants face severe disruption once gain from renewable energy sources since distributed energy systems could lead to huge demand destruction from central power plants, as consumers begin to generate power themselves instead of buying it from the grid. What is even more alarming is that the sharp cost decreases in solar energy and storage technology will continue in the future, increasing the gap between fossil fuel and renewable energy costs.

Why a proposed drastic cut in Chinese Solar Tariffs could trigger Market recovery in the Solar Industry

3 Oct, 2016 by Sneha Shah

China,Solar Energy

China to cut its FIT

China has been the biggest growth driver of solar demand in the world over the last couple of years and it has surprised everyone with the huge jump in solar growth in the first half of 2016, when it installed an eye popping 20 GW of solar capacity. However, the country is now thinking of sharply cutting down the feed in tariffs for both utility and rooftop solar energy as it needs to slow down the pact of solar growth. This is both to reduce the subsidy outgo which is increasing consumer bills, as well as to deal with the grid balancing and capacity issues.

Large scale curtailment of solar power procurement is being seen in western China as there is no grid evacuation to move the solar power generated from western China to the demand centres in East China. The government needs to control the growth of solar energy so that the grid capacity can catch up with the growth in the power generation capacity.

Also read China exceeds Japan’s Annual Solar installation target in Q1’16

The Chinese government is short of the funds required to subsidize generation of renewable energy, mainly PV and wind power, with the gap reaching a cumulative amount of CNY55 billion (US$8.27 billion) at the end of June 2016 and is estimated to increase to CNY60 billion by the end of the year, China-based media cited the National Development and Reform Commission (NDRC) as indicating.

While China has committed itself strong to the Paris climate change summit goals of increasing renewable energy, the country’s economy is seeing a slowdown with a commiserate decrease in the demand for electricity. China may not need the huge growth being seen in electricity growth from all sources. Besides the drastic drop in solar system prices has given it the leeway to drop feed in tariffs and still make the ROI sufficiently high enough for developers to remain interested in putting up solar projects. However, it is never easy to benchmark solar tariffs so that they remain balanced . Generally change in FIT has resulted in booms and busts if not done in a gradual manner. Germany, Spain, Czech – there have been innumerable examples and you can find it in the Greenworldinvestor archives, where we have documented most of those episodes in real time when they had occurred.

However, before any drastic change will happen, expect solar developers to go all out to install as much solar systems in H2 2016. So expect the growth of solar panels shipments to start in the very next month, as developers work themselves into a frenzy of installing and commissioning solar projects.

China market: PV feed-in tariffs, 2016-2017 (CNY/kWh)


Area	2016 rates/	Tentative rates for 2017/	Percentage reduction
Category 1	0.80	0.55	31.25%
Category 2	0.88	0.65	26.14%
Category 3	0.98	0.75	23.47%

NDRC has set tentative tariffs for distributed PV systems of CNY0.20 (US$0.03)/kWh for category 1 areas, CNY0.25/kWh category 2 and CNY0.30/kWh category 3.

Indian government utility loses case for retroactive reduction in Solar Feed in Tariffs

2 Sep, 2014 by Sneha Shah

India,Solar Energy

GUVNL at a loss!

The Indian government utility Gujarat Urja Vikas Nigam Ltd. (GUVNL) has lost out on a case to reduce the solar feed in tariffs for the state of Gujarat. GUVNL has been trying to sharply reduce the FIT given to solar developers as per the Gujarat solar policy in 2009, which granted fixed tariffs over 25 years. This led to a huge boom in solar installations in the state leading to more than 900 MW of solar power plants being granted the subsidy.

GUVNL has found it tough to pay such high amounts of money to the numerous solar power plant owners. The utility wanted to reduce the payout as it thinks that the solar developers are making too much money, since the solar panel prices fell after the FIT order was announced and the plants were commissioned. This led to super normal profits for the solar power plant owners. Note retro taxes and reductions have been imposed in a number of places such as Czech, Spain etc. where similar problems have come up with fixed FIT leading to massive solar booms.

GUVNL also faces a similar predicament but its appeals and efforts have constantly failed in different regulators and courts. The reason is that the contract was for 25 years and there was no provision for changing the contract in the middle. It was a mistake made by the then policy makers and bureaucrats, who made the decision to go ahead with fixed tariffs with no limits on the solar capacity.

It remains to be seen how GUVNL manages to deal with the large power bills and how it will pass it to customers or whether the government will bear the burden of paying the bills for the solar power plant. 1 GW of plants will generate approximately 1500 million units per year, which means an outgo of 1800 million rupees a year at around Rs 12 per unit.

Businessweek

An Indian court threw out an attempt by a government utility in Prime Minister Narendra Modi’s home state to backtrack on contracts by cutting the rate paid to solar plants for their power.

India’s Appellate Tribunal for Electricity dismissed an appeal by Gujarat Urja Vikas Nigam Ltd. to reduce the solar-power tariff as “devoid of merits,” according to a copy of the judgment. That upholds an August 2013 decision by the Gujarat Electricity Regulatory Commission.

“In effect, there can be no reduction in tariff,” nor any attempt to renegotiate the rate individually with plants, said Hemant Sahai, a lawyer representing the solar developers.

Spain continues to suffer from the Solar Subsidy disaster in 2009

12 May, 2014 by Sneha Shah

Solar Energy

Solar Subsidy pain in Spain

Spain saw a massive boom in solar installations after the government announced a very generous subsidy on solar energy installations. Beside large funds and companies, large number of small investors also started to invest in solar energy systems, attracted by the steady high long term returns given by the government. Spain’s subsidy scheme was badly designed without safeguards on how the funding would be done given that there was no cap on solar installations. The bureaucrats were too slow to recognize the perils of large numbers of solar installations happening at a breakneck speed. This led to more than 1 GW of solar installations happening at a time when solar system prices were around $10/watt. This meant that the Spanish government was left holding the bucket for billions of euros in subsidies every year for 20-25 years.

The Spanish government also faced a massive fiscal deficit as the European crisis hit the country. The government had no option but to drastically cut the subsidies in a retroactive manner. This was done to control the massive deficit due to energy subsidies. Solar investors in Spain cried foul as the contracts were for 20-25 years, but the rules were changed midway by the government. Similar things happened in Czech as well. Spain is still suffering from the solar energy fiasco as hundreds of small investors face financial ruin. The solar panel and systems sellers have made their money and gone away, while the investors have to wait for the cash flows. These cash flows are now much smaller than what was thought of, which means they are having problems in servicing the debt payments.

The Perils of Solar Investing in Politically Risky Regions – Activ Solar faces Crimea FIT abolition

3 Apr, 2014 by Sneha Shah

Europe,Solar Energy

Investing in solar energy plants is not easy, given the multiple risks that this new form of energy entails. Despite solar energy capacity growing by more than 50% CAGR over the last decade, solar energy still accounts for less than 1% of the global energy demand. The industry is relatively new though with the massive fall in costs, it has become a more mainstream industry.

Activ Solar faces Crimea FIT abolition

Solar energy is being promoted by almost every country through different incentives and subsidies. Feed in tariffs are one of the most popular ways to promote solar energy and is followed by most European countries. Germany has installed the largest solar capacity in the world at 35 GW, using feed in tariffs which have declined every year. Ukraine also used the same strategy to promote solar energy. Activ Solar, which is an Austrian company with close ties with local Ukrainian politicians quickly won most of the solar projects on offer. The company built almost 300 MW of solar PV plants in the Crimea region of Ukraine, taking advantage of the Euro 34 cents/KwH. However, with Crimea seceding from Ukraine and joining Russia, Ukraine government is unlikely to pay the high FITs to Crimea. Activ Solar is now left in the lurch, as its cash flows are in danger. If the Russian government does not honour the FITs, the best that the company can hope to get is wholesale electricity tariffs which would be very low compared to the FITs.

Solar Investment in Politically Sensitive Regions

Investing in politically sensitive regions is always tough for any industry, but it is ever tougher for new industries. Solar energy investing should always be dispersed across geographies. The reason is that most countries are highly risky in terms of their political stability. Even large rich European countries such as Spain have made retroactive cuts in their solar subsidies, leading to large losses for solar energy developers. Countries such as Czech have almost been bankrupted by ill thought of solar feed in tariffs and they too made drastic retroactive cuts in subsidies.

A lot of interest is being generated in investing in solar energy plants in Africa with most of Europe being saturated. Given that Africa is energy starved and solar energy is abundant in Africa, there is a lot of enthusiasm amongst solar investors for this continent. However, investors should have a risk management plan in place before trying out new frontiers. They should diversify their solar plants across countries and regions. Unless they do that, they could run into major problems like Activ Solar is facing due to its overdue concentration in Ukraine and Crimea.

Gujarat Government Fights to Enact a Retroactive Cut in Tariffs paid to Solar Developers

25 Nov, 2013 by Sneha Shah

India,Solar Energy

Gujarat wants a Retroactive Cut in Tariffs

The Gujarat government has been touting the success of the solar power scheme enacted by the state government, which led to almost 60% of the solar installations in the country being installed by Gujarat alone. Almost 1 GW of solar power has been installed in the state by developers taking the advantage of solar feed in tariff scheme started by the government. This solar subsidy scheme has now been shut down, since the government exceeded its targets by a huge margin as a large number of developers set up the plants in the state. Note Gujarat is a relatively well-off government which means that it has enough money to pay solar developers and the land values in the state are also reasonable. The government administration is also much better than other parts of the country which made it an attractive option for many companies who have set up multi megawatt power plants in the state.

Read more about Gujarat Solar Power here.

But now the success of this scheme is biting the state electricity utility which is finding that the outflows due to the solar tariffs is adversely affecting its financials. The utility had earlier appealed to the regulator to cut down the solar tariffs as it was leading to windfall profits for developers. The utility in its appeal said that the construction costs of the solar power plants were over inflated by the developers, when in fact they were much lower. The tariffs had been set based on a reasonable ROE figure for developers but in reality has turned out to be much more.

The regulator had rejected the claims of the utility in retroactive cut of tariffs. Note this problem has been faced by governments around the world. High FITs have led to super normal profits for developers in Spain, Czech, Italy etc. While the scale of the problem in Gujarat is much smaller, it is a problem for the utility all the same, as it will have to pay feed in tariffs for 1 GW of solar plants for 25 years. The developers are not amused as they feel the goal posts have been changed in the middle of the game. Retroactive changes in laws is always an unwelcome development for investors everywhere but a fact they have to live with. This gives rise to unexpected risks for the companies and investors. Gujarat government is in no mood to give in and has appealed to overturn the GERC decision by going to the Appellate Tribunal for Electricity. The government wants a cut of roughly 30%, which seems quite large to me.

Investors make a lot of decisions based on expected IRRs and cash flows. They also take execution and other risks which cannot be quantified. The government cannot claim large profits for developers as a reason to cut tariffs which were fixed for 25 years. Changing the rules of game in the middle means investors will put higher risks on green energy projects, which will raise the cost of capital making green power more expensive for everyone ultimately. The government made a mistake and it should bear the costs. Private developers made a huge mistake by bidding too low for the thermal power plants in UMPP tenders. They should now bear the costs of that mistake as Tata Power which is losing huge amounts from selling power from the Mundhra Power Plant. The government should not allow the tariffs from these plants to be raised after the private power companies have already signed the contact. They should bear the sins of their mistake.

Read more about the story:

Gujarat, India plans to retroactively reduce high FITs for 1 GW of Solar Plants in the state.

DNA

The state government has approached the Appellate Tribunal for Electricity (Aptel) challenging dismissal of its petition seeking lowering of solar power tariff by the Gujarat Electricity Regulatory Commission (GERC).“Yes, the Gujarat Urja Vikas Nigam Limited (GUVNL) has filed an appeal with Aptel challenging dismissal of its petition by the electricity regulator,” confirmed a senior official, requesting anonymity.The Aptel is expected to hear GUVNL’s appeal on November 11, said a solar power project developer. GUVNL had signed 25-year power purchase agreements for 971.5 MW solar power with 88 developers in 2010. It also came out with a solar power policy to attract fresh investments.

Earlier this year (in May), GUVNL had approached GERC seeking reduction in tariff paid to solar power developers citing excessive profits earned by them. It had sought a levelised tariff of around Rs9 per unit instead of the current tariff of Rs12.54.

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