Auctions Replace Renewable Energy Subsidies? India Auction Cuts Solar Costs 30%

India is one of a handful of countries using a novel approach to cut the cost of solar energy without subsidies – the lowest bidder gets the right to supply solar electricity. 

In India, those that bid the lowest in a reverse auction win the right to build solar plants up to 20 megawatts (MW) and sell the electricity under a 25 year contract.

Winners are required to buy solar cells domestically. After the auction, they have seven months to arrange financing and 13 months to complete the plants, according to government guidelines.

India’s second solar auction took place December 2 and awarded 350 megawatts of capacity – 28 plants – to the lowest bidders.

France’s second largest solar producer, Solairedirect SA, came in with the lowest bid – $147 per megawatt-hour, and won the right to win a 5 MW plant.

That’s 30% cheaper than the average price for solar worldwide.

Globally, power project developers are paid about $208 per megawatt-hour to build a solar plant, $78 for a wind farm and $76 for a coal plant, according to Bloomberg New Energy Finance levelized cost of energy analysis.

By forcing companies to compete on price, India is turning solar subsidies on its head – it wants to avoid the high payments that Germany and other EU countries face from paying above-market prices to incentivize growth in the market.

India’s first auction was in December 2010. This year’s bid was 30% lower than the first auction and 35% above the average wholesale price India pays for coal-fired electricity. 

It shows how far solar prices have fallen in such a short time – at this rate, solar could reach grid parity (when it’s the same price as fossil fuel-based electricity) in 2014-2015. 

Solairedirect’s offer is the third-cheapest on record globally – behind a $110 a megawatt-hour bid in China and $120 in Peru, reports Bloomberg New Energy Finance.

Renewable energy auctions have also been held in Brazil, Uruguay and Peru this year, where wind and solar developers have won supply contracts at rates close to or even below fossil fuel-based power.

India’s auctions are part of its National Solar Mission, which targets 20,000 megawatt by 2022, equal to the power of 18 nuclear plants. The plan also includes a feed-in tariff and a Renewable Energy Portfolio, which requires a specific percentage of electricity sourced from renewables. 

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