India: Solar to beat coal on cost by 10% in five years, says KPMG

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A new report by KPMG India assessing the country’s current solar push has concluded that PV will be 10% cheaper than coal in the country by 2020, with solar penetration rising to 5.7% of India’s energy mix by that date.

The report, titled The Rising Sun – Disruption on the Horizon, was commissioned on behalf of India’s minister of state for power, coal and renewable energy, Piyush Goyal, on the eve of Prime Minister Narendra Modi’s announcement that India will seek to spearhead a Global Solar Alliance of sun-rich countries.

According to the KPMG report, with solar costs having reached a new low of INR 5/kWh ($0.08/kWh) in the latest rounds of the NTPC solar auction, India will see a levelized cost of electricity (LCOE) for solar dipping below costs for coal within five years’ time. By 2025, the report confidently forecasts that solar will have “scaled up significantly” to become a major energy source in the country.

The report calculates that solar will cost an average of INR 4.20/kWh ($0.06/kWh) by 2020, and could cost as little as INR 3.59/kWh ($0.05/kWh) by 2025, reaching around 12.5 % of India’s energy generation mix by that date and, alongside wind power, making the Indian grid one-fifth renewable.

The bulk of this evolution will play out at utility scale, with the KPMG report adding that disruption may arrive via the solar rooftop sector provided appropriately affordable storage technology is widely adopted and progressive solar policies are introduced. Goyal has recently submitted a policy proposal to the House on such matters, but analysts Bridge to India have said that it could prove to be a "non-event" unless certain actions are taken.

Despite these concerns, KPMG forecast rooftop solar in India, combined with storage, will be cheaper than grid power after 2022, reaching 10 GW of rooftop capacity by 2020 and up to 49 GW by 2025.

Coal displacement

The report suggests that the coal sector will initially respond to the threat posed by cheaper solar by seeking to lower production and distribution costs, but ultimately a preference for solar power will see some 275 million tonnes of carbon emissions displaced by 2025, setting India on course to achieve the Intended Nationally Determined Contribution (INDC) targets set to be outlined at the COP21 UN summit on Climate Change in Paris later this month.

These INDCs will compel India to lower its emission levels by between 33% to 35% based on 2005 levels. Solar’s role in this first-phase transition will amount to a 4% contribution, the KPMG report states. These solar-led disruptions to India’s energy landscape will be most keenly felt from 2017 onwards, says the report, with coal output falling by as much as 15% by 2020.

For this transition to take root, the report suggests that India needs to begin planning for a new paradigm, which would include accounting for a high renewable energy scenario, ie, developing storage, smart grids and strengthening of the planning infrastructure to incentivize investments in grid integration of solar and wind.

"The government should think of promoting storage technologies in the same way it did for encouraging the use of solar power through the National Solar Mission in 2009," states the report. "A benefit that India has is that new electrical infrastructure is expected to be built in the next 15 years that will exceed what is standing on the ground today, ie, we will more than double the infrastructure."

With this infrastructure in place, KPMG calculates that solar PV in India could reach 166 GW by 2025. Thus, India is largely unique in that it has the opportunity to employ solar power as a ‘leapfrogging’ technology at large scale, matching the solar installations of the U.S. and China by 2030 despite starting from a much lower installed base as of 2015.