Feed-in-Tariff (FiT) is a crucial aspect of any country’s solar policy aimed at developing the market for solar energy. Policymakers worldwide have been experimenting with approaches to determine the right FiT as a one-size-fits-all strategy is still a distant dream, given that the solar sector is at its nascent stage of evolution. So what has been India’s chosen approach in this phase of experimentation?

Since the launch of Jawaharlal Nehru National Solar Mission (JNNSM), India’s solar policy has undergone dramatic changes. In early 2010, the policy initially envisioned a levelised FiT of INR17.91 ($0.36) per kWh for Solar Photovoltaic (SPV) projects. An overwhelming response from project developers based on anticipated rapid decline in solar PV prices prompted the government to replace the Central Electricity Regulatory Commission (CERC) determined FiT with a reverse bidding mechanism.

The reverse bidding mechanism entailed inviting bids from interested solar project developers. The lowest bidders would be selected for projects totalling the predetermined capacity for the two batches of Phase 1 of the JNNSM. The winning FiTs (bids) would apply to the solar project PPAs for 25 years, subject to the original CERC determined FiT serving as the ceiling.

Reverse bidding has triggered a 58% decline in FiT in less than two years
The rationale behind the reverse bidding mechanism was making the FiT market based and since the market (prices) for SPV was heading southward, it was anticipated that the FiT would follow suit. The SPV FiT has declined by 58% over less than two years since implementation of the mechanism.

Under Batch 1 (November 2010), the lowest winning bid for SPV projects was INR10.95 ($0.22) per kWh, implying a 40% discount to the original CERC FiT. More recently in December 2011, under Batch 2 the lowest winning bid reached a further low of INR7.49 ($0.15) per kWh by Solairedirect, the second largest French solar company. At these levels, solar power is now much lower than the cost of diesel generated power which is about INR12.5 ($0.25) per kWh. Given the trend and on the assumption that all the projects selected under JNNSM are successful, solar energy is expected to achieve grid parity much earlier than 2022 as originally anticipated under the JNNSM.

Source: EAI, PV Magazine

Developers expect decline in global solar prices to continue
What is noteworthy is that apart from Solairedirect, many other winning developers bid below the INR10 ($0.20) level. The deep discounts offered by developers closely correlate with a rapid decline in global solar PV module prices. The lowest winning bid declined a shade over 31% over the past one year to $0.15 per kWh while retail prices for solar PV module also fell by 30% to $2.43 per Wp during the same period.

Source: Solarbuzz

A section of experts and industry observers have criticised the reverse bidding mechanism questioning the viability of the projects at such low tariffs resulting from the mechanism. That is however, a topic for another day.