Solar Energy is Now Cheaper than Coal in India

For the first time in India’s history, solar energy is now officially cheaper than coal, making the country’s 2010 coal power boom seem like nothing but a distant memory.
On Wednesday (May 24), the Independent reported that India has allegedly cancelled plans in place to build roughly 14 gigawatts of coal-fuelled power stations as the price of solar electricity  has dropped to “levels once considered impossible.”
As such, earlier in May, analyst Tim Buckley said in a blog post on the Institute for Energy Economics and Financial Analyysis (IEEFA) website that India had already cancelled 13.7 gigawatts of proposed coal-fire power plants, resulting from solar energy’s collapsing price, going “beyond anyone’s expectations.” Buckley continued, stating that “the results are in: solar has won.”

In Buckley’s post, he says the shift from coal to solar energy in India will have “profound” implications in the global energy market.  According to Buckley, in early May Indian solar power tariff dropped to a low of Rs 2.62 per unit, beating its previous record low from three months ago by 12 percent.
“For the first time solar is cheaper than coal in India and the implications this has for transforming global energy markets is profound,” Buckley was quoted as saying. “Measures taken by the Indian Government to improve energy efficiency coupled with ambitious renewable energy targets and the plummeting cost of solar has had an impact on existing as well as proposed coal fired power plants, rendering an increasing number as financially unviable.”
While that undoubtedly sounds promising, India’s newly-cheap solar energy is not free of stipulations.
As reported by the Financial Times, the Indian government will allegedly tax parts for solar panels at a cost more than double of coal under a new goods and services tax.  Starting July 1, under the new GST photovolatic cells will be taxed 18 percent, while coal will only be taxed five percent, the publication adds.
Inderpreet Wadhwa, chief executive of Azure Power, was quoted saying the new plans will only drive up costs 18 percent and cause “scepticism in the market.”
Unsurprisingly, Wadhawa is not alone in this thinking.
Bridge to India (BTI), a renewable energy consultancy firm, wrote that the new goods and service tax will “cause significant disruption to the solar sector.”
“The new regime will result in an increase of 18 percent in module cost, about 12 percent in inverter cost and 3 percent in all service costs – increasing overall project cost by about 12 percent,” the note states.
BGI goes on to suggest that more than 10 gigawatts of ongoing projects could be impacted by higher GST rates, “posing a threat to their viability.”
Ratul Puri, chairman at Hindustean Power Projects echoed the above in an Economic Times article.
“Following GST, solar projects will be about 18 percent costlier on an average, while cost of generation would go up by around 20 percent,” Puri told the Times. “We have estimated the incidence of GST to be around 23 percent-25 percent on various inputs for the segment.”
On that note, Piyush Goyal, energy minister of India, was quoted by India Today saying he is “hopeful” that coal’s GST rate of five percent will help “provide power at affordable rates.”
“We don’t need support of lower taxes to encourage renewable energy,” Goyal continued. “By itself, it is good for the nation. It reduces pollution.”
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.