Unlikely That India Will Match Record-Low Gulf Solar Tariffs: Report

A new report finds it is unlikely that India will be able to overtake the Gulf region to provide the world’s cheapest solar power in the near term.

A number of countries in the Gulf region have set record-low prices for solar in recent years, leading to hopes that India and other countries may soon be able to achieve similarly cheap – or cheaper – solar tariffs. But a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) and JMK Research & Analytics finds it is unlikely that India – or indeed other countries – will be able to overtake the Gulf region to provide the world’s cheapest solar power in the near term.

Recent record-low tariffs in Abu Dhabi, Dubai, Saudi Arabia and Qatar are the result of the lower cost of USD denominated, long-dated financing, major tax concessions and other factors driving prices down in the region, according to the report’s authors.

“India and other countries will struggle to secure the same low tariffs discovered in the Gulf auctions,” said Vibhuti Garg, Energy Economist at IEEFA. “The economic, tax and financial makeup of each country play a direct role in determining tariffs. Record low solar tariffs need to be compared on an apples-to-apples basis.

“It would be extremely difficult for the Indian market to replicate the combination of factors leading to low solar tariffs in the Gulf region. In fact, with solar modules facing permanent Indian import duties, this will widen the tariff differentia versus the Gulf,” she added.

The Gulf region has achieved tariffs in the range of US Cents 1.35-1.80 per kWh (Rs 0.98 – 1.32) which was recently beaten by the new record low level in Portugal with the tariff discovery of US Cents 1.32/kWh in the recent bid at a 700 MW solar energy auction on August 24, 2020. India’s tariffs, whilst some of the lowest in the world, are in the range of USC 3.14-3.25/kWh.

“India’s tariffs are almost double those of the Gulf region. India’s tariffs are almost double those of the Gulf region,” said Garg. “But we estimate tariffs in India will continue to fall over the coming decade, making solar an increasingly more competitive source of electricity generation.“

The ongoing technological development of solar combined with ever-larger factories driving economies of scale means solar tariffs will continue to see 5-10 percent annual declines over the coming decade in India.”

Jyoti Gulia, JMK Research Founder and Co-author said that this reflects a broader trend in recent years of falling renewables prices worldwide and the ever-stronger competitiveness of solar against incumbent fossil fuel alternatives. India’s solar power tariffs hit a record low of Rs 2.36 per unit in June 20202, with zero inflation indexation locked in for 25 years – like the Gulf tariffs.

“Despite India’s record lows, the Gulf’s cheaper tariffs are mainly due to lower costs in financing. This includes long-dated loans at very low interest rates; no corporate taxes; negligible duties on equipment costs; long-term income tax holidays on the sale of power; low or negligible land costs for solar projects; and lower return on equity (ROE) expectations.

“Other factors, such as higher capacity utilisation factor on account of high solar intensity and technological advancements in modules, whether trackers and robotic cleaning systems (leading to less soiling losses) have been installed, also have an impact.”

Click here to read the report.