How India Became The Lowest Cost wise Producer of Solar Energy

Solar is becoming a giant force in the energy industry. With technology being improved with each passing day, the price of solar is getting affordable (Finally!). Among developing countries, India is leading the pack of producing low-cost solar energy globally. The report is based on a comprehensive review of data from solar projects all over the world.    

The country-wise average of the total installed cost of solar utility ranges from $793 per kilowatt in India to as high as $2427 per kilowatt in Canada. With this accolade, India hopes to even focus on the quality, about which many experts have raised concerns about. 

IRENA (International Renewable Energy Agency) has analyzed major markets of solar between 2010 and 2018 including China, France, Germany, India, Japan, UK and US.  The cost of producing has reduced by 80% in India in the last decade.

Source - IRENA

The Reasons for Low Solar Energy Cost in India

With changing climatic conditions, use of efficient renewable is not luxury but a necessity. Many developing and developed nations are trying to make solar fully competitive with traditional energy sources, making this clean renewable energy available for common citizens and industry applications. It has become easier to install solar energy projects in India, How did this happen? Let us discuss the factors leading India to become the lowest cost wise producer of solar energy.

Lowering Manufacturing Costs

Solar panels, inverters, batteries and other accessories manufacturing cost has come down drastically in the last decade. With the government pushing solar manufacturers to gain a competitive advantage over foreign manufacturers by providing subsidies and tax benefits. This overall push from both policy and technology wise has accelerated the growth of the solar sector. There are various other reasons including declining in poly-silicon prices in the last decade.

With the Indian economy showing a substantial growth in the last few years, like most developing countries the need for electricity is getting higher each year. This is forcing the government to look for alternative energy resources, and the huge competition is making solar energy companies compete healthily. Even the labor cost is cheap in India compared to other countries and hence manufacturers can afford setting up large solar manufacturing plants.  This downward price trend is common with new technologies, as solar witnesses new inventions the competition will make companies drop their prices lower, similar to a cell phone industry.

Technological Advances

The major development in the solar industry has been possible due to one aspect - technology. Last two decades have witnessed tremendous advancement when compared to the last century of the solar industry. With climate issue being tormenting many environmental experts, government and scientific authorities accelerated their technological advancements to make solar energy more cost-efficient. The greater the efficiency of a solar panel system, the greater is the overall production. Majority of solar panels in the market ranges between 14 to 18%. With new technological advancements, it is estimated that solar efficiency will reach a record 25% efficiency in the next decade. In countries like India, efficiency in solar panels accelerates the ease of selling solar energy to the consumers, as many residential spaces in India are limited by space available to mount solar panels.  

 Tax Benefits for Investing in Solar

The ministry of New and Renewable Energy (MNRE) has set an ambitious target to install a 227 GW by 2022, in order to achieve this target, the Indian government is promoting solar power generation in many ways.

For commercial and industrial use of solar electricity, the tax incentives offered by the government is quite beneficial. Since the tax burden is less on manufacturers, the overall cost of producing solar electricity is quite less.

In order to promote the use of solar energy, the government of India offers an accelerated depreciation of fixed assets with the costs associated with generating solar energy panels.

Various tax credit schemes don't directly reduce the overall cost of the solar energy generated, but it helps create an environment where the economy of producing mass solar energy at lower cost is possible. This tax incentives also motivate companies to invest in the future of innovation and research. 

Existence of Synergy Between Solar Industry

The trends surrounding the solar energy industry are more likely to exist, making future growth more likely. As a result of these promises, the solar energy is attracting heavy investments to make the technology cheaper and affordable for commercial use.  The cost of solar energy produced today is almost equal to fossil fuels.

Decreasing Prices of Raw Materials

The functioning of solar power is pretty simple. The vast majority of the solar cell is made up of silicon what’s found in beach sand and quartz. It is one of the abundant metals available on earth. As the process of extracting and processing silicon wafers has reduced considerably, the prices of raw materials needed for solar energy production has also decreased significantly and will continue to fall down. The rest of the solar panel is made of silver, aluminum and other trace material. Nome of the material used is too costly or difficult to procure, as a result, large scale manufacturing of solar accessories is possible.

None of the materials mentioned above is likely to run out in the near future. In fact, researchers are discovering new ways to reduce the number of materials used in solar panels to generate the same efficiency.  

Whether its cheaper raw material or less material usage, the cost of solar panel manufacturing will likely to see a decreasing cost in coming years.      

Solar energy experts attribute the success of lowering cost to multiple factors including high solar energy potential (around 300 days/year) which result in effective utilization of all solar resources. From a regulatory viewpoint, the solar developers bring in the maximum efficiency in the procurement of equipment and financing cost. Also, India has cheap labor and land cost compared to the rest of the world.

Typically, the cost of hardware, inverters and other solar accessories account for half of the cost on installing a solar panel in India. Rest is the service and installation cost. With the current trend of falling prices, the cost of solar energy production is likely to still reduce in coming years.