Understanding levelised cost of electricity from solar PV

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Levelised cost of electricity (LCOE) generation is function of three key parameters which are the capital cost, interest and the annual electricity yield from the solar PV system. While the LCOE is at par with the grid tariff for the commercial electricity consumers, it will take some more time to bring the LCOE at par with the grid tariff for the residential consumers. With PV system cost continuously declining, as per many reports, the technology is expected to become economically attractive to the residential consumers in next few years. While the system costs are on continuously declining trends, much depends on the interest rates charged for financing these solar projects. The current capital cost of a PV system ranges between the 8-10 Cr per MW and considering the interest rates of the order of 13%, the LCOE is in the range of Rs 7-9Rs/kWh. In case the interest rates are available cheaper, the LCOE can be brought at a level of 5 Rs/kWh.

While there is a government subsidy available of the order of 30% on the capital cost of off grid systems, which brings at par the LCOE to the grid tariff for these systems, it is important to have alternative ways to bring down the LCOE to the level of grid tariff through facilitating the cheaper interest to the residential which can also bring down the LCOE at par with the grid tariff.

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