Why to buy solar electricity at Rs. 5 than electricity at Rs. 3.5 from Power Exchange?

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Now a day it is part of discussion for industries & commercials sectors that whether the power is to be purchased at power exchange at 3.5 Rs. per unit or at 5 Rs. per unit from solar power generators. Here we are attempting to answer the question.

Power Exchange:

As per CERC, June 2015 (monthly report), only around 11.35 % of electricity is transacted though short-term it includes bilateral (through traders and term ahead contracts on power exchanges and directly between distribution companies) & collective transactions on power exchanges. Speaking in terms of volume of various kinds of electricity transactions in total electricity generation, June 2015 power exchange share is only around 2.78%.

The price of electricity transacted through IEX and PXIL in the term-ahead market was 3.59/kWh and 2.28/kWh respectively. Last few decades experience shows that this price is escalating at the rate of 3-5% year to year.

           Risk:

In general, any contract for sale of electricity component through open access route might not be on a long term basis and would also be subject to the market fluctuations and involve risks and returns of varying nature. Accordingly prices are also subjected to market fluctuations, prices may fluctuate by more than 5% per annum also.

Solar Generator:

The recent bid results from Telangana; Madhya Pradesh & Punjab has found lowest tariff that developers could offer to utilities / consumers. The tariffs quoted in Telangana, Madhya Pradesh & Punjab bid was Rs. 5.17, 5.15 & 5.09 per unit. During period 2011-12, the same tariff was around Rs.17 per unit, over the period the it shown downward trend Rs. 12, 9, 7 & 5 per unit. It is expected in near future (over next 2-3 years) it will achieve grid parity.

                Risk:

Generally solar power generators are inclined towards long term PPAs (PPAs last up to 12, 15, 20, 25 years). The tariff are governed by the mutual agreement or by the regulations. As per CERC regulation solar tariff is fixed for first 12 years & then revised value is fixed for next 13 years. So due to such long term it is easy for solar generators & consumers to absorb various risk that likely to arise during the period.

The following table show present value (PV) of both Power Exchange Tariff & Solar Tariff over period of 25 years.

Assumptions:

  1. Power Exchange tariff considered is Rs. 3.59 per unit & it is escalating at rate of 5% per annum.
  2. Solar price for first 12 years is Rs.5.09 per unit & then it is Rs. 5.5 per unit.
  3. Discount factor considered is 10.81% (As per CERC guidelines).
Year Power Exchange Tariff (Rs/kWh) Solar Tariff

(Rs/kWh)

PV Factor PV of Power Exchange Tariff (Rs/kWh) PV of Solar Tariff (Rs/kWh)
1 3.590 5.09 0.902 3.240 4.593
2 3.770 5.09 0.814 3.070 4.145
3 3.958 5.09 0.735 2.909 3.741
4 4.156 5.09 0.663 2.756 3.376
5 4.364 5.09 0.599 2.612 3.047
6 4.582 5.09 0.540 2.475 2.749
7 4.811 5.09 0.487 2.345 2.481
8 5.051 5.09 0.440 2.222 2.239
9 5.304 5.09 0.397 2.106 2.021
0 5.569 5.09 0.358 1.995 1.824
11 5.848 5.09 0.323 1.891 1.646
12 6.140 5.09 0.292 1.792 1.485
13 6.447 5.5 0.263 1.698 1.448
14 6.769 5.5 0.238 1.609 1.307
15 7.108 5.5 0.214 1.524 1.179
16 7.463 5.5 0.194 1.444 1.064
17 7.837 5.5 0.175 1.369 0.961
18 8.228 5.5 0.158 1.297 0.867
19 8.640 5.5 0.142 1.229 0.782
20 9.072 5.5 0.128 1.164 0.706
21 9.525 5.5 0.116 1.103 0.637
22 10.002 5.5 0.105 1.046 0.575
23 10.502 5.5 0.094 0.991 0.519
24 11.027 5.5 0.085 0.939 0.468
25 11.578 5.5 0.077 0.890 0.423
        45.714 44.284
        Total Saving (Rs/kWh) 1.430
PV Factor *= Present Value Factor

 

 

Above table shows that, if consumer opt for solar power then over period of 25 years, he will be able to save 1.43 Rs./unit.

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