Solar Cheaper Than Diesel Making India’s Mittal Believer: Energy

By Natalie Obiko Pearson - Jan 24, 2012 4:01 PM PT

India is producing power from solar cells more cheaply than by burning diesel for the first time, spurring billionaire Sunil Mittal and Coca-Cola Co. (KO)’s mango supplier to jettison the fuel in favor of photovoltaic panels.

The cost of solar energy in India declined by 28 percent since December 2010, according to Bloomberg New Energy Finance. The cause was a 51 percent drop in panel prices last year as the world’s 10 largest manufacturers, led by China’s Suntech Power Holdings Co. (STP), doubled output capacity.

“Solar is going mainstream in India, helped by Chinese pricing,” said Ardeshir Contractor, founder of developer Kiran Energy Solar Power Pvt. Kiran, whose investors include Bessemer Venture Partners, an early financier of Skype Technologies SA, won one of the largest projects auctioned by India last month.

India joins pockets of Italy, Spain and Hawaii where rising fuel costs and lower panel prices make solar pay for itself without state subsidies, New Energy Finance data show. Factories and homes in the Asian nation switch on emergency diesel-fired generators during chronic blackouts and to bridge gaps in the power-delivery grid as the government prepares a $400 billion program through 2017 to curb the shortfall and spur growth.

“If they had the foresight, these factories would be replacing their diesel generators now or at least getting what they can from solar,” said Lalit Jain, chief executive officer of Moser Baer Clean Energy Ltd., which owns 100 megawatts of operating solar plants in India, Italy, the U.K. and Germany.

Power Deficit

Electricity demand exceeds supply in India by about 14 percent during peak hours, and about 400 million people have no access to power, according to the United Nations.

While European governments have cut preferential rates paid to solar-plant operators amid an escalating debt crisis, India is driving down its costs by forcing utilities and developers to compete on price.

Winners of India’s national solar-capacity auction in December agreed to supply power for an average rate of 8.78 rupees (17 cents) a kilowatt-hour by early 2013.

In comparison, electricity from burning state-subsidized diesel costs generators about 17 rupees, according to Charanjit Singh, an energy analyst at HSBC Holdings Plc. The cheapest power comes from burning coal, which is about 4 rupees a kilowatt-hour, though users must be connected to the grid.

Bharti, Jain

Mittal’s Bharti Airtel Ltd. (BHARTI), India’s largest mobile-phone operator, and Jain Irrigation Systems Ltd. (JI), the world’s biggest mango-puree producer and supplier to Coca-Cola, are among companies swapping diesel generators for photovoltaic modules.

While Airtel’s Bharti Infratel unit typically runs its phone towers on the cheapest, grid-delivered power, it estimates that electricity from diesel costs about four times as much.

The company upgraded 1,646 out of about 22,000 rural sites that get little or no grid-connected power to run on solar and other renewable sources, it said in an e-mail.

The government’s Telecom Regulatory Authority recommended this month that at least 75 percent of rural mobile towers and 33 percent of urban towers run on a combination of solar, wind and diesel by 2020. India’s 300,000 mobile towers account for about 4 percent of diesel use, according to HSBC’s Singh.

Jain Irrigation will complete an 8.5-megawatt solar project in March to replace diesel-fired output at its processing plant in Jalgaon, Maharashtra, CEO Anil Jain said Jan. 3. The company estimates it could recoup the cost in as little as five years.

Solar Target

India, the third-biggest energy user behind China and the U.S., has a goal to have installed 20,000 megawatts of solar- energy capacity by 2022, about equal to 18 new nuclear reactors.

That target is 10 percent of today’s total generating capacity including all energy sources. Less than 1 percent of that current power base is solar.

India’s solar industry has benefited from tax breaks and a guaranteed government buyer of its cleaner power. Diesel generation has been helped by state subsidies that make the fuel cost less than the market price to cap inflation.

The diesel price set for the capital Delhi was at 32 percent below the market rate as of Jan. 16, according to market data published by the nation’s Oil Ministry.

Factories burn diesel during blackouts to maintain a constant power source. Their “huge” warehouses and empty rooftops make them a “prime candidate” for solar power, said Hari Manoharan, an analyst at Energy Alternatives India. Indian manufacturers are losing more than 432 billion rupees a year as a result of power failures, Manoharan said in a December report.

GTL, Acme

GTL Infrastructure Ltd. (GTLI), a Mumbai-based owner of 32,000 phone towers, said it’s saving 56,000 liters of diesel a year after installing solar panels. Acme Telepower Ltd., a Gurgaon- based company converting sites for Viom Networks Ltd. and Bharti, estimates the panels can cut the diesel running time of a rural tower to eight hours a day from 22, it said Jan. 10.

India charges the highest power prices to industrial and commercial consumers such as factories, mines and malls, and gives away free power to farmers for irrigation pumps. As the cost of solar falls, more businesses are deciding it makes sense, said Akhilesh Magal, an analyst at Bridge to India.

“Things that weren’t feasible have suddenly opened up,” Magal said. “As prices drop, you suddenly see huge segments of the market open up.”

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai atnpearson7@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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