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Steep Decline in Solar prices : What could be the possible reasons?

In a bid for 750 MW of solar projects in Rewa, Madhya Pradesh, tariff had gone as low as 2.97/KWhr which seems as unrealistic, unviable and ridiculously low. The reason could be the availability of solar modules from china at an incredible price of around 30 cents or un-hedged foreign currency loans at cheap interest rates or other reasons. However, few industry experts believe that current module prices are below costs and if this continues, quality will suffer.

Around 2 years from now, the solar prices were expected to drop down by 5 percent for rooftop residential systems, and 12 percent for larger utility-scale solar farms. However, for last 9 months the price drop down continued at the rate of 15%. Here are few of the reasons why this could be happened:-

  1. Overall manufacturing cost goes down around the globe: – Solar panels, inverter costs and panel racking costs have come down at a steady pace each year, resulting in large declines over time. There are a variety of causes, including manufacturing efficiencies, a steep decline in polysilicone prices from their high levels a decade ago (a material used by the photovoltaic solar industry) and fierce competition among manufacturers. Crystalline silicon module prices dropped 10% in the last three months and by about 30% over the past year. The downward price trends are very common for new technologies same as in mobile phones, DVP players or other.

  2. Oversupply from China: – As per the research by Bridge to India, the steep fall in prices can be seen as a result of oversupply from China, where an installation slowdown in the second half of the year has prompted solar module manufacturers to overload their modules into neighboring India. This oversupply is likely to result in severe financial stress for domestic module manufacturers. Bridge to India believes that China’s big Tier-1 suppliers are financial robust enough to survive this downturn, but concerns are mounting that many of the industry’s smaller players may be unable to compete.

  1. Technology Advancements: – The greater the efficiency of the solar, the greater the overall energy production of the system. The efficiency of system in the market ranges from 14% to 22 % which means efficient system could produce around double the power as compared to the inefficient system.

  2. Other project based benefits:- There are many other features which are project based and beneficial for developers such as compensation to developers in case of grid unavailability or back-down, a payment security mechanism, viability gap funding and an annual increase in tariff at a particular rate.

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