Friday, March 23, 2012

Why PV solar is still considered expensive?

Photovoltaic solar industry has started expanding in recent years in US and Europe and the rest of the world also started following. Still solar energy is considered expensive in many parts of the world for various reasons. In most of these countries, energy is predominantly managed by Governments with age old technologies and transmission systems. Coal is still the major fuel used for power generation and their distribution infrastructures are old and inefficient. Transmission losses, power pilferring, subsidized power tariffs and even free power for farmers, are some of the issues that compound the problems. Energy and water are considered more of social issues rather than business issues. For example in India, frequent power failures are common and sometimes people do not have power even up to 8 to 12 hours a day, especially in country sides. Standby diesel generators are integral part of an industry or business. The heavily subsidized power supply by Government from coal fired power plants is underrated. The average power tariff in India is still less than $0.07/kwhr.But the reality is they will be using diesel generated power for equal number of hours in a day and the cost of diesel power varies from $0.24 up to $0.36/kwhrs, almost in par with solar power. The average power cost will amount to $0.18 to $0.20 /kwhrs. Any slight increase in oil price will have a dramatic effect in energy cost in India and their balance of payment situation.Governments are in a precarious situation and they have to make a balancing act between subsidizing the energy cost and winning the elections. They often subsidize the power resulting in heavy revenue losses for Government run electricity boards. Most of the electricity boards in India are in red .People are used to low power tariffs for several decades and any increase in the tariff will make the Government unpopular. Greenhouse effect and global warming are secondary issues. With an average economic growth rate at 7% year after year, their energy requirements have gone up substantially. They may require several hundred thousands of MW power in the next 5 to 10 years. They have opened up energy sector to private only in recent years. Renewable energy industry is relatively new and there are very few large commercial scale solar and wind power plants in India. Majority of residents and businesses cannot afford high cost of PV solar installation. Even if they install, there is no ‘power- in tariff’ mechanism by Government where consumers can export surplus energy at a higher tariff to the grid. With current power failures lasting 8-12 hours/day, such mechanisms will have no value. The situation is the same in many Asian countries. The solar panel costs are high due to lack of local production of silicon wafers, batteries and inverters and most of them are still imported. State electricity boards do not have funds to buy power at higher tariffs. Import duties and taxes on imported components are still high making renewable industries uncompetitive against cheap coal fired, subsidized power cost of $0.07/kwhrs .India requires massive investment on renewable energy industries. But most of the power projects which are under planning stage or under implementation are based on either coal or oil or LNG.There is no sign that India will soon become a major player in renewable energy. In PV solar projects, the cost of storage batteries are higher than the solar panel during the life cycle of 25 years. If the life of a battery is 8 years then you will need 3 batteries during the life cycle. For example, if you use 100 watts solar panel with a life span of 20 years, the initial cost of solar panel may be $300 which will generate an average power of 140 watt.hrs /day. If you plan to store 5 days energy using a battery, you will enquire 5x 140= 700 watt.hrs battery, costing about $175.If you have to replace batteries 3 times during the life span of 20 years then the cost of battery is 3x175= $525.You have to add operation and maintenance cost, in addition to it. Therefore, your investment on batteries is 1.75 times more than solar panels. This cost will substantially add up to your energy cost. In most of the Asian countries where they cannot export surplus power to the grid, they have to rely only on batteries. This high cost of stored energy is not remunerative because they cannot export this surplus to the grid at a higher tariff. This situation is not likely to change at least in the short term.