Will Adding Solar Reduce Cost of Electricity?
This is part three of our series on understanding the cost of electricity. In part one we discussed how electricity in India is just as expensive as in the US, but nowhere the same quality. In part two we talked about how electricity gets to our homes. We did a cost break-down and discussed why is it as expensive as it is. Today we will throw solar in the mix and see how it will impact our electricity rates.
We saw previously that what we pay for electricity includes the cost of generation plus the cost of transportation and distribution and taxes. In addition there are losses along the way (theft, subsidy) which are also paid for by us. What happens when we throw solar in the mix? Does our cost go up or down?
We have all heard of these large solar plants that are being commissioned at various places in India. These are spread out over 10s to 100s of acres of land, and generate 100s of mega watts (MW or 1, 000, 000) of electricity. These plants are just like the thermal power plants as in, they are huge power plants that sell the power they generate to the grid.
Compared to a coal burning plant (thermal), a solar farm is certainly less polluting (no air, water or land pollution). But it does use a lot of land, which cannot be used for other purposes. It is also currently more expensive. The cost of electricity generated from a solar plant has come down to Rs 2.97  recently. Compare this with NTPC’s costs to generate electricity from coal: Rs 2. Solar is still 50% more expensive.
Throw solar in the mix, and it seems our rates will go up. Electricity will cost more – higher generation costs and the same transmission, distribution and tax component.
The beauty of solar though is it can be added anywhere in the chain. Lets say the DisCom (say BSES in Delhi) puts a plant in its distribution region (Delhi). They just eliminated the transmission costs! This should reduce our costs, right!? Likely no. Chances are the land on which the DisCom sets up the plant is more expensive (think land in Delhi compared to the dessert). It might also be a smaller plant than a solar farm, which means it costs more to setup and manage per unit. The cost of electricity it generates will thus be higher, which negates the benefits of saving on transmission costs.
An example cost (from large rooftop plants) puts the cost of electricity at Rs 5.5 to 6.5 per unit in Delhi area. Add the DisCom costs and taxes, and we save nothing.
How about in the future – solar is all the time getting cheaper, so our rates will go down right? Maybe. Lets imagine the cost of generation from solar becomes zero. That will save us Rs 2, its still a small part of the overall because we still need that unit of electricity to be transported to us. And there are still taxes!
Here is the great news! We can save a lot more. In fact we can save it all – we can pay close to nothing for electricity today. I mentioned that the beauty of solar is that can be installed anywhere in the chain. If we can bypass the DisCom, we can reduce the cost of electricity to the lowest it can be. And we can do this through a rooftop solar plant of our own.
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