Profitability of Utility-Scale Solar Power in India - Analysis of six states, possible future scenarios and implications for the 2030 solar power target

Abstract: The success of energy transitions in India depends on the feasibility of rapid expansion of solar power. How fast solar power can be expanded depends on its profitability, which has not been systematically analysed in prior literature. This paper answers three questions – (i) What is the profitability of utility scale solar power in six selected states in India (Karnataka, Tamil Nadu, Maharashtra, Chhattisgarh, Bihar and Jharkhand) and what explains its variations, if any? (ii) Under what conditions can solar power in these states be profitable without government subsidies? (iii) In light of existing profitability and the need for government subsidies, are India’s 2030 solar targets feasible? This thesis conducts simple economic modelling based on discounted cashflow analysis and measures profitability using Internal Rate of Return, Discounted Payback Period and Profitability Index. The study finds that the profitability of utility scale solar power varies across Indian states due to variance in solar radiation, land availability, income levels, capital costs, the costs of competing conventional energy sources, and power sector governance. It also finds that profitability of solar power is most sensitive to the wholesale electricity price. Second, the study finds that if the capital cost declines by 2% c.a. per year (as is currently forecasted based on the cost dynamics of solar PV panels) and the wholesale price of electricity stays at 0.03 €/kwh, investments in solar projects in Maharashtra will breakeven without government subsidy by 2029, Tamil Nadu by 2032, and Karnataka by 2033. However, by then investments in Chhattisgarh and Bihar would still need more than 30% of capital cost subsidy to be profitable. Finally, this thesis argues that the feasibility of India’s utility scale solar targets will depend on political capacity and motivation in addition to the profitability of solar PV installations. A more general contribution of the thesis is in expanding the focus from a widely used Levelised Cost of Electricity (LCOE) to profitability as a measure of economic viability of energy technologies.