With the Jawaharlal Nehru National Solar Mission (JNNSM), India plan to increase the solar power contribution to the total power generated in India. The initial target was to achieve grid parity by 2022 and parity with coal based thermal plan by 2030 subject to technological advancements in the sector. With the recent drop in the prices of photovoltaic modules (PV modules) primarily due to increased output from China which is enjoying economies of scale, the grid parity could be achieved sooner than anticipated, according to a study by KPMG. Following is the graph which indicates the falling prices and costs and consequently margins of PV modules. From 2008 to 2012 there has been a 60% drop in the prices of PV modules. If we see the production of these modules has increased significantly during the past few years. Following is a representation of the world output.

Now, as per Central Electricity Regulatory Commission (CERC), the benchmark capital costs for PV Solar Plant for FY 13-14 is as follows:
Particulars Capital Cost Norms for Solar PV Project (Rs Lakh/MW) % of Total Cost
PV Modules 344.5 43
Land Cost 16.8 2
Civil and General Works 94.5 12
Mounting Structure 105 13
Power Conditioning Unit 60 7
Evacuation Cost 105 13
Preliminary Expenses 80 10
Total Capital Cost 805.8 100

Thus according to CERC the benchmark costs for Solar PV Power Projects is Rs 8 cr/ MW. Out of the major cost is of PV Modules which account for 43% of the capital costs. As a result, over the past 2 years there has been a tremendous jump in the grid connected PV power as shown below.

Now consider the tariffs discovered in the highly competitive bidding in the recent rounds of auction under the JNNSM which are as follows:
Solar PV Tariffs Dec-10 Dec-11
Highest Tariff Rs 12.75 Rs 9.44
Lowest Tariff Rs 10.95 Rs 7.49
Median Tariff Rs 12.12 Rs 8.91

These rates are comparable to the marginal power tariffs applicable to industrial and commercial users in some states of India. Year Tariff (Rs/kWh) Consumption (MW)
2009 15 2
2010 12.12 25.10
2011 8.91 468.30
2012 8.42 1040.67

The consumption data and the tariffs for the years 2009-2012 were available from JNNSM report. According to the KPMG “The Rising Sun” report the tariff for solar PV projects would decline at the rate 5%. Also, as per JNNSM target of achieving 10GW of solar power capacity by 2017, there would be 25% increase in capacity every year.
Based on these the regression analysis was done and we came with the equation:
Y= 1835 – 130X
Coefficient of Determination, R Square = .70, and Coefficient of Correlation = .84, indicating strong relationship between the X and Y.
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