Resource-reserve Economic and Financial Analyses of Utility-scale Solar Photovoltaic Investment in India

Open Access
Author:
Gardner, Drew Spragins
Area of Honors:
Energy, Business, and Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Antonio Nieto, Thesis Supervisor
  • Andrew Nathan Kleit, Honors Advisor
Keywords:
  • solar
  • energy
  • photovoltaic
  • resource
  • reserve
  • resource-reserve
  • investment
  • India
  • economic
  • financial
  • analysis
  • electricity
Abstract:
Since its inception in 1839, solar photovoltaic (PV) technology has grown to become a reliable and convenient source of large-scale electricity generation. With $140.4 billion invested into PV generation globally in 2012, utility-scale PV investment opportunities are continuing to grow as a result of attractive incentives from government policy initiatives. India in particular has ambitious solar policies, which have driven incentives to invest in utility-scale PV plants. To accommodate the increase in utility-scale PV investment opportunities, this report presents a new method for classification and quantification of solar resources and solar reserves. Adapted from the USGS, this new method provides the foundation of solar energy resource economics upon which investors can make rationalized decisions to invest or not invest in utility-scale PV. Through utilizing the resource-reserve system, this report aims to justify investment in utility-scale PV in India. The resource-reserve method of solar economics is applied through economic and financial analyses. It is crucial that potential PV investors develop an understanding of the technical factors that underlie the basic operation of PV technology in the conversion of the solar resource into electricity. PV conversion of the solar resource predicates the classification of the solar resource into solar reserve classifications. While solar resources are classified by measurement method, solar reserve classifications depend on the amount of the solar resource successfully converted and the economic viability of its conversion into electricity. Economic viability of solar resource PV conversion depends on the levelized cost of electricity (LCOE), selling price of PV-generated electricity, government incentives, and quantity of PV-generated electricity demanded. A utility-scale PV investor’s goals are to maximize the solar reserve by minimizing LCOE while maximizing cash inflows from sale of electricity and government incentives (i.e. LROE). Regional factors of the sun-earth relationship affect solar resources, while regional economic factors affect solar reserves. The regional-dependent relationship of the sun and earth impact the quality and quantity of solar resources as it varies largely according to solar altitude; with a higher solar altitude, the sun’s irradiance travels through less air mass, which allows more of the solar resource to reach the surface of the earth. As a result of the low latitude, which increases solar altitude, India is exposed to a large average daily solar irradiance ranging 4.75 to 6.00 kWh/m2. A large solar resource sets a low LCOE as it increases the solar resource capable of PV conversion. Regional economic factors in India are mostly conducive to utility-scale PV development. PV-generated electricity prices (PPA rate) compete against local market electricity prices in India and reflect similar values. As about 59% of electricity is from coal-fired power plants and 9% from gas-fired, electricity prices are highly dependent on coal and gas prices, which are projected to increase. Additionally, India’s regions experience large electricity deficits ranging from 4.57% to as high as 16.02%. Increasing fuel costs and lack of energy supply place upward pressure on market prices. As PV LCOE continues to decrease and Indian electricity rates continue to rise, PV grid parity is set on a fast-track in India, which increases the solar reserves in the region. Although having government enforcement issues, India also hosts attractive PV incentives that assist in growing the solar PV reserve. To determine reserve classification, a financial analysis is used to determine economic viability of solar resource conversion by analyzing LCOE, LROE, and NPV. This analysis is applied to a real-world 5 MW PV investment opportunity in Andhra Pradesh, India. The analysis yielded an LCOE of $0.146/kWh, an LROE of $0.152/kWh, and an NPV of $315,500, which indicated an economically viable PV conversion of the solar resource. This determined a total annual indicated solar resource of 81.0 million kWh with a total converted solar reserve of 9.776 million kWh; 71.3 million kWh were subeconomic resources due to reflective losses, efficiency of conversion, and expected electrical losses. The total solar reserve over the lifetime of the power plant was determined to be 230.29 million kWh. The analysis of the PV plant concluded that utility-scale PV investment in India is feasible. India’s fast-tracked PV grid-parity coupled with re-amplified enforcement of government incentives has the ability to significantly increase the solar reserves in India in the near future.