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Falling Price of Solar Affects India-U.S. Nuclear Deal

Amit Bhandari, November 9, 2015

Hard on the heels of falling oil prices and affordable shale comes another dramatic energy change for the industry: the falling cost of solar energy. This has many implications, but the most immediate impact is on the nuclear power industry, large parts of which may have just become obsolete. This means that the new nuclear power plants being planned by India, especially those with foreign collaboration, must be reconsidered and scrapped if they are financially unviable.

Most significant is the impact on the India-U.S. nuclear deal, held up by the liability clause to enable these reactors, and a sticking point in the bilateral negotiations for several years. Technological advances have addressed an issue that negotiators couldn’t resolve.

This transformation environment is the result of U.S.-based renewable energy major SunEdison winning, on Nov. 4, the bid to supply solar electricity in India at a record-low price of Rs 4.63 per kilowatt-hour (kWh). News reports indicate that as many as nine companies offered to supply solar electricity for less than Rs 5 per kWh, indicating this isn’t a one-off bid delinked from market prices. This price is still some way off from the cost of electricity supplied by government-owned utilities such as National Thermal Power Corporation, National Hydel Power Corporation and the Nuclear Power Corporation of India—which sell electricity at prices ranging from Rs 2.7 to 3.3 per kWh. However, NTPC, NHPC and NPCIL have lower electricity costs because many of their plants are old and fully depreciated, bringing down the fixed costs and therefore the average cost of supply. These utilities are also the lowest-cost suppliers of electricity in India.

With other suppliers and newer power plants, especially nuclear, the equation is reversed. The electricity tariff from the under-construction Units 3 and 4 of the Kudankulam Nuclear Power Project will be Rs 6.3 per kWh. The latter price can increase in case of cost and/or time overruns, which are common in nuclear power projects globally and in India.

If the price bids by SunEdison and others are correct, then nuclear power based on these designs is already rendered obsolete. The cost of solar power has been consistently falling for the past several years and should fall even further, increasing the gap.

Where does India stand in its nuclear energy build-out? India proposes to build three more nuclear power plants in collaboration with foreign firms—GE-Hitachi, Westinghouse and Areva. The capital cost of these reactor designs elsewhere in the world is $6 million per megawatt. This is almost twice the cost of the Russian design that is currently under construction at Kudankulam, and three times the cost of India’s own indigenous designs. This means electricity from any of the reactors built with Western collaboration, if and when they get completed, will be hopelessly expensive—compared to coal, hydro, (other) nuclear or now solar electricity. Fiscal prudence alone dictates that these projects should be scrapped.

The Western reactors also come with other conditions, including the dilution of the liability clause in India’s civil nuclear bill. The latter is a difficult proposition, given the backdrop of the 1984 Bhopal tragedy and the more recent 2011 Fukushima disaster. The one argument in favor of the Western reactors—that they will provide electricity without causing carbon dioxide emissions—is now negated by the vastly cleaner, cheaper alternative, i.e. solar energy.

As seen in the bids from SunEdison and others, solar comes without the attendant risks, insurance costs or public opposition. Solar power is limitless and is available across the Indian subcontinent—unlike nuclear fuel, which needs to be imported and where India is vulnerable to sanctions. Sanctions on fuel and technology have hobbled India’s nuclear program in the past. Solar power can also be decentralized. Instead of one big plant at a single location, smaller plants can be set up at multiple locations. This reduces losses in power transmission and also allows electrification of sites that are off the main grid. Reduced loss in transmission can also help tackle another problem India faces—23 percent of all electricity is lost to technical factors or to theft.

Localized generation, which is possible with solar, can help bring down transmission losses. Adoption of solar power will still be hobbled by the poor financial health of India’s state power utilities, which collectively incurred a loss of Rs 62,154 crore ($9.5 billion) during FY14 and find it difficult to pay for the electricity they purchase. However, solar power will still be a better option than more expensive nuclear power.

Given these changed circumstances, it is time that India and the United States wake up to the new reality created by technology, and give a quiet burial to the proposed power reactors. Instead, the focus should now be on mainstreaming solar power and, as assessed by Gateway House last week, its associated technological benefits such as electric vehicles, which can help bring down carbon dioxide emissions and help Prime Minister Narendra Modi meet his Oct. 2 climate change commitments sooner rather than later.

This article was written for Gateway House: Indian Council on Global Relations. Amit Bhandari is a fellow of energy and environment studies at Gateway House.

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