Title: Impact of risk on the levelised cost of energy: the case of solar tariffs in India

Authors: Swarnalakshmi Umamaheswaran; Rajiv Seth

Addresses: International School of Management Excellence, 88, Chembanahalli,, Near Dommasandra Circle, Sarjapur Road, Dommasandra, Bengaluru, Karnataka 562125, India ' The Energy Research Institute, Plot No. 10, Vasant Kunj Institutional Area, Vasant Kunj, Institutional Area, New Delhi, Delhi 110070, India

Abstract: Setting optimal tariffs that adequately compensate the investment and project risks is crucial to sustain the participation of private sector in India's ambitious solar programme. However, driven by fiscal priorities, state programs are increasingly resorting to aggressive tariff reduction to minimise compliance costs. This article first highlights the trends in solar tariffs and estimates the underlying levelised cost of energy (LCOE). We further delve into the broader institutional context and sectoral issues that motivate these trends. Finally, we evaluate the implications of low tariffs from the perspective of risk using quantitative simulations. Our results suggest that the levelised costs vary widely when evaluated against different risk scenarios. Based on these results we propose recommendations for policy makers in the context of determining tariffs that balance the interests of different stakeholders.

Keywords: renewable energy; risk; simulation; solar energy; tariffs; India; Monte Carlo; energy policy.

DOI: 10.1504/IJETP.2020.107977

International Journal of Energy Technology and Policy, 2020 Vol.16 No.4, pp.433 - 447

Received: 17 Feb 2018
Accepted: 13 Feb 2019
Published online: 01 Jul 2020 *

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