India's Solar Power Auctions

India's solar power auctions were far more successful than expected with electricity selling for  about half the expected price. 

The main reason for the change is the striking drop in the global price for solar panels and modules. Another interesting factor in the fall in prices is an auction process that India adopted to force solar power producers to compete with one another. In one recently concluded auction, for instance, the prices at which developers agreed to sell power to the government were nearly 30 percent lower than a year earlier. More than 100 companies bid in the auction, including many that have never built a solar power park before.

It almost didn't happen that way.

Initially, Indian policy makers intended to buy solar power for the grid at a fixed and subsidized price of 15.4 rupees (29 cents) for a kilowatt hour. "The sense was that we will not get up to 1,000 megawatts and there will not be too many offers," said Shyam Saran, a former Indian diplomat and energy policy maker.

But what the government found was that there was far more interest in providing solar power to India than it was willing to buy; 6,000 megawatts were offered when it was interested in buying just 1,000 megawatts. So it decided to set up a reverse auction in which developers would bid to sell power to a state-owned electric utility.

Two auctions have been held so far, and they have been far more successful at driving down costs than anybody had anticipated. The lowest winning bid in the most recent auction was 7.50 rupees and the average bid was 8.77 rupees, about half the fixed price at which the government was initially willing to buy power.

"The government is doing the right thing by following a trial and experiment approach," said Tobias Engelmeier, the managing director of Bridge to India, a research and consulting firm based in New Delhi.