A study of optimal Feed in Tariff design for the solar photovoltaic sector in India

  • Prasad Krishnarao Mande

Student thesis: Master's Thesis


India is facing rapidly increasing primary energy needs due to accelerated economic growth in recent years and a rising population, leading to a significant gap between the demand and supply of electricity. Moreover, the poor status of electrification in India’s rural areas leaves millions without access to grid connected electricity. Plagued by transmission and distribution losses, India’s power sector also faces challenges in supplying reliable and uninterrupted power to its population. To address some of these challenges, India’s National Solar Mission (NSM) aims to achieve 20GW of installed capacity by 2020 from utility scale grid connected solar power plants. Given this ambitious target, selection of appropriate policy instruments and incentive mechanisms are critical to achieve the stated targets. Within this context, this thesis examines the following research questions: 1. What are the costs of electricity generation and the optimal Feed in Tariff (FIT) for utility scale solar PV projects? 2. What is economic viability of the FIT based on the results of competitive bidding? 3. What are the barriers and opportunities for the successful implementation of FIT and eventually for achieving the NSM? For the economic analysis and FIT design, I used the Profitability Index Method (PIM). I also conducted a series of semi-structured interviews to validate critical input parameters for the financial model, and to better understand the challenges and opportunities for the development of the solar PV sector in India. Results show that, Rajasthan and Gujarat are the two most promising regions to deploy utility scale solar PV plants, mainly because of high solar radiation and availability of undeveloped land. I also find that most regions in India will achieve grid parity at the earliest by 2018 and the latest by 2023. In addition, the competitive bidding program, part of the NSM, has identified a tariff considered too low to sustain the economic viability of the proposed projects. Hence, continuing this program is likely to stall the growth of solar PV in the long- term. Considering the wide variation in radiation across India and the existing regulatory framework within each state, I developed an optimal FIT for each state. However, achieving rapid cost reduction and the availability of project financing are two major challenges for the emerging solar PV industry. I propose enforcing stricter conditions on the use of domestically manufactured content to increase the competitiveness and achieve necessary cost reduction. Also, payment guarantees from the government may stimulate project financing of solar PV projects. Lastly, existing administrative barriers to land acquisition should be removed, and more emphasis should be placed on collecting accurate radiation data, critical for identifying the potential for solar energy in different regions.
Date of Award2011
Original languageAmerican English
SupervisorGeorgeta Vidican (Supervisor)


  • Photovoltatic Power Generation

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