India auction feed-in tariff

Thanks to this tweet by Desertec I just found an interesting article about the development of solar energy in India. As mentioned before when reporting on the recent Joint Declaration of India and EU on energy, solar is really taking off right now, with investments increasing seven fold last year to $4.2 billion (Bloomberg).

As the article explains, India has added a new idea to the feed-in tariff model: They let developers name their prices in an auction process to determine the level of feed-in tariffs. That has got a lot of projects under way at low prices.

Basically this would be a market driven price mechanism. Let the market figure out what the costs of a solar project is. Once the market for electricity from solar is isolated from the market for electricity from fossil fuel, that might work.

As the article notes, the drawback of that approach is that it invites developers promising more than they can actually handle. But this should be a good way to avoid paying feed-in tariffs that are set too high considering the speed of price reductions lately, a large problem in Germany as well as in the United Kingdom.