Solairedirect, France's second largest solar power company, made a game-changing bid to supply solar power to India's national power grid at Rs7.49 (US$0.14) per unit (kWh). This rate is now better than the average cost of power generated by diesel generators, which is about Rs 13 (US$0.25) per unit.

While this is good news for solar power consultants and EPC contractors, it poses a major threat to the Rs122 billion (US$2.32 billion) diesel generator industry in India. The news comes at a particularly crucial time for the diesel generator market as it places larger bets on opportunities from India’s ever-growing power demand-supply gap.

Some market players question the logic behind the Solairedirect bid price and its profitability. The lowest bid, though, does not appear to be a dangerous figure when compared to other successful bids in the Rs8.00 to Rs8.28 range. Four companies offered these bids for seven projects, totaling a proposed capacity of 115 MW, under Batch 2, Phase 1 of the Jawaharlal Nehru National Solar Mission (JNNSM). The JNNSM consists of two bidding batches for 1,000 MW of solar power capacity. It seeks to make allocations for a total of 20,000 MW over the next 10 years. These new benchmarks are expected to make solar power cheaper than all other forms of power in the next two years.

Some analysts were skeptical of the Rs10.95 (US$0.21) per unit bid during the Batch 1 bidding process about one year ago. Analysts argue that several successful bidders from Batch 1 had not met financial projections and feared the projects would fail to see the light of the day. To add to the skepticism, mixed reactions kept pouring in over the availability of land, locally manufactured modules and other technological issues.

Whether or not these concerns hold true, this new benchmark will push India to solve other major issues such as pollution and high diesel generator costs. Even if solar rates reach Rs10 per unit, the higher rate would still appear cheaper compared to the rising high cost of diesel and the incremental maintenance costs associated with diesel generators.

The diesel generator industry will not be the only sector that experiences heat — this solar trend threatens all scheduled mega thermal power projects.