The new Indian government has deregulated the diesel prices in the country. So the diesel prices now, in India, will depend on global crude prices.
The first effect of this step was a decrease in the diesel prices by approximately in Rs.3.
This has got a lot of cheer from the Indian automobile industry. The last few years has seen the government slowly removing subsidies on diesel; thereby slowing down the sales of diesel engine cars in the country. This new step that has resulted in decrease in the diesel prices has shown some encouragement in the industry.
Some more impacts that will be seen on a shorter term are:
- Most of the agricultural equipments (tractors, harvesters and water pumps) run on diesel, and diesel getting cheaper will eventually helps in bringing the price down.
- The whole transport industry (trucks and buses) runs on diesel and with pricing going down, food prices and travel fares are expected to go down.
- Government’s subsidy bill will be go down to Rs 22,000 crore as last year govt. paid Rs 85,000 to compensate oil companies while for this year it is expected that govt will pay Rs 63,000 crore.
- The govt can further save Rs 10,000 crore
But is this happiness short-lived and what impact will this create in India’s solar industry?
The diesel prices, related to the crude oil space, will have its own up and down w.r.t prices; more up than down if the past trends are an indication.
On the off-grid solar side, this can create a short term and a long term impact. On the shorter term, diesel prices having decreased now, will shift the focus away from power tariff saving. Commercial and industrial entities will now show lesser interest on the solar [a lot of solar off-grid is sold to replace spiraling diesel based power costs].
But the story can take a turn when the market takes the diesel prices upwards.
An “increasing prices” trend will then encourage entities to look at off-grid solar.
On a long term, the ever changing back-up power costs [in some areas this is a major costs due to electricity cuts] will lead to an unpredictable situation w.r.t costs. To help streamline the costs into a more predictable trend, entities may be encouraged to consider solar.
I had a quick look at the historical diesel prices in India and the trends; on a long term average; show increasing prices except during 2008-09 when global recession lead to a fall in commodity prices.
The other question is, when diesel prices move beyond a certain limit will the government intervene on political grounds? I believe that this will also happen. The Indian inflation is quite dependent on diesel prices and in an election year the government will be forced to intervene.
Overall, deregulation of diesel prices is a good sign for solar development in India, on a longer term.
This development will also help other cleaner technologies such as hydrogen fuel to be more economical in a market driven economy.
Diesel impact on other sectors: Source Business Standard