Solar Power Integration in Bhutan: A Tariff-Based Competitiveness Analysis

Abstract

This study examines the Feed-in Tariff (FIT) derived under the tariff determination methodology recently issued by the Electricity Regulatory Authority (ERA) of Bhutan, applying a cost-plus approach and Levelized Cost of Electricity (LCOE) analysis grounded in normative project parameters, including capital expenditure, Capacity Utilization Factor (CUF), operation and maintenance costs, and Weighted Average Cost of Capital (WACC). Financial viability was assessed through spreadsheet-based modelling tools designed to simulate realistic project economics. The analysis finds that a fair FIT for solar energy in Bhutan falls in the range of Nu.4.34 to Nu. 5.82 per kWh, considerably higher than the cost of hydropower generation (Nu. 1.60 per kWh) and the prevailing subsidized retail electricity tariff (Nu. 2.66 per unit). This gap reveals a meaningful competitiveness challenge that makes solar projects financially unviable under the current tariff structure. The study argues that bridging this gap requires a well-designed FIT policy, supported by complementary metering mechanisms such as net billing or value-based compensation schemes. Such measures, if thoughtfully implemented, could enable the sustainable integration of solar energy into Bhutan’s power sector while preserving its overall financial health.