Loading...

Why the Andhra Pradesh state solar policy could be a game changer

/

Mr. Akhilesh Magal heads the Project Development team as a Senior Consultant at BRIDGE TO INDIA.

The Andhra Pradesh State Solar Policy (APSSP) was announced on 26th September 2012 (download the entire policy here). The announcement of the policy comes at a crucial period in the Indian solar market.

Commencement of the APSSP is expected to create a boom of solar projects in India

The policy offers exemptions from charges like transmission and wheeling, Cross Subsidy Surcharges and Electricity Duty, as well as refunds on VAT, stamp duties and registration charges for purchase of land

Banking of solar power will also be allowed, but may not be carried over from one year to the next

The market has seen a lull since the announcement of projects under the Round 2 of Phase 1 of the National Solar Mission. This policy heralds the transition from a government subsidized market to a market mechanism based solely on the Renewable Energy Certificate (REC) mechanism (as BRIDGE TO INDIA has predicted). This is in contrast to other state solar policies like Gujarat, where the government provided a preferential tariff. The AP policy could serve as a precedent to other states to adopt the REC mechanism in full measure. From a state’s point of view, the success of the REC mechanism is extremely crucial since it takes away the subsidy burden from the government. However, the success of the REC mechanism also hinges on the enforcement of the Renewable Purchase Obligations (RPO). It remains to be seen if the Andhra Pradesh government will show the same enthusiasm in enforcing the RPOs.

This strong thrust towards REC based projects will open up the markets for three models:

Model 1: APPC+REC projects

Model 2: RESCO+REC projects

Model 3: Captive+REC projects

To know more about these models, download our REC report for free.

The state policy offers a bouquet of benefits for such models. They include:

No wheeling and transmission charges

No Cross Subsidy Surcharges (CSS)

Electricity Duty (ED) exemption

VAT refund on all components

Refund of stamp duty and registration charges for land purchased

RECs can be availed over and above all the benefits

Banking of solar power allowed. Banking charges are determined at 2% of energy banked

Banking not allowed within a single day

Consumption of banked units not allowed during peak demand season i.e. February to June and during daily peak hours between 6:30PM and 10:30P

Energy cannot be carried over to the next year i.e. banking allowed only between January to December

The major bottleneck in the widespread adoption of these models in other states remained the open access charges (wheeling, transmission, cross subsidy, etc.). Maharashtra for example has the following set of prohibitive charges:

Wheeling Charges (@11kV)0.21 INR/kWhWheeling Loss (@11kV)9%Transmission charges0.056 INR/kWhTransmission Loss4.85%Cross Subsidy Charges0.84 INR/kWh

[Source: MAHADISCOM. Commercial circular 155]

The announcement of the APSSP is a complete game changer and will definitely create a boom of solar projects (as BRIDGE TO INDIA had predicted months ago). It would also serve as a precedent to other states that are in the process of formulating their state solar policy.

Finally, foreign module manufactures have reasons to smile since the policy does not mandate a domestic content requirement. The sun seems to be shining all of a sudden – at least in Andhra Pradesh. It remains to be seen if there are any hidden clouds hovering in the horizon. Right now, it appears clear all the way.

Download our latest free INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of solar projects in India’.

Read more »

Why the bail-out isn’t a sustainable solution for India’s power sector

/

Mr. Akhilesh Magal heads the Project Development team as a Senior Consultant at BRIDGE TO INDIA.

The Central government’s decision to bail-out the state electricity boards to a tune of INR 1,900b does not come as a surprise. The power sector in India is on the brink of collapse. However, bailing out the bankrupt electricity boards is not a sustainable solution. Key fundamentals of the market must be corrected.

Equal pricing of power across consumer segments: politicians pander to the vote-bank politics by giving away power for free to farmers. In most case there is no power to be given away for free. Gujarat has shown that by enabling consumer choice, farmers automatically gravitate towards the more reliable (albeit expensive) source of power (See link).

Transmission and distributions losses: the distribution and transmission companies have no incentive in promoting energy efficiency. Neither do they have the money to upgrade their equipment nor do they have the will to prevent thefts. Gujarat again is a leading example where complete deregulation of the power sector has resulted in much more efficient networks. Post-reform, the losses dropped to 20% from a previously high 35% (See article)

The current state of the state electricity boards also does not bode well for the development of renewable energy. Solar energy in particular is one of the most expensive forms of renewable energy. The average cost of solar is between INR 7 to 8 per unit which is significantly higher than the cost of energy from coal (~INR 2 per unit). The boards are resistant to purchase expensive power, when they can get much cheaper thermal power. This resistance is apparent from the hesitancy to meet the Renewable Purchase Obligations (RPO). The RPOs are mandated from by the Central Electricity Regulatory Commission (CERC) on captive consumers, distribution companies and open access consumers. These obligations require a certain share of renewable energy in the overall energy mix. However, data suggests that the RPOs are being poorly implemented and no penalty is currently being enforced on the obligated entities.

This seriously jeopardizes the solar market since the market is poised to move away from the subsidies under the National Solar Mission (NSM) and various state policies to market driven mechanisms such as the Renewable Energy Certificate (REC) mechanism. The current financial state of the power sector in India is the biggest barrier for this transition.

It remains to be seen if the central government is willing to go the extra mile and actually implement the deregulation of the power sector which started in 2003. The timing for these reforms could not be better. The government has a small window of opportunity to slip these reforms through – along with a host of other reforms it recently introduced. National elections in 2014 means that the government will not risk taking this decision in or after 2013. It’s now or never.

Download our latest free INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of solar projects in India’.

Read more »

Overcoming regulatory challenges under the REC mechanism in India

/

As a part of extensive market research, Market Intelligence at BRIDGE TO INDIA publishes topic-based strategy reports on key and most relevant issues in the Indian solar market. These reports are classified as India Solar Strategy Briefs and India Solar Decision Briefs. This is an excerpt from our latest INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of solar projects in India’. Download the free report here.

The REC mechanism is relatively new in India and several regulatory loopholes remain. The Central Energy Regulatory Commission (CERC) plans to apply modifications to overcome certain challenges.

REC prices over the lifetime of the project must reflect the current capital cost, which is an unfair disadvantage as the capital costs are made upfront

Uneven cash flows and year-end spikes in the REC prices are results of the infrequent annual implementation of RPOs.

Currently off-grid projects are excluded from the REC mechanism

Regulations regarding net-metering schemes in India are presently absent

The CERC is considering several changes to the regulations which would be implemented in the coming months. Some of these are:

1. Vintage based multiplier: One of the major concerns is that REC prices over the lifetime of the project must reflect the current capital cost. REC prices would depreciate over time, reflecting the falling cost of capital of a solar plant. This would unfairly disadvantage REC projects since the capital costs are made upfront. To circumvent this problem, the CERC is mulling a vintage based multiplier. In this mechanism the solar REC projects commissioned in the period 2012-2017 will be issued a multiplicative factor. This factor would be equal to the fall in CAPEX from 2012 to 2017. This factor would be used to issue additional RECs. Assuming that the capital cost falls by 50% in 2017, every REC issued in 2012 would be worth two RECs in 2017.

2. Quarterly fulfilment of RPO: In order to ensure a smoother cash-flow, the CERC is considering a quarterly implementation of the RPOs. This would distribute more evenly throughout the year and prevent year-end spikes in the REC prices. Such a regulation would be beneficial to both project developers (cash-flow) and the obligated entities (year-end high prices).

3. Net Metering: The net-metering scheme being considered by the CERC includes the following topics:

Connection of renewable energy source to the grid at lower voltages

Accounting and billing

Safety standards and technical requirements

Taxes and duties (or waivers) for self-generated electricity

An overarching policy framework for distributed energy generation

These regulations would ensure that there is a well-defined policy framework for connecting small scale solar power projects onto the grid. This will reduce the likelihood of unnecessarily delays and complications in such projects.Secondly, one of the major concerns for such REC projects is over-generation. Instances when the supply exceeds the demand (building is empty, holidays, exceptionally sunny days, etc.), the excess power can be fed into the grid and consumed at a later stage. Such banking regulations are also under discussion and would come as a boon to solar project developers under the REC mechanism.

4. REC for off-grid: Currently off-grid projects are excluded from the REC mechanism. However, with a comprehensive metering policy, the CERC intends to include off-grid projects under the REC mechanism. The main issue with off-grid projects is that responsibility cannot be assigned to the DISCOM for a periodic reading of the solar meter, accounting and reporting the power generated to the SLDC. The DISCOM is currently incentivized to carry out these functions only if the project is grid connected.

This is an excerpt from our latest INDIA SOLAR DECISION BRIEF on ‘The REC Mechanism: Viability of solar projects in India’. To continue reading, download the free report here.

Read more »

Weekly Update: Private power purchase agreements (PPAs) as a viable business opportunity

/

Market Intelligence at BRIDGE TO INDIA constantly tracks the Indian solar market and provides insight on the latest market developments as they occur. This analysis is compiled into our INDIA SOLAR WEEKLY MARKET UPDATE which is sent to members of our mailing list. Subscribe to this list to receive the update every week.

The latest INDIA SOLAR WEEKLY MARKET UPDATE gives an overview of the following:

Kiran Energy’s plans to set up power plants for industrial and commercial consumers

Regulatory challenges that surround the captive commercial market segment

Key questions that need to be answered in context with making the captive commercial market viable

Kiran Energy has announced its plans to set up several solar power projects that will use bilateral power purchase agreements (PPAs) with commercial and industrial consumers. Kiran Energy points out that there is a big demand for power from industrial houses in Chennai, so much so, they could put up a 100MW plant to cater to them. Apart from that, the company is also looking to put up projects in Kartnataka. It is expected that 100MW could come up in a solar park near Bijapur, Karnataka. Another 50MW is planned for rooftop projects in Karnataka. The entire capacity would be based on bilateral power purchase agreements (refer).

Commercial and industrial tariffs in many parts of India have already reached parity with the cost of solar power. With limited policy driven project development opportunities in 2012, many developers are looking at such private PPAs as a viable business opportunity.

Even though the business models for private PPAs make financial sense for both the power consumer and the investor, there are many regulatory challenges around the grid interconnectivity, open access, and the applicability of the Renewable Energy Certificates (REC) mechanism for plants adopting such business models.

Some of the open questions around these business models include:

Why will an industrial or commercial consumer buy solar power and not cheaper thermal or wind power through third-party PPAs?

If the project developer’s SPV takes Accelerated Depreciation (AD) for the plant, it leaves no scope for the power consumer to avail any benefit from AD. Why will then an energy consumer not set up their own plant?

The DISCOMs take away the Universal Service Obligation for the customer, i.e., the DISCOMs in no longer obligated to supply regular power to a consumer. Solar power, that is difficult to precisely schedule, poses a risk for the consumer. How is this risk mitigated for the consumer?

Open access requires power production and injection to be scheduled with a high degree of precision.  How will you, as a power producer, manage power scheduling for solar?

The DISCOM also reduces the contracted demand of the consumer, if the solar power is not available for a certain time period and power overdrawn from the grid, it will cause high financial losses for the client. Who takes on this risk, the consumer or the project developer?

BRIDGE TO INDIA is working to answer these questions and more. Please feel free to get in touch with us to discuss any solutions or to ask us any questions you may have on the Indian solar market.

Subscribe to our mailing list to recieve our INDIA SOLAR WEEKLY MARKET UPDATE.

Read more »

Interview: SGS Group on overcoming bankability and project execution challenges in the Indian solar market

/

BRIDGE TO INDIA interviewed the SGS Group for the June 2012 edition of the INDIA SOLAR HANDBOOK for their views on the optimal technologies, strategies and execution in the Indian solar market.

Dr. Thomas A. Louis is the Global Business Development Manager for Renewable Energy at the SGS Group Management Ltd. He has the following views on successful implementation of solar projects in India:

Public incentive programs as well as private players need independent advisors and contracted third party service providers for support on key decisions

Project developers can improve their bankability through verification by an independent professional services partner

Collaborating with experienced and strong partners can lower the project risk and make project financing terms more favorable

BTI: What potential do you see in the Indian solar market and how is India different from other markets?

TL: We see certain major trends favoring growth in the Indian solar market. First, there is increasing electricity consumption per capita, population growth and hence demand for building new power generation capacity. Second, the levelized cost of electricity generation (LCOE) using solar power, whether using photovoltaic (PV) or concentrating solar thermal technology (CST), continues to decrease rapidly, in line with reductions in the cost of core components and overall system cost. Third, India has high levels of irradiation. A favorable legal framework, large areas of suitable land and vast numbers of technically skilled people can potentially contribute to developing, manufacturing and deploying large numbers of power generation plants in India. This could be both grid-connected and standalone plants over a wide geographic area and using state-of-the-art renewable power generation technologies. However, the Indian solar market is very different from European markets with regards to the ability to finance significant investments, reliability of the transmission and distribution network and the experience of key players. The effective collaboration of all the stakeholders is required in order to design, finance, build and connect significant renewable power generation capacity.

BTI: What module technology is best suited to Indian conditions?

TL: The best technology for a solar power plant depends critically on the specific application and circumstances. In some cases, where the tariff structure is progressive and the ability to generate revenues from electricity sold at peak demand is dominant, CST with thermal storage capability has the ability to match electricity supply to demand. Despite CST’s higher LCOE, it may be more attractive to decision-makers than PV. In the case of ground mounted installations and where the cost of land is low, thin-film PV technology is favored due to its low cost per wattpeak. This is in contrast with the best technology for small, roof-mounted, grid-connected PV installations, dominant in many European countries. In such cases, the cost per m2 and limited space availability favor the use of higher efficiency crystalline silicon PV technology. In addition to the above mentioned considerations (tariff structure, meteorological conditions, availability of land, area related cost) the choice of particular solar power technology that is best for a large country like India will also reflect the future role the country aspires to play in the global supply chain. The question as to what solar power generation technology best meets India’s needs thus cannot be addressed from a single point of view. It all depends on which perspective you take.

BTI: Do you think solar PV plants in India will perform as per expectations?

TL: Whether individual solar power plants perform as per expectations is a matter of professional execution. Whether solar power can make a significant contribution to addressing India’s growing demand for electricity, is a more complex question. The success of public incentive programs designed to stimulate the adoption of solar power technologies is often linked to the generation of jobs in respective industries. Such programs require more than projects being diligently planned and professionally executed. The need is to have independent advisors and contracted third party service providers to support public and private players on key decisions.

BTI: What can project developers do to improve the bankability of their projects in India?

TL: The cost of solar power generated electricity is front-loaded, i.e. determined largely by the cost of the system to be built and the weighted average cost of capital (WACC) used for financing the project. The system cost is determined by the choice of technology, suppliers and project partners and their professional execution. The WACC is determined by the debt to equity ratio and the respective cost of debt and equity. The more experienced and stronger the partners in the project, the lower the project risk and the more attractive project financing terms will be. The ability to secure project financing through loans, with long payback times and low interest rates, in other words bankability, is a key to success in every solar project. Project developers can improve this bankability by subjecting their work to verification by an independent professional services partner. The cost of engaging such a partner, whether by the project’s developer, investor or owner, lender or bank, or EPC contractor, will certainly be offset by the benefits gained in the form of securing attractive project financing swiftly.

BTI: What are the key challenges with regard to project execution in India?

TL: The choice of local partners, the ability to handle administrative processes, to obtain permits and to effectively deal with counterparty risk, are key to successful project execution. This applies everywhere, but specifically in fast growing markets, which often attract new and inexperienced players. This may be the case in emerging solar power markets such as in India. Here, the price sensitivity of the solar power market and its potential for growth not only attract large, experienced and well known players but also those whose willingness to offer the lowest price may not be matched by their ability to deliver and provide guarantees for lasting solutions at the lowest cost. The challenge is for decision makers to distinguish what appears to be a low price from a genuine low cost offer from a partner with a strategically defendable position and resulting cost advantage.

For more information on the Indian solar market, visit our Reports page or Contact us.

Read more »

The International Experience: REC Mechanism

/

Mr. Mohit Anand heads the Market Intelligence team as Senior Consultant at BRIDGE TO INDIA. Together with his team, he is responsible for the INDIA SOLAR NAVIGATOR, India’s only dedicated online business intelligence tool that is designed to enable leading solar companies to take strategic decisions to succeed given the ever-changing landscape of the Indian market. His team is also responsible for the INDIA SOLAR COMPASS and many other market reports on solar power in India.

The Ministry of New & Renewable, Government of India, hosted a workshop on the ‘Challenges and issues in the solar RPO compliance/RECs‘ on July 24th 2012 in New Delhi. The workshop included presentations on the current scenario of solar power in India, states and Renewable Energy Certificate (REC) trading, the supply chain and financing options. Senior management executives from companies like AF Mercados, CERC, GEDA, RRECL, NLDC, IEX and Sunpower presented on these topics.

BRIDGE TO INDIA, on behalf of GIZ, presented on the international REC experience – the status of implementation of the REC mechanism in various countries and the lessons that India can learn.

Japan, Australia and UK are countries with the most robust REC mechanisms globally

India needs to incorporate measures – perhaps implement a system of penalties – to improve Renewable Purchase Obligations (RPO) enforcement

India should incentivise RPO compliance through REC and increase the REC window

India needs to heighten the price stability and increase the bankability of RECs

The International Experience: REC Mechanism from BRIDGE TO INDIA Energy Private Limited

Write to us at contact@bridgetoindia.com for further questions on the market or to receive regular updates.

Read more »

Interview: IBC Solar on adapting and succeeding in the Indian solar market

/

BRIDGE TO INDIA interviewed IBC Solar for the June 2012 edition of the INDIA SOLAR HANDBOOK. This interview gives an insight into their approach and expectations in the Indian market.

Mr. Jan-Marc Raitz, Director Commercial Department PV-Projects at IBC SOLAR AG discusses the necessity for adaptation in India. On the scope for further successful growth, Mr. Raitz has the following views:

It is vital to establish a local presence and strengthen EPC capabilities

There is a bright future for MW scale rooftop solar projects

Contract manufacturing partnership with Indian manufacturers allow involvement in projects with local content requirement without any compromise on quality

BTI: Is there a market for turnkey solar solutions in India? What is IBC SOLAR’s strategy for the market?

JR: We are already considering today the Indian PV solar market, beside our German core market, as one of the strongest international markets with a substantial growth for the coming years. We have successfully executed large scale photovoltaic power plants last year under the National Solar Mission Migration Scheme. With these we have proven our competitiveness under demanding market conditions. We intend to continue on this road and strengthen our EPC capabilities by opening our own office in the city of Mumbai within summer 2012. This will give us more flexibility and control over the so-called local content such as civil works, substructures and erection services. Following that, we intend to develop our own MW scale rooftop projects for which we foresee a bright future in the Indian PV market. Such projects shall be fully developed, pre-financed and built under an EPC regime by us before we finally sell them to interested investors, who are seeking projects on a balance sheet financing approach only.

BTI: What has been the performance of your plants in India so far? Have they met your expectations?

JR: Yes, the plants’ performances have exceeded our expectations and the expectations of our clients. Our PV installations are among the top performing plants within all of India with a performance ratio by far above 80%. Additionally, all installations were grid connected in time so that our clients were not facing the danger of losing their initial tariff. Compact and proven design has been one of the key success factors for the overall performance of the systems. All this could be achieved without any compromise on our IBC quality standards and philosophy.

BTI: What has been your experience in adapting the technology and Balance of Systems for projects in India? What are the challenges you have faced?

JR: It was necessary to adapt ourselves to the Indian market environment and to be willing to learn also from our Indian partners and customers, who have kindly guided us on these first projects within the India PV market. It would not have been wise to simply stick to our German approach on project execution. The openness of our partners, customers and our team to learn from each other has been one of the driving success factors. During the final installation phases we were required to send a high number of highly qualified engineers and site managers to India to guarantee that the systems were set-up in a proper manner and then finally guarantee our quality.

BTI: What are the EPC and module price developments that you expect in the months ahead in India?

JR: The prices will be dictated by the market anyway, but as of today we believe in being competitive with a system price of around EUR 1.3/Wp on a turnkey basis for large scale installations. We will be in the position to offer clients a single source solution with product and plant performance guarantees. In addition, these will be backed by first-class bank guarantees. As a result, we expect to be successful in India. Furthermore, we intend to offer operation and maintenance services via our Mumbai offices. This package will provide our customers and their financiers with the required trust to work with IBC SOLAR as one of the leading PV solution providers. Importantly, we have also engaged an Indian cell and module manufacturer for supplying us with IBC crystalline modules that are going to be manufactured in accordance with our specifications and under our quality regime. This partner will undertake contract manufacturing for us. This will help us to be active in projects with local content requirement without any compromise on plant our product quality.

BTI: How important are off-grid, rooftop PV solutions for India? When do you think this segment of the market will take off?

JR: This market segment is still in its early stages, but can already be regarded as the next growth segment. Large scale rooftop installations are especially attractive to us. Nevertheless, such projects will be a bit more complicated in development and execution. Here we believe we will already have the key answers in hand due to our long-lasting experience abroad in this field. Off-grid solutions on a kit basis will also become a standard the next years. Here it will be important to build a good distribution network for being close to the final customer.

View BRIDGE TO INDIA’s insight into the Opportunities and Challenges in India’s Rooftop Solar Energy segment.

For more information on the Indian solar market, visit our Reports page or Contact us.

Read more »
To top