Month: April 2013

The south Indian state of Andhra Pradesh had carried out a bidding process for an allocation of 1,000 MW earlier this year. The state followed a L1 (lowest bid) process, where developers were required to meet the lowest tariff being offered by any other developer for a given sub-station.

The policy’s bidding process accounted for different project sizes, land costs and irradiation levels and was considered to be a progressive variation of the L1 process

In a sudden change of process, after the bidding process was complete, the state announced that it could only offer a tariff of INR 6.49/kWh

This policy instability and sudden change in process is expected to severely impact the outlook on new capacity addition as well as the investor confidence in the state

This process was different from the L1 process followed in Rajasthan and Tamil Nadu, where the developers were required to meet the lowest bid (L1) across the state. This key differentiating factor allowed to account for different project sizes, land costs and irradiation levels and was considered to be a progressive variation of the L1 process.

Based on this, 330 companies participated in the bidding process and the planned investments to be made were to the tune of INR 70 billion for a 1,000 MW capacity. In the April 2013 edition of the India Solar Compass , BRIDGE TO INDIA had predicted that a capacity of 550 MW would come up by the end of the first quarter of 2014. However, in a sudden change of process, after the bidding process was complete, the state last week announced that it could only offer a tariff of INR 6.49/kWh. The state’s cabinet sub-committee on power fixed this benchmark price at its meeting on 23rd April 2013 (refer).

This policy instability and sudden change in process is expected to severely impact the outlook on new capacity addition as well as impact the investor confidence in the state. Using the L1 process, Rajasthan, for example, has been able to allocate only 75 MW of the planned 100 MW capacity. Tamil Nadu, after revising the offered tariff up from L1 of INR 5.97/kWh to an ‘acceptable tariff’ of INR 6.48/kWh with an escalation of 5% per annum for the first 10 years (refer to the April 2013 edition of the India Solar Compass), has been able to allocate only a little over 200 MW of the planned 1,000 MW.

In Andhra Pradesh, the average bid had come out to a little over INR 8.7/kWh and only 13 bids out of the 330 bids are below INR 7/kWh and at several locations, the L1 is as high as INR 8.89/kWh. In such a situation, it is unlikely that many developers will agree to the proposed tariff. Currently, only the bids submitted by SunBorne and Essel Mining are close to the offered benchmark price.

Many project developers and even supplier’s had invested in the state based on the earlier proposed process. While project developers had invested in the development process, many suppliers have been looking to set up local presence to cater to the sales and service requirements arising out of the opportunity. The change in process is expected to have a negative impact on such investments. Based on the new announcements, BRIDGE TO INDIA has revised its new capacity installation outlook for Andhra Pradesh from 550MW to under 200 MW for the next four quarters.

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The Maharashtra State Electricity Distribution Co. Ltd. (MSEDCL) released a commercial circular no. 190 last month (dated March 14 2013), clarifying the matter of Cross Subsidy Surcharge (CSS) for Open Access (OA) consumers. Under this circular, all generators including renewable energy generators who opt for open access will have to pay MSEDCL the CSS.

Earlier, open access consumers that procure renewable energy had to pay only 25% of the applicable charges. This concession has now been removed

Project developers are obliged to go via the open access route in order to register for the REC mechanism

This hike in CSS will increase charges payable to the distribution licensee and introduce uncertainty in changes of CSS over the lifetime of the project

This order overturns the previous circular no. 155 (dated January 23 2013) that provided a concession to renewable energy consumers. Under the earlier commercial circular no. 155, open access consumers that procure renewable energy had to pay only 25% of the applicable charges. This concession has now been removed. The CSS for a typical 33 kV High Tension (HT) consumer now totals to INR 1.18/kWh. This is an increase of INR 0.57/kWh from the previous circular no. 155.

This latest announcement comes as a surprise to solar PV project developers. With the distributed energy generation market picking up, many developers are looking at the Renewable Energy Certificate (REC) Mechanism as a potential additional off-take option. A project developer is obliged to go via the open access route in order to register the project under the REC mechanism. This announcement increases the charges payable to the distribution licensee (MSEDCL in this case) and introduces the uncertainty that the CSS can change over the lifetime of the project.

The revenues from the REC mechanism are already uncertain due to the lack of enforcement of Renewable Purchase Obligations (RPOs). The uncertainty over the open access charges will further weaken the possibility of off-take through the REC mechanism. This in turn would have two specific effects on the market:

The off-take of distributed generation of power will be slower than anticipated

Solar power prices for an end customer under private PPAs will be much higher due to the absence of REC revenue flows

Update:

Several developers have petitioned MERC against MSEDCL’s commercial circular no.190. MERC has stated that there will be a clarification on this issue in the second week of May.

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Last week in our April 2013 edition of the India Solar Compass we had mentioned that a number of projects under the Batch II, Phase I of the NSM had not been commissioned within the deadline of February 26th 2013. Since then, we have had a chance to interact with some company representatives and market stakeholders and would like to clarify that a few of these project have in fact been commissioned within the deadline.

Pokaran Solaire Energy, Sai Mathili Power Co and NVR Infra & Services were also commissioned before the February 26th deadline

For this update on Batch II, Phase I of the NSM, the list ‘Commissioning Status of Solar PV Projects under Batch-II, Phase-I of JNNSM’ was reffered to, published by the MNRE on its website on February 28th 2013

The above projects were excluded from the list, but were incorporated in a revised list released on March 26th without any information on commissioning dates

SolaireDirect, the developer and EPC for Pokaran Solaire Energy Pvt. Ltd has reached out to us and shared the project’s commissioning certificate. The project was commissioned on February 24th 2013, before the deadline.

Further, Refex Energy, the EPC for Sai Mathili Power Co. Pvt. Ltd. and NVR Infra. and Services Pvt. Ltd. has reached out to us and shared the projects’ commissioning certificates. The Sai Mathili Power Co. Pvt. Ltd. project was commissioned on the deadline of February 26th 2013 and the NVR Infra. and Services Pvt. Ltd. project was commissioned a day before the deadline on February 25th 2013. The commissioning of the NVR Infra. and Services Pvt. Ltd. project on February 25th 2013 has further been confirmed by the Atha Group.

In our report released last week, we provided an update on the status of commissioning of projects under Batch II, Phase I of the National Solar Mission (NSM). For our analysis, we referred to a list entitled ‘Commissioning Status of Solar PV Projects under Batch-II, Phase-I of JNNSM’ published by the MNRE on its website on February 28th 2013.The list gave commissioning dates, and contained projects that were commissioned up to February 22nd 2013.

Until the completion of the writing of our report on March 20th 2013, this was the only publically released, government backed information available on the projects commissioned under Batch II, Phase I of the NSM. The commissioning deadline for the projects under this batch was February 26th 2013. Based on the MNRE list of February 28th 2013, we concluded that the projects excluded from the list were not commissioned on time.

On March 26th 2013, the MNRE released another list on its website entitled ‘Commissioning Status of Solar PV Projects under Batch-II, Phase-I of JNNSM as on 26 March 2013′. In addition to the projects mentioned in the list of February 28th 2013, this list includes commissioned projects by Pokaran Solaire Energy Pvt. Ltd, Sai Mathili Power Co. Pvt. Ltd., NVR Infra. and Services Pvt. Ltd., LEPL Projects Ltd. Sunborne Energy Raj. Solar Pvt Ltd, Symphony Vyapar Pvt. Ltd., Lexicon Vanijiya Pvt. Ltd., Jackson Power Pvt. Ltd, Enfield Infra. Ltd., Essel MP Energy Ltd. and Saisudhir Energy Ltd. This list does not mention the commissioning dates of the projects.

As for the other projects excluded from the MNRE list of February 28th 2013 but listed as commissioned on the list of March 26th 2013, there is no clarity on their exact commissioning dates. We have reached out to the MNRE, the NVVN and the respective project developers via telephone and email but have not received a response yet. We will provide a further update on these projects when we have more information.

The India Solar Compass April 2013 edition has been updated accordingly (refer).

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We regularly publish reports on the Indian solar market. These are read by a majority of national and international market stakeholders: on average by 10,000 people, including most industry leaders. We realize and appreciate that our views and opinions are taken seriously and influence the market. That only reaffirms our commitment to ground them firmly in facts. Only: facts, are not always clear. This can lead to inaccuracies or errors in our writing – such as in our current INDIA SOLAR COMPASS (April 2013 Edition). We strive to always improve our coverage and analysis and get to the bottom of key market developments. In this endeavor, we invite all market participants to be in active touch and share information with us.

In a young, dynamic market, such as the Indian solar market, getting facts right is of particular importance – but also particularly challenging. A good case in point is project commissioning deadlines.

We strive to provide independent, analytical, transparent, business-driven and fair opinions to the market. This can be contrarian. We believe that asking questions and challenging assumptions helps the market grow.

We interact with all market participants and constantly receive information from the market. Some of which is off-the-record, which we don’t make public. Some is on record, wherein companies help us clarify certain topics.

In writing about the Indian solar market, we rely on primary information from market participants as much as on our own wits. Such information is sometimes difficult to gather and then to verify. The market has many grey zones, involving the complex management of infrastructure projects with multiple interests, significant investments and an imprecise regulatory environment.

Commissioning deadlines are a case in point: penalties for overstepping are high, commissioning is not always entirely within the control of the EPC or developer (who also depend on the cooperation of the authorities) and rules are not as clear as they should be.

In our current INDIA SOLAR COMPASS (April edition), we had originally written that a number of projects under NSM batch two/phase one did not meet the February 26th commissioning deadline. This information was based on a list published by the Ministry of New and Renewable Energy on February 28th, which listed projects commissioned. We assumed that the projects not listed were not commissioned when we published the report on April 1st 2013. Some of the involved parties have reached out to us directly to clarify the matter and give us details to show that they have successfully met the commissioning deadline. In fact, in a list published by the MNRE and dated 26th of March, most projects are listed as commissioned. We have subsequently updated the passage in our report (refer) and will cover this topic in more detail in our upcoming publications.

There have been three direct take-aways for us from this incident. Firstly, we need to research even more thoroughly and involve the other stakeholders in the industry even more actively than we already do. Secondly, in a dynamic environment, we need the involved companies to also interact with us as has been done in this case. Thirdly, the process of ‘commissioning’ should be handled with more transparency and precision by the involved regulators. We have reached out to them and while having very helpful conversations, it is clear that they would also appreciate a better process. In batch one of phase one of the NSM, there already was a discrepancy between reported and actual commissioning dates for eight projects and NVVN had to review all projects to find these discrepancies (refer).

This incident made me think about why we do what we do. We believe that solar is (a) a useful technology for India, that (b) it can help India to develop, and that (c) it is a good business proposition for those who accept normal returns and take a long term-view. It can be a ‘good’ thing for people, for entrepreneurs and for the environment. I personally see solar more along the lines of a distributed ‘mobile phone’ revolution than of an infrastructure play. But it might not be either or and other paths can emerge. The verdict is out, the competition is on and many energetic market participants – many of them much smarter than myself – are developing new solutions even as I write this.

What I can say – speaking for myself and for my colleagues at BRIDGE TO INDIA – is that, if the solar market gets derailed into a quagmire of Indian infrastructure business-as-usual, we would rather not be a part of it. We believe that there is a link between quality (in our case: of analysis, but also: of products and processes) and transparency – and a sustainable market, and ultimately, progress for the country as a whole. Access to reliable and analytical information is a key driver for the market to prosper. It allows for the best allocation of resources and assessment of risks. It reduces costs (e.g. of lending, but also of making mistakes) and helps channel the efforts of numerous energetic, new market players – whether individual entrepreneurs or large corporates – towards the commercially viable, scalable solutions that are needed and within reach.

We want to see the market grow and prosper. We understand that it is young and dynamic and that India is a very diverse and complex market place. We believe that so far, things have gone quite well. India has rapidly built a strong base with an installed solar capacity now exceeding 1.4 GW. On the policy side, this has been achieved through a successful process of trial-and-error, wherein clarity was sacrificed for flexibility with the result that competition was kept high and costs low. In addition, a host of new solar business models outside the dedicated solar policies have been established. These focus on providing solar power solutions to energy-starved end-customers.

The market will continue to develop in exciting ways. In order to cover it, we interact closely with all stakeholders: with government and regulators, with consumers and with businesses, entrepreneurs and financiers. We find that most of them are very cooperative, ready to share information and exchange views. Many reach out to us for our off-the-record opinions on certain topics. And we, in turn, reach out to them. There is a growing group of stakeholders that understands the value of interaction, analysis and communication. There is an ‘Esprit de Corps’ of being co-pioneers in an electrifying market and a sense that we work for the same goals. We invite everyone to become a part of this community, to help us understand what makes solar work and what holds it back, so that we can be as accurate as possible in our market analyses and help build the market – in everyone’s interest.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

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We have released our latest quarterly update from the 10th edition of the INDIA SOLAR COMPASS. The total installed capacity in India has now reached 1.41 GW.

Most off-grid projects that apply for capital subsidy from the MNRE in the new financial year will be put on hold until the end of the financial year (March 2014).

It is likely that developers in both Tamil Nadu and Andhra Pradesh will opt for construction/bridge financing to complete their projects on time.

As of January 2013, central inverters account for 95% of the installed capacity in the country.

Key updates from the last quarter (January – March 2013)

Policies

Due to the unavailability of unbundled power, the MNRE has decided to go ahead only with the allocations for 750MW based on Viability Gap Funding (VGF) for Phase 2 of the NSM.

It is likely that most off-grid projects that apply for capital subsidy from the MNRE in the new financial year will be put on hold until the end of the financial year (March 2014).

In Tamil Nadu, a capacity of 226 MW has been tied up for and the projects are expected to be commissioned by January 2013. The state has decided to provide a ‘workable tariff’ of INR 6.48/kWh (at an annual escalation of 5% for the first 10 years of the 20 year PPA).

Andhra Pradesh’s solar project tender was oversubscribed, with bids were received from 184 applicants who bid for a total capacity of 1,340 MW. The lowest bid (L1) in the whole of Andhra Pradesh was at INR 6.58 (EUR 0.10/USD 0.13) /kWh. At some substations the L1 is as high as INR 8.89 (EUR 0.14/USD 0.18)/kWh.

Kerala released a draft solar policy and has set itself a target of an installed capacity of 500 MW by 2017 and 1,500 MW by 2030. Unlike the off-grid capital subsidy scheme under the NSM, the state will incentivize distributed solar through Feed-in-Tariffs (FiTs).

Punjab has released a request for proposal (RfP) document for allocation of 300 MW of solar PV in the first phase of its state solar policy. The bid has been divided into two categories, 50 MW for new developers and 250 MW for experienced developers. The benchmark tariffs for the bidding process have been fixed at INR 8.75/kWh for companies not availing accelerated depreciation and INR 7.87/kWh for companies availing accelerated depreciation.

Uttar Pradesh has updated and finalized its solar policy and it is now called ‘Uttar Pradesh Solar Policy 2013′. The state has announced bidding for 200 MW of capacity on March 15th 2013.

Projects (PV)

In the last quarter (January to March 2013) 226.5 MW of solar PV capacity has been added in India.

Under batch two of phase one of the NSM, projects by developers such as Welspun, Mahindra, Kiran Energy, Azure, Gas Authority of India Limited (GAIL), Saibaba Green Power, SunEdison have been completed and the remaining capacity from Green Infra and Fonroche Group has been commissioned.

For batch two projects, a significant delay has been reported in the projects being developed by Essel Infraprojects.

In Madhya Pradesh, Welspun’s 130MW project in Neemuch district of Madhya Pradesh has arranged for financing and has selected its equipment suppliers.

Projects allocated in Karnataka last year are nearing financial closure and are in discussions for vendor selection.

In the last quarter, there was accreditation of 57.25 MW of planned capacity based on the REC mechanism. The total proposed capacity of accredited projects now stands at 78.16 MW.

Giriraj Enterprises, a group company of the Malpani Group from Maharashtra has emerged as the largest player betting on the REC market in India. The company is accredited to set up 40.65 MW of REC based solar projects.

Financing

In the last quarter (January – March 2013), financial closures have been achieved for multiple projects in Madhya Pradesh and Karnataka.

It is likely that developers in both Tamil Nadu and Andhra Pradesh will opt for construction/bridge financing to complete their projects on time.

Many project developers are now looking at the third-party PPA market. Some PPAs have already emerged from this commercial parity driven market segment but it is not clear how the lenders will react to such projects.

Industry analysis

There are up to 18 prominent inverter suppliers that are present in the Indian market. However, just six companies, i.e., SMA, Bonfiglioli, Schneider, ABB, AEG and Power-One make up for 87% of the current inverter market share in India.

From these six companies, power solution companies such as AEG, ABB and Schneider are already manufacturing solar inverters in India.

As of January 2013, central inverters account for 95% of the installed capacity in the country.

Inverter suppliers such as ABB and Power-One plan to launch new central inverter models with the capacity of 1 MW and 1.4 MW respectively.

Currently, central inverter prices in India range between INR 4.2 (EUR 0.06/USD 0.08)/kWp (output) and INR 7.8 (EUR 0.11/USD 0.14)/kWp (output), depending on the type and brand of the inverter.

For a complete update on the last quarter, download the latest edition of our INDIA SOLAR COMPASS here.

What is the cost of burning India’s coal reserves? And should that cost be added to the equation when determining whether to switch to renewables? This is a preliminary thought-piece. The thought goes like this: fossil fuels are burned and gone. Renewables are – as the name suggests – unlimited. Could coal be used more sparingly for purposes other than generating electricity? Perhaps not now, but in the future?

Depleting a strategic resource like coal comes at a cost that might not be fully understood today

Renewables do not deplete a strategic resource

Is this a strong argument for accelerating the shift towards renewables?

Traditionally, when we compare renewables to fossil fuels in power generation, we look at the Levelized Cost of Energy (LCOE). Or, more simply: we look at the market tariff offered by power generators using different fuels. This measure is inclusive of a messy chain of direct and indirect subsidies and costs added through government policies and regulations. If you take this measure, coal is still India’s fuel of choice. Depending on where the coal comes from, it is brought to market at rates between 1.5 and 4 INR/kWh. Wind and hydro power, would be slightly more expensive. Solar – which is practically unlimited in resource – is currently sold at 7 to 8 INR/kWh, which 2 to 5 times more expensive than coal.

Comparisons between different fuels are complex. One has to look at running plants at optimal loads, at investment cycles, future fuel prices, at how the grid infrastructure is used, at the quality of power generated, etc. Also, one should include the externalities: the local environmental costs of mining, air pollution, building dams, and (perhaps) the global carbon cost. A full analysis would have to take these factors into account, but I would like to keep it simple here and just add one layer to the cost comparison: the fact that coal is limited and renewables are not. What does that mean in terms of cost and national strategy?

A study by the World Future Council (refer) has estimates the global ‘future usage loss’ of using oil, gas and coal for power generation at over 3.2 trillion USD/year. This is essentially the opportunity cost of not being able to use these resources for alternative, industrial purposes. Is this relevant for India? If the best use of coal in India is for power generation, i.e. if this is where coal currently creates most value, then so be it? The answer is probably ‘yes’, if one looks only at the market as determinant of (monetary) value. If however, coal is attributed a national, strategic value, the answer might be ‘no’.

What could this value be? Coal has certain properties that might be needed for very specific products and purposes. If it is burned and converted into electricity, these specific properties are lost. The end product, electricity, carries no DNA. Could it be better to use coal in ways that more fully leverage its properties? India might not yet have all the industries that need coal-based components, but as it industrialises, it increasingly will. These are some of the non-energy uses of coal as per the World Coal Association (refer): alumina refineries; paper manufacturers; a number of chemical products such as phenol or benzene; soaps, solvents, dyes, plastics and fibres sich as nylon. In addition activated carbon is used in water and air filters. Coal is used for silicon metal for various products such as lubricants, repellents or cosmetics. Most interestingly, coals is used for carbon fibre, a key meterials technlogy of the future with unique properties of light weight and strength. Should coal be given an industrial policy value?

In addition, there is a strategic resource management value. Compare coal to oil, which is much more scarce in India and more strongly embedded in our minds as a strategic resource. Firstly: domestic coal can provide India with a last resort energy security. It is locally available and can be extracted and burned at any time. India should have a strategic reserve in the same way that it has a strategic reserve of oil. Secondly: perhaps it might be better to sell the coal in future than to burn it? Coal prices have risen across the world. Saudi Arabia understood this for oil. It finds it more lucrative to develop renewables for its power needs and sell the oil thus saved to other countries at a high price (refer). As mentioned before, this is an open-thought process. I would appreciate feedback.

Tobias likes to write about solar business models, solar and energy policy and wider issues of sustainability, development and growth.

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India’s largest solar REC project of 33 MW was commissioned last week. The promoter of the plant is Giriraj Enterprises, which has diversified business interests. Sterling and Wilson was responsible for the EPC for the entire 33 MW and will also be responsible for the Operation and Maintenance (O&M) of the plant for the next five years.

The project estimates an average of 53,000 RECs per annum, which will boost the solar REC supply in the market

Unless demand is corrected, the future of the REC market looks grim due to non-enforcement of RPOs

Tamil Nadu seems to be set to launch its own state specific solar REC market, monitored and enforced by the state DISCOM – TANGEDCO

The project is registered under the REC registry as three separate projects of 11 MW, 19 MW and 3 MW. The project was accredited on March 5th 2013 and registered on March 21st 2013.

The project has entered into a Power Purchase Agreement (PPA) with the local Distribution Company (DISCOM) in Rajasthan. The PPA is signed at the Average Pooled Purchase Cost of power paid by the DISCOM (the exact price is unknown). RECs will be availed over and above the PPA. The project estimates an average of 53,000 RECs per annum. This will boost the solar REC supply in the market. Solar RECs are currently trading close to the forbearing price of INR 13,400 per REC. This is in contrast to the non-solar REC market, which is trading at the floor price of INR 1,500 per REC. This difference is largely due to the constraint of supply of solar REC on the market (refer). The promoter plans additional solar REC projects in the coming financial year (exact capacity unknown). This will definitely ease supply issues and is likely to drive down REC trade prices.

The REC market still remains suspect due to the non-enforcement of the RPO on obligated entities. Although there have been a few announcements and notifications from the CERC with regards to enforcements, nothing concrete has manifested. Unless demand is corrected, the future of the REC market looks grim.

On the other hand, Tamil Nadu seems to be set to launch its own state specifc REC market that caters to the Solar Purchase Obligations (refer). The SPOs shall be monitored and enforced by the state DISCOM – TANGEDCO. Since all SPO obligated entities are connected to the grid via TANGEDCO, this gives TANGEDCO more leverage in monitoring and enforcing the SPO. It remains to be seen how the state specific RECs relate to the national RECs. Nevertheless, state specifc REC are likely to be more successful from an enforcement perspective when compared to the national REC market.

This post is an excerpt from this week’s INDIA SOLAR WEEKLY MARKET UPDATE. Sign up to our mailing list to receive these updates every week.

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