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Karnataka announces tariff for grid interactive projects: And why these numbers don’t matter for rooftop PV installations

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The Karnataka Electricity Regulatory Commission (KERC), on 10th October 2013 announced

 

the tariffs for grid-connected projects (click here for the order).

The Karnataka Electricity Regulatory Commission (KERC) has announced benchmark tariffs for grid connected solar projects.
These benchmarks mean very little because they are what they are – benchmarks
For rooftop and small plants, a net metering policy will determine actual tariffs for excess energy fed back into the grid.

The tariff order specifies the benchmark tariffs for grid connected solar PV and rooftop and

 

small solar plants (with and without MNRE subsidy) (See table below).

Type of Solar Plant
Tariff(INR/kWh)
Solar PV plants
8.40
Rooftop and small solar plants
9.56
Rooftop and small solar plants with 30% capital subsidy
7.20

Let’s start with the third category – rooftop and small solar plants with capital subsidy. As BRIDGE TO INDIA noted in this earlier blog post, the Ministry of New and Renewable Energy (MNRE) has stopped disbursements of subsidy – with no clear deadline for reinstating this scheme. So there are likely to be no projects that would come under this category.

In case of the large scale solar PV plants, a reverse bidding process under the Karnataka Solar Policy determines the PPA price. The Karnataka Solar Policy was announced in 2011 and has a target of 350 MW by 2016. The state auctioned 80 MW in 2011 and a further 130 MW in 2013 (Refer the India Solar Handbook, June 2013, BRIDGE TO INDIA). The lowest successful bid during the first phase of the auction was at INR 7.94/kWh and the highest at INR 8.50/kWh. The next round of 130 MW saw bids between INR 5.51/kWh and INR 8.05/kWh. The average successful bid coming to INR 7.06/kWh (see previous blog). The result of both bids show that KERC’s benchmark tariff and actual market prices are highly divergent. The tariff by itself only serves as a benchmark for the reverse bidding process.

In case of small and rooftop solar plants, there is generally no reverse bidding. Although Karnataka has not announced a specific net metering or rooftop policy until date, similar policies announced in other states show that projects under this category are allocated on a first-come-first-serve basis. It is highly unlikely that Karnataka’s distribution companies (BESCOM, HESCOM, MESCOM, GESCOM, CESCOM) will pay rooftop system owners INR 9.56/kWh for feeding in the excess generation back onto the grid. The DISCOMs in Karnataka currently procure power at a price of INR 2.78/kWh.

Sources say that Karnataka is in the process of finalizing a net-metering policy. It is highly likely that the policy goes along the lines of Andhra Pradesh’s net metering policy, where the DISCOM does not pay for any excess generation. Andhra Pradesh’s net metering policy only adjusts solar generation against the user’s current consumption (like a banking agreement).

The KERC order must be taken with a pinch of salt and for what it is – a suggestive benchmark. History has shown that benchmarks and actual market realities are often very divergent. Ultimately Karnataka’s net metering policy shall determine the tariffs for rooftop and small solar systems.

Akhilesh Magal heads the Project Development team at BRIDGE TO INDIA. He likes to blog about the progress of rooftop PV in India.

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Weekly Update: Tamil Nadu to announce an initiative for promoting residential rooftop solar installations

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Tamil Nadu is expected to issue guidelines for subsidy to be provided to residential rooftop systems in the state (refer). This is expected to be similar to the rooftop solar scheme earlier announced in Kerala (refer). Domestic consumers will shortly be able to send their applications online to the Tamil Nadu Energy Development Agency (TEDA), the installers empaneled by the state, like in Kerala, will carry out the installation of systems. However, these systems are expected to be grid-tied and without any storage, unlike in Kerala.

A domestic consumer will have to pay INR 50,000 after getting government subsidies for rooftop solar systems
The key issue with the rooftop solar policy in various states is that they rely on MNRE subsidy scheme
Feed-in-tariff (FiT) based system is better from a customer’s perspective

A subsidy of INR 20,000/kWp will be provided by the state government. This is expected to be in addition to the 30% capital subsidy available from the MNRE. Assuming that the system cost is INR 100,000/kWp, a domestic consumer, will effectively have to pay INR 50,000 after the subsidies. At this price, the payback period for the system is expected to be around five years. For the budget that has been sanctioned for this initiative, around 5,000kWp is expected to be installed in total.
Uttarakhand had earlier announced a policy for rooftop installations but that is based on a generation based incentive and not on upfront subsidy (refer). Gujarat and Andhra Pradesh are also known to be working on a policy similar to that in Kerala and Tamil Nadu.
The key issue with these policies is that they all rely on the MNRE subsidy scheme. In the last one year we have seen that the MNRE scheme has not been working as planned (refer). Therefore, the future of all these policies is linked to the success of the MNRE subsidy scheme, which itself is in doubt. Moreover, it is generally believed and BRIDGE TO INDIA has shown it in an analysis (refer to the report), that a feed-in-tariff (FiT) based system is better from a consumer’s perspective.
There might be a lot of room for an improvement of these policy initiatives but India needs more distributed systems and these policies are already laudable steps in the right direction.
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.
You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.
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How to think about your NSM bidding strategy?

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The RfS for capacity allocations of 750 MW under batch one of phase two of the NSM has been released (refer) and interested developers are required to submit their proposals by 28th December 2013. There are several aspects of the process which will have an impact on the bidding strategy for different developers. In this analysis, BRIDGE TO INDIA gives an assessment of what this might mean. We will continue to analyze more aspects in our blog over the next few days.

Developers can bid for a maximum of 10 projects and 200 MW

CUF limits are fairly lax, at least for generating on the higher side

A capacity of 375 MW has been earmarked for DCR

Aspect 1: Developers can bid for a maximum of 10 projects and 200MW

This means that developers will likely try to diversify their risk profile and have a variance across bid amount across multiple projects. For example, in a hope to get multiple projects with a higher average tariff, a developer might ask for a VGF amount of INR 15m in the lowest bid and INR 17m in the highest. Due to this attempt to find a higher mean incentive in the form of VGF, companies may end up dividing the aimed for capacity into multiple projects, accepting that they end up perhaps not getting the entire 100 MW capacity. Individual project sizes are likely to be small (10-30 MW) and even the most successful bidders will most likely end up with far less than the maximum 100MW. The total number of projects will likely exceed 30.

Aspect 2: The first VGF tranche will only be released after project commissioning

As the developers will need to finance the entire capital cost upfront, it would be preferable to use cheaper short term construction finance (with a solid guarantee of the VGF being released after commissioning) in the form of trade financing or supplier’s credit rather rather than seeking bank loans for the entire amount.

Aspect 3: CUF limits are fairly lax, at least for generating on the higher side

The RfS document has fixed the maximum AC power output and minimum DC power generation. However, there is sufficient room for developers to account for the losses of DC to AC conversion. Also, SECI has mentioned that any excess power generated can also be bought at INR 3/kWh if SECI finds a buyer for this power. Due to this, developers will try to keep the DC side of the project as high as possible to keep the CUF in range. Developers could opt for as much as 15% excess on the DC side as compared to the rated AC capacity . Aggregate project capacity (DC) could theoretically reach 863 MW.

Aspect 4: Projects need to be commissioned within 13 months

A number of projects will be over 50 MW (at single location) and prominent EPC companies with a good track record, like Sterling & Wilson, Mahindra, Enerparc or L&T, will have their hands full. This opens up a lot of room for sub-contracting. Smaller EPC companies could offer specific parts of the EPC services to these larger EPC companies rather than trying to offer turn-key EPC services directly to the developers. Developers will also need to ensure that a certain EPC does not have its hands full before awarding it a project. This can lead to delays.

Aspect 5: A capacity of 375 MW has been earmarked for domestic content requirement

There are a total of 12 domestic cell manufacturers with total capacity of around 1 GW. Most of this capacity is currently lying idle and only a few meet quality requirements of large scale projects. Developers can assume an annual production capacity of less than 500 MW for good quality cells and modules. This means that these manufacturers will have to start their production units very soon and stock their products to cater to the upcoming demand. However, almost all of these companies do not have sufficient working capital. A key factor for developers to tie up Indian supplies will be to make advance payments.

This is a preliminary analysis from BRIDGE TO INDIA and we would like to engage the stakeholders to discuss these and other such aspects of the bidding process in further detail. Also, if you have any concerns with the RfS document that you feel should be taken up among fellow developers or clarified by the competent authority, please write to Jasmeet Khurana (jasmeet.khurana@bridgetoindia.com). We will try to take up common concerns from the industry.

Track BRIDGE TO INDIA’s take on the National Solar Mission here.

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Renewable power innovations in India – the world’s laboratory

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India’s electricity system is a mess. While that is bad for consumers, it is great news for innovators and entrepreneurs who see an opportunity to earn money, to provide a social solution or to do both. Prayas Energy Group, a Pune think tank, now wants to provide more data for such ventures. Its concept is a finalist in the Google Impact Challenge 2013.

India has many different needs, markets and there are many different solutions
There are signs that the market has moved from ideating to tested, scalable solutions
Monitoring and data availability are a challenge

The markets for distributed power solutions are many: wealthy farmers who need power for pumping water, tens of millions of households without access to the grid, telecom tower operators who spend more time and money on energy procurement than on their core business, industries who face rising grid power costs or irregular power supply, and many more.
A host of companies are busy solving these troubles. Mera Gao Power, Husk Power Systems, d.light and Onergy are developing solutions for the rural market – often in the North. Greenpeace and GiZ have established trial village mini-grids. Signs are that some models are now approaching investment grade. In September, when the UN Foundation held a workshop on energy access in Bihar’s dustry capital Patna, it attracted interest from several international investors. Selco, which has set up over 100,000 solar home lighting systems in Karnataka and other states, runs an incubation center to mentor solar entrepreneurs with a social vision.
Telecom towers are another market, where the first wave of pilots (usually a couple of hundreds or thousands of towers) has been completed and solution providers are looking to roll out their concepts. They include companies such as OMC and Applied Solar. Intelligent Energy, a UK-based sustainable technology company whose offering includes fuel cell solutions, has just closed a round of fundraising with a specific view to the rolling out its India business.
Entrepreneurs are also targeting the residential customer market. A new breed of professional solar service providers with international experience and local reach, such as Orb Energy, Peetee Solar in Tamil Nadu or PTL Solar in Kerala, to name just three, has come up all across the country. The Indian start-up Gensol has developed a simple, integrated solar solution for households (1 kW) which is selling well in Kerala. Greenpeace is just running an innovation challenge for new solutions for sustainable irrigation pumps.
One factor that holds back growth in this market is the lack of data on the supply quality. To improve this, the think tank Prayas is developing a reliable database on supply interruptions and voltage levels at consumer locations in India with up to 2,500 Electricity Supply Monitors (ESM) in households, farms, and small commercial establishments.
This is to be combined with an intuitive web-interface that uses GIS to map the data to its locations and enable users to view and download the data of any region over specific time-periods (day, month or year). Consumers, civil society organizations, researchers, regulatory commissions and stakeholders can use this data to increase the accountability of electric utilities. The data can be used, for example, to verify whether the villages electrified through India’s rural electrification program get the mandated 6 hours of daily supply. The initiative is now one of the finalists of the Google Impact Challenge. More information on this can be found here.
Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.
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Weekly Update: Pure-play power producers are losing the solar battle, for now

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According to a Crisil research note (refer), pure-play power project developers in India are finding it difficult to compete for solar projects against investors that have entered the segment primarily to avail the tax incentives. An investor with existing profits in India from other businesses can claim accelerated depreciation (AD) of 80 per cent of the capital costs in the first year, making the project more viable for them.

AD makes sense for companies that have high, taxable profits or are willing to the solar plant as an asset on the balance sheet of the entity making these profits
The difference between the AD and non-AD tariff offered in the bids was more than INR 1/kWh. Many IPPs hope to get new allocations under the NSM
The opportunity arising out of the AD-driven market will be in mergers and acquisitions (M&As)

Barring the National Solar Mission (NSM) and Gujarat allocations, where separate tariffs have been offered for projects not availing AD, a majority of the bids received for solar projects in India are from companies that can avail AD. AD makes sense for companies that (a) have a high, taxable profits in the current financial year and (b) are willing to hold the solar plant as an asset on the balance sheet of the entity making these profits.
Due to these tax benefits, such investors are able to offer much more competitive bids. For instance, in a tender issued by the Tamil Nadu government in January, IPPs such as Welspun and Lanco Infratech quoted a tariff of INR 8.60/kWh (USD 0.14/kWh, EUR 0.10/kWh) and INR 8.20/kWh (USD 0.13/kWh, EUR 0.09/kWh) respectively. However, the lowest bid has been submitted by a non-IPP, Mohan Breweries, offered to supply power at INR 5.97/kWh (USD 0.10/kWh, EUR 0.07/kWh). Similarly, for allocations in Rajasthan, Azure Power (an IPP) quoted a tariff of INR 8.20/kWh (USD 0.13/kWh, EUR 0.09/kWh) while Essel Mining (a non-IPP) bid for a tariff of INR 6.45/kWh (USD 0.11/kWh, EUR 0.08/kWh). In the NSM and Gujarat policies, the difference between the AD and non-AD tariff offered was greater than INR 1/kWh. Many IPPs are now hoping for the new allocations under the NSM.
To gauge the importance of the AD benefit to the Indian solar market, one can look at wind power: When AD for wind projects was discontinued, capacity additions almost halved.
The opportunity arising out of the AD-driven market will be in mergers and acquisitions (M&As). As most of the newer renewable focused IPPs are aiming for public listing of their companies, they have targets for asset holdings within the company at the time of the public listing. Acquisitions will be the easiest way for these companies to accumulate these project assets.
Non-IPP players, after availing the AD benefit will often want to sell a project asset as soon as the lock-in period, as determined by the PPA, is over. Selling the asset will also make sense for non-IPP players as they often have access to more lucrative investment opportunities. IPPs will be able to improve the viability of any acquired project assets by refinancing them using new financing sources and more innovative structuring.
If such an ecosystem for transferring of assets from non-IPPs to IPPs can be created, it will incentivize the non-IPPs to keep the eventual buyer in mind and ensure quality oriented implementation of projects. Overall, it might not be a bad proposition for sector for now.
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.
You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.
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Weekly Update: Global and Indian solar stocks rally as manufacturing finds its feet

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Stock market valuations of major solar global companies have risen significantly in the last two months, beating the respective indices by a significant margin. The share prices of Jinko are up by 61%, Yingli Green Energy by 107%, Sun Power by 40%, Trina Solar by 124%, Renesola by 35% and First Solar by 11%. The share prices for Indian cell manufacturer, IndoSolar, have increased by 73% over the same period. The nadir of valuations that from 2012 are far behind.

Share prices have been influenced by the fact that module prices have stabilized in the past six to eight months after a two year fall

The rise in share prices of of Indian manufacturers has been greatly influenced by domestic factors such as the introduction of DCR

Module prices in India, which had been one of the lowest globally, might actually see an uptrend

The rally in the share prices has been particularly sharp over the last few days. This has largely been driven by the announcement that the US-based Solar Energy Industries Association (SEIA) will issue a proposal to remove anti-dumping duties imposed on Chinese suppliers and that China will remove the retaliatory duties on poly-silicon imports from the US.

Overall, the share prices in the last six to eight months have been influenced by the fact that module prices have stabilized after a rapid two year fall. Also, a large part of the needed consolidation in the industry has already taken place and the increased demand from Japan has been able to absorb a significant part of the excess capacity. Apart from this, new policy targets in China and India have also helped.

The rise in the share prices of the Indian manufacturer, IndoSolar, has been greatly influenced by domestic factors such as the introduction of domestic content requirements (DCR) for an allocation of 375 MW under the National Solar Mission. The stocks might rise further, if anti-dumping duties are announced (unless investors have already priced their expectations in).

The uptrend in these share prices is a very positive development. It means that the industry is expected to return to sustainable, profitable growth. However, it might also mean that prices for modules will not continue to fall as they have during the last years.

Module prices in India, which had been one of the lowest globally, might actually see an uptrend. This has been confirmed to BRIDGE TO INDIA by several EPC companies that have recently closed deals or are in the process of negotiations. The actual landed cost will increase further due to the devaluation of the Indian currency.

Overall, sustainable margins across the value chain are welcome from an industry perspective. BRIDGE TO INDIA believes that price reduction should be driven by technology innovation, scale and fair competition. A stable module pricing regime will also take away the ‘incentive to wait’ for lower prices for developers and end consumers and might encourage sales.

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.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

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Will solar replace coal as the lead power source in India in ten years?

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Today, solar adds less than 1% to the Indian power mix. Coal, by contrast, contributes over 60%. Coal is the lead power source and setting the overall power price. However, as coal is getting more expensive with respect to solar, and since the potential for solar is almost without limits, solar can become the lead power source in the next ten years.

The cost difference between a kWh of coal and solar has reduced from a factor of 7x in 2011 to only 1.8x in the summer of 2013.

Solar is the only currently commercially available energy source that has the theoretical potential to replace coal and satisfy India’s long term power requirements

But can an infirm power source like solar replace a firm one like coal as the backbone of the Indian energy mix?

India’s economy is heavily dependent on coal power. Most of the coal is mined in India, but the share of imports is increasing fast. In a recent report, the Pune think tank WISE estimates that coal production in India will peak in the early 2030s. While this may seem a far off point in time, it impacts investment decisions already today as coal plants have expected operational lives of 40 years and more. An increasing dependence on imported coal will further push the current account deficit to at least 13% by 2030, according to the report.

The cost of power from imported coal is pushing towards INR 4/kWh. This does not include the cost of externalities. (WISE estimates that including those and subtracting hidden subsidies would bring the cost of coal to almost INR 13/kWh for domestic and over INR 15/kWh for imported coal.) Solar from large, grid connected power plants is now offered at INR 7/kWh (wind is even cheaper at INR 3.5 to 5/kWh). In 2011, coal-fired Ultra Mega Power Plants (UMPP) signed PPAs with tariffs around INR 2.8/kWh and CERC estimated the cost of solar to be as high as INR 18/kWh. The differential has thus reduced hugely over the last three years, from INR 15.5/kWh to INR 3/kWh (for imported coal). This is a game-changing fact.

In addition to this shift on the cost side, there are persistent concerns about energy availability and security in India. The power deficit hovers around 10% (base load). Importing ever more fossil fuels to close this gap (under conditions of rapidly rising power demand) will increasingly put India at the mercy of volatile global markets and individual exporting nations. The grid is another concern: Although India is making progress in connecting villages to the distribution grid, the country is still hundreds of millions of people away from supplying reliable grid power to every household.

Solar power is the only currently commercially available source of power that could both provide enough power from within the country to meet India’s rising demand and in addition offer distributed solutions that are less dependent on grid extension. In addition, solar plants can be built relatively fast and at any size, while coal plants are often mired in all the challenges of large infrastructure projects in India, including bureaucracy, social and environmental concerns, as well as compliance, land acquisition and water usage issues. I do not think that land is a limiting factor for the spread of solar, as less than 1% of India’s land would suffice to power the country with solar plants.

As a result, solar could replace coal as the backbone of the Indian power supply. If, how and when this will happen, will depend on four main considerations:

The long-term cost trajectory of solar power vs. coal. The cost of solar might fall to around INR 5/kWh in the next couple of years. In the longer term the cost will likely fall further, but this will depend on future innovations in materials used, new production technology and efficiency improvements. At the same time, the cost of coal might rise further or stabilize (shale gas in China and the US could play a key role). However, whereas the long-term cost for solar is driven continuously downwards by the industry itself, the cost for fossil fuels as limited, non-replenishing resources depends on much more fickle global, regional and local supply and demand dynamics.

The cost of balancing and storage. Solar is a relatively infirm power source (although far more predictable than wind), which is not always available. As a result, a high share of solar in the energy mix will incur additional costs in balancing demand and supply. This is a complex topic and we are currently working with Prayas and IIT Mumbai on understanding it. Some key issues are: the quality of the grid, the availability of storage (e.g. pump hydro or the use of distributed storage opportunities such as irrigation pumps, inverters or- in the future, perhaps – electric vehicles), the availability of balancing power generation (especially gas-based), the development of smart grids and demand management systems, and perhaps the liberalization of power prices and the creation of a new grid code. On the other side, there could be large savings as the mining, port and railway infrastructure required for a massive scale-up of coal-fired power generation would not need to be built.

If and how externatilites are measured. While solar has some negative externalities in terms of e.g. emissions in the manufacturing process, these are significantly lower than for coal. Coal externalities are global (greenhouse gas emissions) and local (soil degradation, water usage, pollution, etc.). The way coal is currently mined, transported and burned in India is highly harmful to the environment and the people. Indian politics might currently not place a high priority on these externalities vis-à-vis the more pressing concerns of generating enough power. However, a look at China’s development path suggests that this may soon change.

If and how energy security is measured. Importing more and more fossil fuels will be a costly decision. The US, which for the last decades was highly dependent on imported oil, has spent large amounts on building and securing the supply routes. This included military and foreign policy decisions that often stood at odds with the country’s other interests and in turn created unpredictable follow-up costs (including wars). India’s geostrategic environment, the emergence of China and the fact that many reserves are already claimed or developed, will make it difficult to follow that path, even if the country wanted to. So India would likely depend on fossil fuels with only a very low degree of control over supply amounts, security and prices. This would incur its own set of ‘balancing’ costs in terms of high current account deficits, risks of political crises and stunted economic development.

What will this mean for long-term power prices in India? Currently power prices are driven upward by rising costs of fossil fuels, by inefficiencies in the transmission and distribution system and by past political decisions on power pricing. As a result, solar has come close to parity. It is likely that prices will continue to rise for a period of ten years or so, in a mid-term price ‘hump’. During this time, the power infrastructure would need to change from a centralized one to a more flexible central/decentral one. Post that, when solar becomes the lead power source, average power prices would likely fall. This process of transition should be politically actively managed to ensure that energy security is always guaranteed, that there are no infrastructure bottlenecks and that power prices do not become excessively volatile at any point in time.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

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A need, but not yet a market? What holds the Indian private PPA solar market back?

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There has been much talk about the great transition in the Indian solar (power) market moving from a centralized, policy-driven market, to a distributed, private PPA market. In fact, we have ourselves added to the chorus (see our various blogs and reports). While we see some first projects in that space, however, the breakthrough is yet to happen.

Is the pain not strong enough? Or the gain not attractive enough?

There is a larger question about India as an infrastructure market and the country’s readiness for long-term solutions

Diesel replacement with storage might be a better way to play to short-term needs

The first question, one encounters when interacting with a power consumer to whom one offers solar, is, of course: what can I save? Even in very favorable locations (high irradiation, high grid tariffs), the answer will rarely be more than INR 1/kWh on a levelised basis, assuming the solar solution provider has market return expectations and a sound financial model, and there are no subsidies involved. It is interesting to the consumer, but not a revelation. And then there are hassles: Long term contracts to be signed, construction to be done. The savings are often insufficient to trigger immediate action. While this is changing- power prices are rising fast, while solar costs are stabilizing- it is anyone’s guess, when the savings are substantial enough to move solar to the top of more power customers’ agendas.

However, even if savings improve, the return on investment time for going solar will drop from, say, eight years, to four years. In the highly dynamic Indian market environment that is still a long time. In four years, companies and entire industries grow, falter or change entirely. The macroeconomic (e.g. rupee conversion rates, cost of fossil fuels) and political frameworks are subject to frequent, incisive ruptures. As a result, flexibility is valued and cash often prioritized over longer term benefits. There is an inbuilt myopia that is further aggravated by insecurities such as concerns about the enforcability of contracts or limited availability of information.

To put it into context: the reason why diesel gen sets are a hugely successful product in India, despite high costs and pollution, is that they offer great flexibility and costs are pushed into an uncertain future. The user only pays if and when there is a power cut. It is a typical ‘Jugaad’, or patchwork, solution- not a structural one.

In future, there will be a market for long-term infrastructure investments like solar in India. The fundamentals of rising power tariffs and diesel prices, the energy deficit and stable solar costs will make going solar attractive enough to get consumers excited. At the same time, it is probably a good idea to look at the already existing and profitable power markets around diesel and develop solar solutions targeted at them. Here, storage will play a key role.

Read more about the Private PPA market here.

Tobias Engelmeier is the Managing Director at BRIDGE TO INDIA.

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Weekly Update: Revised guidelines for batch-I of phase-II of the NSM released; Many key concerns have been addressed

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The Ministry of New and Renewable Energy (MNRE) has released its revised draft guidelines for a capacity of 750 MW of solar PV under batch one of phase two of the National Solar Mission (NSM) (refer to this document for the latest draft).

SECI wants to sell solar power to state distribution companies

States that are already meeting their RPO targets may not be interested in purchasing power from SECI, whereas for other states that don’t have a dedicated state policy, this will be one of the cheapest options

Out of a total capacity of 750 MW, a capacity of 375 MW will have a DCR

The Solar Energy Corporation of India (SECI) will carry out the allocation process, provide viability gap funding (VGF) and sign the power purchase agreements (PPA). SECI wants to sell the solar power to state distribution companies. It has now decided to first obtain confirmation from them on their willingness to do so, prior to issuing a Request for Selection (RfS) for the developers. This process is currently under way. The RfS document is expected to be available from 15th October to 21st November 2013.

This process addresses a key concern for developers and helps them better choose locations for their projects. The concern was also raised in an earlier blog of ours, commenting on the first draft of the guidelines (refer).

Most developers look to high irradiation locations in the west and south of India. However, considering that states like Rajasthan, Tamil Nadu, and Karnataka are already meeting their RPO targets, their state utilities may not be interested in purchasing power from SECI. On the other hand, states like Maharashtra, Bihar, and Haryana that do not have a dedicated state policy in place and fall short of meeting their solar RPO targets might want to buy solar power from phase two of the NSM. It will be one of the cheapest options for them.

The much-awaited ambiguity surrounding the Domestic Content Requirement (DCR) has also been cleared. Out of the total capacity of 750 MW, a capacity of 375 MW will have a DCR. At the time of bidding, the developers can either opt for ‘DCR’ or ‘Open’ or both categories; however, separate bids have to be made for DCR and non-DCR projects. It is expected that the tariffs for projects with DCR will be slightly higher. Indian cell manufacturers such as IndoSolar, Webel and Jupiter are expected to benefit the most. International suppliers such as ReneSola, which have contract manufacturing in India, are also likely to benefit.

The VGF mechanism is largely the same as defined in the previous draft, which was released earlier in the year (refer). The difference concerns the disbursement of the incentive. The VGF will now be released 50% on successful commissioning of full capacity and the remaining 50% over a period of five years from the date of commissioning of the project, provided that the project meets the requirements for generation (i.e the Capacity Utilisation Factor, CUF). This performance-related approach is new. In the earlier draft, 25% of the incentive was to be handed out after the delivery of 50% of the project equipment, another 50% on the successful commissioning of the full capacity and the remaining 25% was to be given after one year of successful commissioning.

This change will address the issues raised by BRIDGE TO INDIA in the October 2012 edition of the India Solar Compass (refer) and a blog that we had written after the announcement of the draft guidelines (refer).

The last date for the submission of interest (along with the relevant guarantees) is 29th November 2013. The minimum project capacity has been fixed at 10 MW and the maximum at 50 MW. A single company can, however, submit an application for a maximum of three projects at different locations, with a maximum aggregate capacity of 100 MW. The developers are expected to attain financial closure within 210 days from the date of signing of the PPA and the project has to be commissioned within 13 months. A waiting list of up to 100 MW will be maintained by SECI up until the deadline for financial closure, at which point SECI may allocate new projects, if any of the previously allocated projects fail to achieve financial closure. Developers will have to provide Bank guarantees (BG) and Earnest Money Deposit (EMD) even for the waiting list.

The document also stipulates penalties for delays in completion of the projects. In case of a delay of more than one month, SECI shall en-cash 20% of the total Performance Bank Guarantee (BG) on a per-day-basis and proportionate to the capacity not commissioned in lots of 10 MW each. In case of a delay of more than one month and up to three months, SECI will en-cash the remaining BG in the same manner. Finally, in case commissioning is delayed by more than three months, the pre-fixed levelized tariff of INR 5.45/kWh shall be reduced at the rate of INR 0.50/kWh per day of delay for the delay in such remaining capacity, which is not commissioned. Effectively, any project that is delayed beyond three months will become unviable.

On the bankability front, the draft also calls for the NVVN to step in, in case there is any delay on SECI’s part with respect to payments. To avoid a default from SECI, the developers might be required to sign short-term PPAs with NVVN, which in turn, will sign short-term Power Sales Agreements (PSAs) with interested state utilities. Even though this increases the complexity, we believe that this provision safeguards the interests of the developers in case a given state distribution company does not honor its commitment towards SECI and SECI in turn is unable to honor its commitment to the developer. The document states that as and when SECI is fit to carry out its functions, the short-term contracts will be terminated and long-term contracts with SECI will become effective. All the PPAs and PSAs (short-term with NVVN and long-term with SECI) will have the enabling provision for such a changeover so that the transition from NVVN to SECI is smooth and neither the solar power developers nor the buying entity is affected in this process.

All in all, the revised guidelines have addressed many concerns that were voiced after the release of the previous draft of these guidelines. The PPAs for these allocations are expected to be signed around 27th February 2014. This means that with a 13-month timeframe, these projects are to be commissioned around March 2015.

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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Weekly Update: Andhra Pradesh to sign PPAs for a capacity of 140MW

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Less than planned for, but at least a start: As per the Andhra Pradesh Transmission Corporation (APTRANSCO), 60 MW of PPAs have been signed in the state until now and around 80 MW more are expected be signed soon. The tariff will be INR 6.49/kWh (EUR 0.08/kWh; USD 0.10/kWh).

Andhra Pradesh is looking to allocate a revised target capacity of 350 MW.

Considering to the large shortfall with respect to the earlier goal, the state has offered PPAs to any further project developer who wishes to set up the same tariff of 6.49/kWh

Andhra Pradesh expected to extend the deadline and allow more developers to evaluate the risks and tariff conditions

The state of AP was initially looking to allocate a capacity of 1,000 MW. However, following a mid-way revision of tariffs, several developers withdrew their interest (refer). Subsequently the target was revised to 350 MW. Now, due to additional issues such as the creation of Telangana and the depreciation of the Indian Rupee, only a total capacity of 140 MW will likely to sign the PPAs under the current allocation process.

In a previous blog, we had already stated that some project developers would opt out of the Andhra Pradesh PPAs (refer). This is partly because of concerns related to the state’s political split and partly due to projects no longer being viable in the wake of increased component costs (driven by the rupee’s devaluation).

Recognizing the large shortfall with respect to the earlier goal, the state has offered PPAs to any further project developer who wishes to set up projects at the same tariff of INR 6.49/kWh. Yesterday was the deadline. Around 5 developers are known to have expressed interest. According to APTRANSCO, these applications amount to an additional capacity of as much as 500 MW. The new project sizes are typically around 100 MW, which could make them viable at the given tariff. Issues, such as land acquisition and grid evacuation capability will reduce the final capacity for which actual PPAs will be signed.

To address concerns of developers, APTRANSCO has incorporated a clause in the PPAs that states that in case the state DISCOM is restructured, its successor will fulfill the obligations of the PPA.

BRIDGE TO INDIA expects that Andhra Pradesh will extend the deadline to allow more developers to evaluate the risks and tariff conditions. We believe that this could further increase developer interest.

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.

You can view our archive of INDIA SOLAR WEEKLY MARKET UPDATES here.

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