Month: August 2014

Karnataka Electricity Regulatory Commission (KERC) issued an order on August 18th 2014 exempting open access charges for solar projects within the state (refer). Karnataka is the first state in India to give a long-term visibility on the open access charges. This is a very good precedent. Uncertainty around grid charges is a key deterrent for a healthy development of open access solar transactions in India. The highlights of the order are:

Wheeling, banking and cross subsidy charges are exempted for open access and captive solar projects

This exemption is provided for 10 years from the commercial operation date (COD) for all projects commissioned before 31st March 2018

Captive solar plants availing REC benefits are liable to pay wheeling, banking and cross subsidy charges as per KERC order on 9th October 2013 (refer)

Most of the 41 MW utility scale solar plants currently commissioned in Karnataka are selling power to the state distribution companies through the state solar policy. The open access market for solar has not yet taken off in Karnataka. KERC’s tariff order for solar plants dated 10th October 2013 exempts wheeling, banking and cross-subsidy charges up to March 2018 while the current order provides better clarity and exempts the charges for a ten year period from commissioning of the plant. Currently, the open access charges being levied in the state for other renewable sources are as follows:

 
Percentage of energy injected into grid

INR/kWh

Source
Wheeling charges (for wind and mini-hydel)
5%

–
KERC order on “wheeling & banking for renewable energy generators” dated 9th October, 2013Banking charges (for wind and mini-hydel)
2%

–
Cross subsidy chargesIndustrial (11/33 kV)
–

0.31
BESCOM tariff order 2013-14Commercial (11/33 kV)
–

1.74

Assuming these charges are levied on solar projects for its lifetime, the solar PPA tariffs would increase by INR 1.8/kWh for industrial consumers and INR 2.0/kWh for commercial consumers as opposed to exemption for first ten years of operation. The change is different for commercial and industrial consumers due to different cross subsidy charges for both consumer categories.

Long term foresight on open access charges reduces the risk in cash outflow due to uncertain charges which in turn helps investors predict their returns from the project with more certainty. Developers can secure financing for open access projects more easily leading to better capacity addition of solar power through open access. This can boost investor confidence and lead to healthy growth of solar industry in the state.

The clarity on open access charges makes Karnataka a very attractive destination for solar projects with three different avenues for solar capacity addition. Firstly, plants for third party sale of power and for captive consumption will likely to come up to cater to the large number of commercial and industrial entities in the state. These consumers are interested in buying solar power at a price that is lower than the grid tariff. Secondly, the state policy target was increased to 2,000 MW by 2021 out of which 150 MW is under construction and bidding was recently undertaken for an additional 500 MW. Third, the rooftop segment will get a significant boost with the introduction of net metering policy expected later this year. Such a multi-directional approach was also adopted by Gujarat which went on to become the leading state for solar capacity. This brings us to the question, is Karnataka the next big destination for solar?

Srikant Kumar – Analyst , Project development at BRIDGE TO INDIA

The new Indian government seeks to provide all Indians with reliable 24×7 power before the next elections in 2019. According to estimates, there are still 300-400 million Indians without access to electricity.

The government has two broad options in trying to meet the target. It can extend the grid to un-electrified households (and ensure there is sufficient power supply in the grid) or it can develop distributed solutions, typically micro-grids

In the end, determined by the location and accessibility of a household, it will be a mix of both the approaches

But where should the main thrust of India’s electrification plan be?

 In comparing grid extension and micro-grids (including solar home systems), the following factors should be kept in mind:

Speed of deployment: This is a developmental question. And the essence in this case is timeliness. Without access to power, development will be stalled. In certain places, extending the grid can be implemented faster, in others, a micro-grid implementation will be faster. On the whole, however, the fact that India still has so many un-electrified households can be tallied against the dominant grid electricity provision model. The micro-grid model is still largely untested

Cost of (reliable) power per kWh: For a comparison of the landed cost of power (LCOP), the generation and transmission/distribution costs need to be compared. Typically, grid power can be generated at a lower cost (more fuel choices and scale). However, this power needs to be transported to the point of consumption. This requires building the last mile infrastructure (distribution grids). Also, in certain parts of the country transmission and distribution losses are above 30%. For micro-grids, the key cost driver is the challenge to provide uninterrupted power as this might require expensive storage solutions.

Cost assessments: Micro-grid power based on a mix of solar, wind, biomass, diesel and storage for a 10 MW system could cost around INR 12-15/kWh. The cost of new coal power is INR 6/kWh. By adding 20% T&D losses, it amounts to INR 7.2 kWh, which is approximately half the generation cost of mini-grid power. A deeper analysis would need to take into account, the cost of building new distribution infrastructure and define a rough cut-off point, beyond which it is cheaper to go for a micro-grid.

Climate effect of each choice: This depends on the technology used. Renewable energy technologies (and also diesel gen-sets) lend themselves more to smaller solutions as needed in micro-grids. Fossil (mainly coal) powered plants to be efficient need to come in minimum sizes that make them useful only for grid power. Thus, micro-grids – typically built around renewables, plus perhaps diesel and storage – are more climate friendly.

If we assume that micro-grids produce entirely clean power (no diesel), then they reduce emissions significantly. India, because of its high share of coal, has a power specific factor of 1.33 kg of CO2/kWh. If we assume that 300 million people will get access to electricity and then consume around 10% of the power of – by global standards very low – Indian average (680 kWh/year), the carbon savings of mini-grids will be in the range of 27 million tons per year. This is about 1.3% of India’s emissions.

Further (smaller) factors: At some point in the future, micro-grids could be connected to the grid and essentially become tail-end power plants. In that case this would help stabilize the grid and reduce losses. Micro-grids would also provide a certain degree of local autonomy and employment. They could be termed as more “democratic”.

 While comparing mini-grids and grid extension it is important to keep in mind that these are fundamentally different in several ways: while building the grid is an established activity with a strong ecosystem of engineering and finance and clear commercial terms and tasks; micro-grids are still a relatively new model. Currently there are quite a large number of players testing the best way to commercially and technologically implement them (and operate and maintain them). Success will depend crucially on whether a certain degree of scalability through modularization can be achieved. Lenders and investors need to get convinced.

Also, grid extension is an infrastructure play, whereas micro-grids rely crucially on business-models that provide the right incentives for ongoing operations. They are a consumer solution product.

From a political point of view, it seems easier to plan and implement a known grid extension scheme with large individual projects which can be directly controlled and allocating funds becomes easy. Creating micro-grids, on the other hand, requires much more patience and analysis. If the underlying business models are not strong, then deploying large funds will merely create short-term bubbles (perhaps comparable to some microcredit schemes).

However, given the persistent failure of earlier attempts to provide grid power to around a quarter of its population through the power grid, perhaps it is time to try something new?

 Tobias Engelmeier is the Director and Founder at BRIDGE TO INDIA. Twitter: @TEngelmeier

In a major relief to the solar sector, the Ministry of Finance (MoF) has not acted upon the recommendations made by the Ministry of Commerce (MoC) for imposing anti-dumping duties on import of solar cells and modules. No official communiqué has been issued by the MoF yet but the deadline of 22nd August 2014 for acting upon the recommendations has gone by.

Government to focus on growing the market and thus promote domestic manufacturing

Indian government can focus on its ambitious plan for the industry

NTPC is on board and planning to build over 3000 MW of solar capacity in the coming years

The Ministry of New and Renewable Energy (MNRE) under the current minister, Piyush Goyal, is known to have played a key role in ensuring that the duties were not enforced. In an interactive session held on Friday (22ndAugust 2014) between the new minister, ministry officials and stakeholders from the developer and manufacturing community, a very clear message that came out was, current capacity of domestic manufacturing is not large enough to cater to the ambitious plans of the new government and that the government is not willing to wait for domestic manufacturing to grow before increasing the size of the market. Instead, the government is going to focus on growing the market and using that to promote domestic manufacturing. BRIDGE TO INDIA believes that such a pragmatic approach is best for the market.

Now that the anti-dumping hurdle is out of the way, the Indian government can focus on its own ambitious plans. During Mr. Goyal’s speech on 22nd August 2014, it became apparent that, he considers the current policy framework and industry strength does not match up to the solar installation targets that the government is keen to achieve. The minister conveyed that the new government wants to see 5-7 GW of additional solar PV installations per year.

In a bid to bypass the perceived shortcomings in the current market, MNRE is mooting the concept of Renewable Generation Obligations (RGO) to bring the large traditional power generators into the solar market. The National Thermal Power Corporation (NTPC), that shared the dais with the ministry officials in the meeting, has already been brought on board and is planning to build over 3000 MW of solar capacity in the next years.

On behest of the MNRE, NTPC has agreed to use domestic modules for their projects. Due to the limited cell and module capacity available in the country, NTPC will start off with a 250 MW project. A tender for procurement for this project can be expected as early as next month.

If India makes a move towards an RGO model to drive solar demand, it might prove to be bad news for independent power producers (IPPs) in the utility scale solar market. This opinion was re-iterated by the developers present at Friday’s meeting who called for a more ‘democratic and organic’ growth in the market by limiting the capacities constructed by a single player. BRIDGE TO INDIA believes that the solution to this problem also lies in growing the solar pie, which the government appears to be aware of.

The rooftop and off-grid market were not discussed in detail in the meeting and we still do not know the government’s perspective on them. The minister has, however, promised to ensure that the funds from the National Clean Energy Fund (NCEF) would be directed to MNRE. Until now, the funds have almost completely been transferred to offset India’s fiscal deficit. We still await details on how the Indian government wants bring solar into the off grid market to power the millions of unserved households.

In his Independence Day speech on the 15th of August, Prime Minister Narendra Modi invited Indian and international companies to come to India to manufacture, or in his words “make in India”. A decision on anti-dumping duties (ADD) is due this Friday (22nd August). On the face of it, it might seem that ADD supports “make in India”, however, this is a fallacy. In reality, ADD will hamper manufacturing of solar cells, modules, inverters and other Balance of System (BOS) components in India because it will set back the market as a whole.

The prime driver for solar manufacturing in India is the domestic market size

The imposition of ADD will shrink the market size by over 67% in the next year

In order to encourage domestic manufacturing the focus should be on reducing, not increasing the cost of solar in India

Indian cells and modules manufacturing requires investments in scaling up to become globally competitive. The predicted growth and size of the domestic market would be the prime driver of investment in solar cells and modules manufacturing. In 2013, India was ranked 12th globally in terms of cumulative installed capacity. The installed base is significantly smaller than in Germany, China, Japan and USA.

Figure 1: Cumulative installed solar capacity by 2013[1]

According to BRIDGE TO INDIA’s estimates, an imposition of ADD will result in an increase in the cost of solar power by about 10%, making many projects unviable. As a result, India would only add around 500 MW in the coming year. This is a reduction by over 67%.[2] Such shrinking of the market will have an adverse long-term impact not only on cells manufacturing but also on modules, inverters and other BOS manufacturing.

Large global inverter manufacturers such as ABB, Bonfiglioli, Advanced Energy (erstwhile Refusol) and TMIEC (erstwhile AEG) have decided to manufacture in India without any protectionist measures or incentives. These manufacturing capacities have been set up due to a belief in the strong market growth in India. A policy measure in the form of ADD will affect these investments in India and hamper investor confidence. This is just one example of how protectionism derails the “make in India” proposition.

The levying of ADD is not the answer to the inherent problems of domestic solar cells and modules manufacturers. Instead, domestic cells and modules manufacturing should be supported by incentivizing them directly based on a sound long-term business plan, and by providing clarity on the future demand through policy stability. The government should focus on measures that reduce the cost of solar power in India. This would bring all interests in the market into alignment and help the market grow. Incentives could include- making available low cost power and land without encumbrances, providing a rebate on excise and customs duties or providing cheap loans.

[1] Source: PVPS Report Snapshot of Global PV 1992-2013, http://bit.ly/1fwoM3s

[2] Refer to our India Solar Compass July 2014 edition, http://bit.ly/1hLVfRD

Mudit Jain is a consultant at BRIDGE TO INDIA

By tomorrow, Friday, August 22nd, the Indian Ministry of Finance will notify its decision on anti-dumping duties (ADD) on solar cells and modules. If the duties are imposed as suggested by the Ministry of Finance, they will have a highly disruptive effect on the Indian solar market. Employment in this sector is likely to suffer a major setback, as significant number of jobs would be lost downstream (EPC, installation, project development, maintenance), as compared to the figures that would be protected upstream in the fairly automated manufacturing processes. Given that job creation is a measurement index for the growth of Indian economy, this is worth considering.

By a rough estimate, solar sector creates around 10-11 jobs per MW of installed capacity

A reduction in installed capacity through ADD by around 20% would reduce solar jobs by ca. 23,000

Many more jobs are created in installation than in manufacturing

According to the International Renewable Energy Agency (IRENA) 13,60,000 jobs were created globally in the solar PV industry by April 2014. This is based on a cumulative installed capacity of 136 GW. In the US, according to the National Solar Jobs Census, a total of 1,42,000 jobs have been created for an installed capacity of 12 GW, in the past. Therefore, by a rough estimate, around 10-11 jobs are created per MW of installed solar PV capacity. If we look at the Indian market, for an installed capacity of 2.7 GW, this would indicate a contractual and part time employment figure of around 27,000 people. The number is probably conservative, since the construction and maintenance processes in India are typically more labor intensive than in developed economies.

Before ADD appeared on the radar screen, BRIDGE TO INDIA predicted that India’s grid connected solar market would reach 4.3 GW by mid-2015. With the prospect of ADD, however, we have revised this figure downwards to 3.2 GW. This means that even if there is no net loss of jobs per MW, due to the imposition of duties, opportunity for around 11,000 jobs would be scuttled. Now given that 27,000 jobs were supporting a capacity addition of around 1 GW per year for the past two years, a reduced growth of just about 500 MW over the next one year, as predicted by BRIDGE TO INDIA [read more in our India Solar Compass, July 2014 edition], would additionally result in the loss of existing jobs.

We estimate that a capacity of 1,050 MW, for which PPAs have already been signed, is likely to be scrapped or significantly delayed. Going forward, several states might want to revise their capacity addition targets downwards. Also, parity driven capacity additions, both rooftop and ground mounted, were expected to be major contributors for future growth. With the imposition of duties, this market will suffer a set-back for at least a couple of years.

According to BRIDGE TO INDIA’s estimates, the Indian solar market would have grown to a cumulative capacity of about 16.5 GW by 2018. This means that around 1,65,000 solar jobs would have been created in the country by 2018. On an average, around 30,000 jobs would have been created every year for the next four and a half years. But, if we assume that the 16.5 GW number by 2018 would be revised downwards by around 20% to 13.2 GW, due to the imposition of ADD, that would lead to a shortfall of around 23,000 jobs. In comparison, manufacturing facilities with 1 GW of module manufacturing capacity per year create only about 500 jobs.

Jasmeet Khurana is a Consultant at BRIDGE TO INDIA.

After a long delay, the Ministry of New and Renewable Energy (MNRE) has finally received a budgetary allocation to go ahead with sanction of 30% capital subsidy for a 25 MW rooftop solar capacity under the Central Financial Assistance (CFA) scheme (refer). This allocation has been deferred for a considerable time period, leading to adverse impact on the sector. Since there is already enough back-log of projects to be sanctioned, new projects are unlikely to get any sanctions.

Due to budgetary constraints MNRE has reduced the maiximum project size to 100kW

The restricted availability of subsidies, reduces effectiveness of the subsidy process

Industry stakeholders believe that the subsidy mechanism in its current form is doing more harm than good 

In the guidelines for phase two of the rooftop subsidy scheme, released in June 2014 (refer), MNRE had fixed the maximum project size eligible for the subsidy at 500 kWp. However due to budgetary constraints, this criterion has now been reduced to 100 kWp. Also, residential installations have not been included within the scope of this scheme.

BRIDGE TO INDIA and many other industry stakeholders believe that the subsidy mechanism in its current form is doing more harm than good for the rooftop solar market in India. The market for unsubsidized rooftop solar installations in India is already much larger than 25 MW in a year. It already makes sense for many commercial and industrial customers to invest in solar just based on fundamental commercial merits. The accelerated depreciation benefit can make it even more attractive. According to BRIDGE TO INDIA’s market model, if there is no subsidy available for rooftop solar, the market would add around 47 MW in 2014 and grow at an impressive pace of 66% (CAGR) until 2018 to achieve a cumulative rooftop solar capacity of around 1.6 GW.

The rooftop subsidy scheme stifles the development of this market by creating an expectation among power consumers that often cannot be met. In the past, the subsidy has not been disbursed in many cases. Thus, everyone is waiting for a subsidy that may never come and the market is put on hold.

Though most observers agree that solar will play a large role in India’s energy supply, it is important to note that timing is vital in the transition process. Whereas, we have witnessed that project delays are the main concern prevalent in the Indian solar market.

The restricted availability of subsidies also comes at a cost. While unsubsidized grid tied rooftop solar installations are priced at around INR 75 (USD 1.23)/kWp for an average 30 kWp system, the installers with access to subsidies are quoting INR 90 (USD 1.48)/kWp pre-subsidy. Post 30% subsidy, these systems are then priced at around INR 65 (USD 1.07)/kWp. Select channel partners are netting the difference between INR 90 (USD 1.48)/kWp and INR 75 (USD 1.23)/kWp. The justification often given for this extra cost is the risk these channel partners are taking with regard to disbursement of the subsidies. Overall, this reduces effectiveness of the subsidy process.

BRIDGE TO INDIA recommends that the government should scrap the MNRE rooftop subsidy mechanism altogether and instead use these funds for cheaper and more accessible financing for the sector or even expanding the scope of (SECI) rooftop scheme. These options would strengthen and create market enabling mechanisms for promotion of solar installations.

Mr. Tarun Kapoor, Joint Secretary for the Ministry of New and Renewable Energy (MNRE) announced at a conference last week that India might look at following Germany’s lead by going ahead with fixed Feed-in Tariffs (FiT) as opposed to the current system of reverse auctions. The government is considering this in order to rapidly expand India’s solar program.

The FiT based approach may result in cutting down project development cycle

MNRE needs to specificy clear criterions to lend transparency and certainty to the market 

A location adjusted FiT structure may ensure a wider spread of solar projects across the country

FiTs can bring in a sense of stability to the Indian solar market that has, in the past, seen record low tariffs that most people in the industry consider unviable. Now that equipment prices have largely stabilized, BRIDGE TO INDIA believes that a move supporting the FiT based approach may prove to be very positive for the sector. It dramatically reduces the project development cycle and cuts down on the time and money spent on working through the complicated bidding processes. FiT approach will also prevent players with little experience in solar to usurp the auctions and create bad precedents. An output driven tariff structure is more preferable than upfront capital subsidies or viability gap funding (VGF). This tariff structure will create stronger incentive for project developers to focus on project quality and rigorous operational processes.

On the other hand, there are various challenges to implementing FiTs. To ensure that solar projects get evenly distributed throughout the country and to avoid stress on the transmission network, an elaborate location based FiT structure needs to be specified taking into account local factors like irradiation, cost of land, power demand-supply situation etc. This policy has been successfully followed in wind and can be easily replicated in solar. However, MNRE needs to lend transparency and certainty to the market by specifying very clearly – availability of funding, expected capacity allocation and process for allocating capacity. Again, we can derive useful learning from the wind experience where uncertainty in PPA execution in some states caused avoidable distress for project developers and lenders.

A location adjusted FiT structure may ensure a wider spread of solar projects across the country but at an additional cost. The central government will need to provide financial aid to states for buying more solar power or give its backing to the PPAs signed by the financially stressed state utilities.

Anti Dumping Duty (ADD) update

The Minister for Commerce and Industry Nirmala Sitharaman clarified in the upper house of India’s Parliament that an ADD between USD 0.11 to 0.81 is likely to be imposed on modules imported from China, Taipei, Malaysia and USA (‘subject countries’). The Ministry of Finance is evaluating the proposal (click here). The government indicated that the duties collected might go towards providing subsidy to projects affected by ADD. BRIDGE TO INDIA has maintained that ADD would cause significant damage to the Indian solar market. And any convoluted move to subsidise the affected projects is going to further distort the market and create a bureaucratic nightmare. See our popular infographic here.

Akhilesh Magal is a Consultant at BRIDGE TO INDIA.

Going from a nascent market with a mere 22 MW of total installed PV capacity in 2011 to over 2.5 GW in 2014, the Indian solar market has held up to its promise for being one of the most exhilarating markets. This has been achieved largely due to the flagship JNNSM scheme of the Indian government as well as state policy driven projects. India added 171 MW of PV capacity in the last quarter, taking the total installed capacity for utility scale, grid-connected PV to 2523 MW (as of 18th June, 2014). In-depth details, data and analysis is available in our latest edition of the India Solar Compass (July 2014 edition) here.

India added much lesser solar capacity in FY 2013-14 as compared to FY 2012-13

The difference can be attributed mainly to absence of capacity addition under JNNSM during the last year

However, the non-policy market gained momentum and a capacity of around 300 MW was added outside of policy-driven feed-in-tariffs in the last four quarters

The JNNSM Phase-II draft was released in December 2012, but final calls for bidding happened only a year later in December 2013 and the PPA’s were signed only in March 2014. Uncertainties over trade disputes regarding domestic content requirements and indecisiveness on how to take the JNNSM forward contributed to the delays. Additionally, a sluggish economy, talk of anti-dumping duties, a volatile currency and looming general elections ensured a lacklustre year with just 674 MW of capacity addition during the last year. In comparison, 822 MW capacity was added between July 2012 and June 2013. While state policy driven projects took a backseat, projects geared towards RPO fulfilment contributed a major share in last quarter’s capacity addition taking the net installed capacity in the last quarter to 171 MW (see Figure 1).

Figure 1: Installations in the last four quarters (MW)

So far, the JNNSM and Gujarat state policy have been the major drivers for the Indian solar market, contributing around 1400 MW. India’s capacity addition until now has thus largely followed the trend of capacity additions under JNNSM and Gujarat state policy (figure 2).

Figure 2: Quarter wise capacity additions in India and JNNSM+Gujarat solar policy

However, growth in parity market is visible. The non-policy market added 300 MW of solar PV capacity during the last four quarters (figure 1). This is a good sign and only to be expected as the market has reached commercial parity in most states. In quite some states including Maharashtra, Andhra Pradesh and Delhi, the cost of solar is already much lower than commercial tariff (figure 3).

Figure 3: State wise parity chart

We expect the parity driven market to gain rapid momentum in the coming months and years, at least in the states which have already reached commercial parity.

With PPA’s for Phase-II Batch-I having been signed and draft guidelines for Phase-II Batch-II under JNNSM being announced recently, the future looks optimistic. The fundamentals of the Indian solar market remain strong. Phase-I of JNNSM had given a good start to the Indian solar industry and it is expected that Phase-II will provide a decisive push, allowing for rapid capacity additions in the months to come.

Shikhin Mehrotra is a Research Analyst at BRIDGE TO INDIA.

The participants of the training were a mix of a retired homeowner, an entrepreneur, an investment banker and a former political consultant and many others from this field of work, all these people got together for one purpose – a desire to gain strong technical capabilities to design grid-connected solar systems and update themselves on the latest MNRE schemes. The training was fairly straightforward, easy to grasp, and did not require any advance engineering knowledge. With an energetic and interactive group of 12 students and an equally patient and knowledgeable pair of trainers, the stage was set for an enlightening and refreshing 3-day course.

Training featured a diverse group of professionals and consumers

The program covered latest policies and a solar technology overview (cells, modules, inverters, protection devices, cabling, and actual designing)

Industry insiders ensured a comprehensive 360° view of the market

The training started off with a basic overview of India’s solar energy policy through one of the guest speakers – Dr Bibek Bandyopadhyay, the former director of MNRE – and then jumped into the business models currently prevalent in the country. Our lively discussions followed the topics into the technical aspects of the training session with frequent stopovers to debate on-ground realities. The tools of the trade, such as the very simple, but highly useful “Solar Pathfinder”, helped us understand the basic concepts of system design as we delved deeper.

Both GSES trainers – Dwipen Boruah and Sishir Goel – covered all aspects of an on-grid solar design, from standards, design calculations, factors that affect module performance, to inverter details, rooftop mounting systems, cabling and protection devices. Despite the large volume of information presented to us in a short span of time, GSES ensured that it was easy to absorb and retain. The sessions taught us how to actually design an on-grid system and tested our learning through various exercises. Trainers ensured that the group focused on designing a high quality system instead of reckless cost-cutting mechanisms that unfortunately haunt the Indian construction market. Industry speaker Rajesh Kulkarni, GM Marketing for Hensel, stressed the critical need for proper protection (both AC & DC) on PV systems, while Chetan Vyas, a fellow attendee, introduced the group to micro-inverters.

The training ended on the 3rd day, with a lesson-cementing site visit to a 930kWp rooftop grid connected solar PV system at Indira Paryavaran Bhavan. It was a good example of large scale grid connected rooftop systems that featured all the safety guidelines and design concepts we had learnt over the past two days. Overall, I found the training a great experience.

Their next program is on ‘Solar PV best practices’ and would be held from 11-13 August. Click here for more details.

The state of Uttar Pradesh released a Request for Proposal (RfP) for 300 MW of solar PV last week (click here to access). This is a part of Uttar Pradesh’s solar policy announced last year that targets 500 MW by 2017. In March 2013, the state had announced an RfP for 200 MW out of which 110 MW have already been signed. The highlights of this RfP are:

The Power Purchase Agreement (PPA) term is the shortest so far in the country at 12 years. Although there is a possibility to extend the PPA tenure, it would only be at the Average Pooled Purchase Cost (APPC) which is currently at INR 2.77 /kWh

Each developer can bid for capacities between 5 MW and 100 MW in multiples of 5 MW. Last date for submitting bids is September 8th 2014.

Uttar Pradesh Power Cooperation Ltd. (UPPCL), the state nodal agency will sign the PPA and shall also be responsible for constructing all evacuation infrastructure

The story so far

Uttar Pradesh announced its solar policy in 2013 and aims to achieve 500 MW of solar by 2017. This is the second RfP that has been announced so far, the first being a 200 MW RfP that was released in March 2013. Out of the 200 MW auctioned, PPAs worth 110 MW have already been signed. With the recent announcement of 300 MW, it appears that the state could achieve its policy target much earlier than anticipated. Therefore, Uttar Pradesh could potentially expand its target like some other states such as Karnataka.

There were six successful developers under the first RfP of 200 MW (Essel Infra, Moser Baer, Sree Developers, Azure, Reflex, Jackson and DK Infracon). The tariffs were among the highest in the country (INR 8.01 to INR 9.33/kWh). The high tariffs were likely a result of the shorter 12-year PPA. Some developers have commented that a short PPA could actually be an advantage, because this gives them flexibility to re-negotiate contracts after year 12. However, the policy clearly states that PPA price after year 12 will be at the APPC prevailing at that time. The current APPC in Uttar Pradesh is at INR 2.77/kWh. Assuming a reasonable escalation of around 3%, this gives us a tariff of INR 3.95/kWh in year 13. We therefore see no reason, how a shorter PPA could be advantageous to any developer. Moreover, it drives up the solar price for the state and ultimately for the end consumer.

BRIDGE TO INDIA expects the bids to be in a range of INR 7.8/kWh to INR 8.6/kWh this time around.

Bidding pre-requisites

Bidders are required to have had previous experience in setting up infrastructure projects. Bidders are required to show for projects worth INR 2.5 cr (USD 400,000) for every MW that they apply for.The selection process will be through a reverse bidding process – the standard process for most solar projects in India today. However, the L1 (lowest bid by any bidder) shall not be enforced on all developers (unlike Andhra Pradesh and Tamil Nadu). Bidders shall be given 13 months to commission projects of capacities lower than 25 MW and 18 months for higher capacities, which is more than adequate.

PPA terms and risks

The PPA signatory would be Uttar Pradesh Power Cooperation Ltd. (UPPCL). The company is already in poor financial health. In FY 2013-14, the company reported a net loss of over 7,000 cr (USD 1.16 bn). In fact, the Ministry of Power with ICRA and CARE released a report that rates distribution utilities across the country on financial health. UPPCL secured the second lowest rating (click here to access that report). Last year saw prominent power producers like Reliance Power and Lanco infratech sever PPA with UPPCL due to non-payment of dues (see article). The Central Government through the Power Financing Corporation (PFC) had to step in and back up UPPCL (see article). These instances show that the PPAs with UPPCL are risky and developers need to factor in adequate risk into their business models.

Akhilesh Magal is a Consultant at BRIDGE TO INDIA.