Category: Market Outlook

Uttarakhand Renewable Energy Development Agency (UREDA) has released a document explaining the scheme developed to promote grid-connected rooftop and small-size solar PV power plants in the state.

The scheme provides for ‘net metering’ for grid connected rooftop solar plants and states that the solar system owner will be compensated for the excess power supplied to the grid at a tariff of INR 9.20/kWh

The scheme has a limit of 5MW, which means approximately 50 rooftop systems will be able to apply for this scheme

In case the 30% subsidy proposed by the MNRE is availed, this net metering scheme could be a good business proposition

The document (refer) in its current form, banks on the 30% subsidy provided by the MNRE. The benchmark cost for solar power plants, without battery and up to 100kW is specified as INR 100/W and the benchmark cost for the power plants ranging from 50 kWp to 100 kWp has been set at INR 90/W. The scheme provides for ‘net metering’ for grid connected rooftop solar plants. This means that the excess power generated by the rooftop system can be fed back into the grid. In turn, when sunlight is insufficient, power can be withdrawn from the grid. The scheme states that rooftop solar system owners will pay to the utility only for the net power consumed (power used from the grid minus power supplied to the grid). However, in case of excess generation, the system owner will be compensated for the excess power supplied to the grid at a tariff of INR 9.20/kWh as determined by the Uttarakhand Regulatory Commission (refer here). This amount will be paid directly by the Uttarakhand Power Corporation Limited (UPCL) to the system owner and will not be adjusted in the billing. To determine the value of net power consumed, two meters can be installed to measure the export and import of power separately.

As per the scheme, plant sizes eligible for the benefits are limited to 300 W to 100kW for systems with battery and up to 500kW for systems without battery. The application form to avail the scheme is available on the UREDA website. Once the target of 5MW is attained the applications will be closed.

Uttarakhand is the 5th state in the country to introduce net metering. BRIDGE TO INDIA believes that in the wake of increasing grid prices, as markets approach parity, net metering is a step in the right direction. We have seen recent solar policies, such as those of Tamil Nadu and Kerala, introducing net metering as well. The CERC is also expected to release net metering guidelines within this year.

We believe that in case the 30% subsidy proposed by the MNRE is availed, Uttarakhand’s net metering scheme could be a good business proposition. Especially for industries in Uttarakhand that can already benefit from various other schemes provided by the state, such as, Special State Transport subsidy, VAT Reimbursement and single window clearance. However, the MNRE has not been able to clear its backlog of subsidy claims, which is the most important concern for those interested in reaping the benefits of this scheme. With only a limit of 5MW, approximately only 50 rooftop systems will be able to apply for this scheme. Given that the power tariff is significantly lower than the solar default tariff in Uttarakhand, there is an incentive for users to power into the grid rather than consume it. We asked the Uttarakhand authorities how this could be avoided, but could not get a clear view on it.

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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The south Indian state of Karnataka opened the financial bids for an allocation of a capacity of 130 MW. Karnataka is expected to issue Letters of Interest (LoIs) to 16 developers for this allocation. The lowest successful bid is of INR 5.51/kWh by Sun Pharma and the highest successful bid is of INR 8.05/kWh by Welspun Solar and Heidelberg. The average bid across all successful bids is INR 7.06/kWh.

The return on equity for the lowest bid projects will not be attractive enough to justify investment

The devaluation of rupee has led to an increase in cost for importing modules and an increased cost borrowing from banks

With only a limited decrease in capital costs, the recently quoted tariff of INR 5.51/kWh in Karnataka and INR 5.78/kWh in Tamil Nadu do not seem workable

We believe that for the lowest bid of INR 5.51, the return on equity for the projects will not be attractive enough to justify the investment. Even if the optional acceleration depreciation (AD) is availed, it can only amount to an equivalent increase of INR 1-1.5 in tariff, which still may not make adequate financial sense for developers. Further, with the devaluation of the Indian Rupee and the possible imposition of the anti-dumping duties, the cost of importing modules and BOS would rise, increasing the overall costs of projects. The devaluation of the rupee has also triggered an increase in the interest rates of banks, which means that the increased cost of borrowing also adds to the overall costs to developers. Moreover, as compared to Rajasthan, where projects have recently been allocated at a tariff of INR 6.45/kWh, most parts of Karnataka receives relatively low levels of irradiation.

Overall, BRIDGE TO INDIA believes that the average tariff for projects in Karnataka turns out to be INR 7.06/kWh, which is workable for most developers.

The recently quoted tariff of INR 5.51/kWh in case of Karnataka and the tariff of INR 5.78/kWh proposed by the Tamil Nadu Electricity Regulatory Commission (TNERC) do not seem to be in tune with a limited decrease in capital costs over the last few months. If we suppose similar tariffs to be quoted under the phase two of the NSM, based on the current draft, wherein the pre-determined tariff offered by the government is assumed to be INR 5-6/kWh, the government would end up paying nothing for the Viability Gap Funding.

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On August 8, 2013, as predicted by BRIDGE TO INDIA, the Gujarat Electricity Regulatory Commission (GERC) dismissed Gujarat Urja Vikas Nigam Limited’s (GUVNL’s) petition seeking a retrospective revision in tariffs for solar projects in the state. The GERC concluded that the petition is ‘not maintained’, however, the GUVNL is free to appeal to the Appellate Tribunal.

Petition was dismissed on the basic premise of delay in appealing for review of the order

Other grounds deeming the contract ‘not maintained’ included ‘non-jurisdiction’, ‘no provision for reopening of PPA’ and ‘incomplete information’

The comprehensive document dismissing the petition will hopefully reinstate some confidence in investors

Last month, GUVNL filed a petition with the GERC asking for a downward revision of tariff from INR 12.54/kWh to INR 9/kWh claiming that actual project costs incurred by developers were significantly lower than initially assumed while determining the tariff.

Our last blog covering this issue emphasized that the dismissal of the petition would be crucial for India’s solar future. (refer). After holding hearings on the 25th of July as well as on the 5th of August to hear out from the 88 respondents, the GERC finally deemed the petition ‘not maintained’. The primary ground for dismissal was cited as the delay in seeking a review. The commission pointed out that as per regulations, an order can be reviewed only when the petition is filed within a period of 60 days, however in this case, GUVNL appealed for a review after more than three years.

In addition to that, the Commission also explained that it does not have the authority to re-negotiate the PPA as requested by GUVNL as this function does not fall under its jurisdiction. Therefore, it stated that ‘the re-determination of tariff as requested from the commission by the petitioner is not warranted’. Further, regarding the revision of tariff and re-negotiation of the PPA, the document (Refer to the document) says that PPAs can be re-opened only for the purpose of incentivizing non-conventional energy projects and not for reducing the incentive. Moreover, the PPAs hold no clause for such a revision of tariffs, unless and until there is an agreement from the developers’ end. It is only a change in legislation can warrant the opening of a finalized PPA.

The GERC also mentioned that the GUVNL had provided the details of only 10 companies that have benefited from the lower costs of project development or have not met the 70:30 debt equity criterion. The information provided is also largely one-sided and no consideration has been given to the views of the developers. Therefore, the case against the developers was considered incomplete. The GERC finally concluded that the petition is dismissed on the above grounds.

This dismissal has provided some relief to the developers but it would take time to restore overall investor confidence, especially in the wake of uncertainty surrounding the other policies in Tamil Nadu and Andhra Pradesh. However, BRIDGE TO INDIA believes that GERC’s comprehensive document dismissing the petition on several lawful grounds will help reinstate the confidence of the investors in due time.

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The Tamil Nadu Electricity Regulatory Commission (TNERC) has published a consultative paper titled ‘Comprehensive Tariff Order on Solar Power’ on 30.07.2013 (click here for the paper). The purpose of this paper is to come up with a common tariff for all solar power projects in the state. The paper recommends an extremely low solar tariff of INR 5.78/kWh (without escalation) for all solar PV projects in Tamil Nadu.

Overriding the bidding process, TANGEDCO fixes a workable tariff of 6.48/KWh (with 5% annual escalation for 10 years)

TNERC’s consultative paper expected to override the tariff fixed by TANGEDCO

Solar instability seems to be the only constant for solar developments in India

Earlier in the year, TANGEDCO carried out a reverse auction to determine the price of solar power. The bids received were in the range of INR 5.97 to INR 18/KWh. After a lot confusion, TANDGEDCO decided to override the bidding process and fix a ‘workable tariff’ of INR 6.48/kWh (with a 5% annual escalation for 10 years). The rationale behind fixing this tariff is not known and has not been communicated by TANGEDCO. BRIDGE TO INDIA has access to Letter of Intents (LoI) that have been signed by TANGEDCO for a tariff of INR 6.48/kWh.

TNERC is the competent authority to sanction any tariff and not TANGEDCO. Therefore, in our opinion, the recent consultative paper issued by TNERC would now again override the tariff of INR 6.48/kWh (with 5% annual escalation for 10 years) arrived upon by TANGEDCO. This means that the LoIs signed by the distribution company would stand void. In retrospect, it is surprising to see TANGEDCO issuing orders on solar tariff, when this is strictly the responsibility of the state regulator TNERC.

Although there were significant concerns on the bankability of PPAs under the Tamil Nadu Solar Policy, there has been considerable interest shown by investors and developers in this state. Such developments would jeopardize the confidence of investors in the state. Policy instability seems to be the only constant for solar developments in India these days. In case of Gujarat, the PPA signing authority is seeking for a downward revision of tariffs as announced in the state solar policy. Earlier this year, we saw the state of Andhra Pradesh also override the bidding process and announce a fixed tariff of INR 6.49/kWh. Now, the proposed division of Andhra Pradesh and creation of Telangana is also a concern for projects to be set up under the Andhra Pradesh solar policy (read our analysis on the subject here). This kind of instability also makes it very difficult for suppliers and project developers to plan for the Indian market and many international companies and investors have already started giving India a miss, at least for the short to medium term.

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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In a follow up to our last weekly update (refer), this week, we here present a manufacturers’ perspective on the current anti-dumping investigations in India. BRIDGE TO INDIA has consistently held the view that anti-dumping duties are not beneficial for the overall development of the solar market in India. We believe that if India wants to support a domestic solar industry, it should not look towards cell and module manufacturing. Instead it should aim to create a stable industry downstream (EPC, installation, maintenance), in the balance of systems and with respect to innovation. Protectionist measures will only create insulated zones where non-competitive players will survive and the cost of solar power will remain high, stifling growth. However, this week, we look at anti-dumping duties from the manufacturers’ perspective.

The plea that increase in prices of solar power with anti-dumping duties will impact the industry holds little ground

DGAD admitted that there is enough prima-facie evidence to back the Indian manufacturers’ claims that injury has been caused to the domestic industry

Adding more countries to anti-dumping investigations might dilute Indian manufacturers’ case

First of all, the imposition of anti-dumping duties ‘usually’ follows a legal process as laid out by the World Trade Organization (WTO) and cannot therefore be mistaken for an ill-informed government policy. If a petition meets the WTO standards and the procedure is followed by the book, there is very little impact of a country’s policy objectives. So, the plea from project developers that prices of solar power will go up with anti-dumping duties and that it might harm the industry, holds little ground as far as the proceedings are concerned.

However, political pressure can have an effect on the outcome. This can be seen in EU’s anti-dumping case against China. The influence of China as a major trading partner has ensured that EU allows both sides to negotiate and come to a solution. In response, China has not imposed anti-dumping duties for poly-silicon on manufacturers from the EU, as it might do against suppliers from the US and South Korea.

Now, as far as India’s anti-dumping investigations are concerned, the manufacturers seem to be fairly confident that they have put forth enough evidence to show injury to the domestic industry has been caused because international suppliers which have been selling modules in India at prices below the market cost. The Directorate General of Anti-Dumping Duties (DGAD) has already taken cognizance of this fact and admitted that there is enough prima-facie evidence to back the manufacturers’ claims.

The manufacturers are also confident that the other side, which mainly consists of around 12 respondents from the US, China, Malaysia and Taiwan, is on a weaker footing. Their claim is supported by the fact that most of these respondents have suffered significant financial losses in the past two years by selling at unviable prices.

Indian manufacturers also feel that their case, at least against the Chinese suppliers, has been bolstered by rulings in both the US and the EU. Based on the proof of injury and costs submitted, Indian manufacturers are expecting duties of at least 47% and up to 200% in some cases. However, they are aware of the international pressure on the subject and as a back-up option, are ready to accept duty levels that allow for a level playing field. This would mean duties of around 20% (refer to BRIDGE TO INDIA’s analysis on anti-dumping duties in the January 2013 edition of the India Solar Compass).

Even though Indian manufacturers realize that international pressure has the potential to dilute their efforts, they have still gone ahead and submitted a petition to add the EU and Japan to the investigations. According to unconfirmed information available to us, at the time of submission of the first petition, sales from EU and Japan were not meeting the 3% minimum market supply share criteria required for a country to be named in a petition. Now, however, the market-share for supplies from these countries has changed.

BRIDGE TO INDIA thinks that perhaps Indian manufacturers have been ill-advised. Adding more countries to the investigations might dilute their case and increase international pressure.

Even though anti-dumping duties will provide a temporary lease of life to the domestic players, no one seems to have a plan to make domestic manufacturing competitive in the long run. Without it, anti-dumping duties will have no long-term impact.

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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BRIDGE TO INDIA in collaboration with GREENPEACE will be launching the report ‘Rooftop Revolution: Unleashing Delhi’s Solar Potential’ on 23rd of July 2013, at the India International Centre. The report will be released as a part of Greenpeace’s campaign ‘Switch on the Sun’. The Chief Minister of Delhi, Ms. Sheila Dikshit will launch the report. Many key stakeholders of Delhi’s energy sector will be present at the event. The launch would be followed by a panel discussion on the viability of ‘rooftop solar power generation’ as a solution to Delhi’s energy needs.

Delhi can be India’s first solar mega city with 2 GW installed capacity by 2020

The target of 2 GW was reached after assessing rooftop space, economic viability and capacity of grid to handle solar power

Solar could provide an effective solution to Delhi’s inadequate power needs

‘Rooftop Revolution: Unleashing Delhi’s Solar Potential’ proposes that Delhi can be India’s first solar mega city with 2 GW installed capacity by 2020. The 2 GW target for Delhi has been developed by combining three perspectives. First, by assessing the suitable rooftop space available to accommodate solar installations. Second, by determining the economic viability of solar for different consumer groups and system sizes. Finally, by assessing how much grid-connected solar power Delhi’s grid could handle.

Delhi’s electricity demand has increased by an average of 6% every year within the last decade. From 20 billion units in 2002, the demand in all likelihood will reach over 33 billion units by 2017, a 65% growth. Given India’s growing power deficit, the rising cost of power and Delhi’s rapidly growing power demand, it will be difficult to maintain the current level of supply stability in the years to come. Further, for more than 70% of its power, the city relies on other states, which places Delhi’s power supply in a vulnerable position. The report proposes that solar could provide an effective solution to Delhi’s power needs. A supposed lack of available space for solar PV in the urbanized and congested city has been considered to be a barrier. This report shows that the potential for rooftop-based solar PV systems in Delhi is significant and achievable.

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The first hearing of India’s solar PV anti-dumping case was held on Thursday, 18th July 2013. Last month, it was announced that investigations by the Directorate General of Anti-Dumping (DGAD) have found enough prima facie evidence to suggest that dumped imports are hurting the domestic industry. This meeting was attended by more than 100 participants, including the three petitioners and around 12 respondents from the US, China, Malaysia and Taiwan. The remaining participants were ‘affected parties’, which included solar power project developers, EPC contractors, glassmakers and electric cable manufacturers.

The investigations now need to determine the extent of damage to the domestic industry and then determine the ‘margin of dumping’

Creating trade barriers such as anti-dumping duties create insulated zones of limited competition driving up the cost of solar power setting back the path to parity

The governments efforts should go towards fostering innovation in India to provide solar solutions

The three petitioners, Indosolar, Jupiter Solar Power and Websol Energy System, had filed a petition last November seeking anti-dumping duties on import of solar PV cells and modules from the US, China, Taiwan and Malaysia. According to reports, these companies have now filed a fresh petition seeking to expand the scope of these investigations to imports from the EU and Japan as well.

In similar investigations globally, the US and the EU have already imposed anti-dumping duties on Chinese module manufacturers and in response, China has imposed duties on poly-silicon imports from the US and South Korea. Unfortunately, the global trend is one of increasing market protectionism, which cannot be in the interest of either the industry as a whole or the power consumers/tax payers.

The investigations now need to determine the extent of damage to the domestic industry and then determine the ‘margin of dumping’. The margin of dumping refers to the difference between the ‘normal value’ and the ‘export price’ and is usually expressed as a percentage of the ‘export price’. The margin of dumping will depend on the price differential that existed for a period of 18 months starting January 1st 2011. Based on the information submitted by the complainants and other interested parties, the market is expecting anti-dumping duties of more than 20%. The announcement of the final outcome can take another two to four months.

If the anti-dumping duties go through, the biggest beneficiaries will be the Indian cell manufacturers and, to some extent, suppliers from countries which are not under investigation. Suppliers from the countries under investigation will stand to lose the most. Developers who have recently been allocated projects in Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Punjab and Karnataka are at risk of being squeezed between commissioning deadlines and a rise in prices which might make many projects nonviable.

According to BRIDGE TO INDIA, trade barriers such as anti-dumping duties create insulated zones of limited competition, allowing higher-cost manufacturers to survive, driving up the cost of solar power. Creating such a bubble would make some sense,only if it is accompanied by a credible long-term strategy for making Indian manufacturing internationally competitive. We currently do not see such a strategy and thus worry that a growing Indian solar industry will indefinitely depend on government protection. In any case, the overall growth of the Indian solar market will be slowed and the cost to tax payers or power consumers of generating solar power will rise. The market is currently very close to parity. Under conditions of parity, solar power can be an excellent tool to increase India’s power supply, energy security and bring distributed power solutions to unelectrified parts of the country. Raising the cost of solar will set parity back.

If India wants to support a domestic solar industry, it should look not towards cell and module manufacturing, but towards the downstream employment, towards the balance of systems and towards innovation.

Most solar jobs will be created downstream in construction, installation and maintenance, rather than in highly automated manufacturing processes. Increasing the cost of modules and thereby slowing solar installation growth down will likely have a negative effect on employment.

Modules account for less than 50% of the project cost and India can still focus on manufacturing of other equipment used for a solar power projects. Large global inverter manufacturers such as Schneider, ABB, RefuSol and AEG are already manufacturing solar inverters in India without any incentives or protectionist measure. The government should try to provide incentive to promote manufacturing of inverters and other BOS components where Indian manufacturing already has an advantage.

The main growth will come through Indian solar innovations under robust, commercially sustainable market conditions. The fundamentals in favour of solar in India are very strong and possible applications of solar many. Solar can provide power solutions to telecom towers, rural villages, new urban developments, diesel users, utilities, households or individuals. India is an ideal laboratory for developing such solutions. The governments efforts should go towards fostering innovation in India to provide solar solutions.

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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Last week, the Companies Bill 2011 finally became law after it received the Rajya Sabha’s (upper house of the Parliament) approval. The Lok Sabha (lower house of the Parliament) had already passed it in June 2012. The key aspect of the bill is that it mandates large-sized corporations to spend 2% of their net profits on Corporate Social Responsibility (CSR) activities. Since, solar is considered such an activity, it is thus, likely to receive a significant push in the country.

‘Ensuring environmental sustainability’ is one of the nine activities that quantify as a CSR initiative

Going solar also makes financial sense for such large-sized corporations

The 2% mandate could possibly drive the market for rooftop solar in the absence of government subsidies

As per the Companies Bill 2011, companies with a profit of INR 5 billion or more, a turnover of INR 10 billion or more, or a net profit of INR 50m or more, in a fiscal year, are mandated to spend 2% of their net profit on CSR activities. ‘Ensuring environment sustainability’ is one of the nine activities that qualify as a CSR initiative, according to the bill’s directives. As a part of their overall CSR initiative, many companies are expected to look at environment sustainability to meet a part of their obligations. Within this, investing in solar power can prove to be one of the most effective tools as solar power is also commercially viable at many locations across India. Many global corporations including Wal-Mart and P&G have opted for going solar as a part of their CSR activities. Since 2008, Wal-Mart has set up solar installations on 31 of its facilities in California and Hawaii and has reduced energy costs by INR 50 m. In India, corporates such as DLF have already set up some small rooftop solar projects that are also considered for their CSR activity.

With delays in subsidies provided by the MNRE to encourage the adoption of rooftop solar, the distributed generation market has been suffering for several months now. This CSR mandate could prove to be a new driver. There has been a global trend in CSR where companies view CSR not as chequebook philanthropy but rather as a business strategy. With millions involved, it will be crucial for companies to decide how and where they spend this 2% of their profits.

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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Recently the Cabinet Committee on Economic Affairs (CCEA) approved an increase in the price of natural gas. It will almost be doubled to USD 8.4/MMBtu from USD 4.5/MMBtu. This move was long awaited by gas producers. It will incentivize investments in the sector, make gas a more important part of the power mix and help reduce the cost of energy imports. For solar that is also good news: gas is an ideal balancing power and the resulting increase in grid power prices will make solar comparatively more attractive.

The gas price increased around 90%, effective 1st April 2014. Prices will now be revised every quarter

India’s gas production has decreased by more than 20% between 2010-11 and 2012-13, primarily due to unfavorable economics

India currently imports liquefied natural gas (LNG) at three times the cost of domestic gas.

This move of increasing the price of gas is part of a larger trend of liberalizing the Indian energy market. A few months back, the price of diesel was already partially deregulated. In addition, power prices have also been increasing in many parts of the country in the past couple of years. Delhi, for instance, witnessed a steep rise of 22% in power tariffs in 2011, followed by another 5% in 2012. Power tariffs in Kerala, similarly, have risen by about 30% in the last couple of years. These steps are important, as they help to make the pricing of energy in India more economically sustainable, which will incentivize investment into the new energy sources, which India badly needs.

In the past years, many players in the gas market have reduced production or have minimized spending on R&D to reduce losses. India’s overall gas production has fallen by more than 20% between 2010-11 and 2012-13 and currently stands at 3.9 mn MMBtu/day. While the domestic production is falling, the dependence on imports is rising. India’s LNG imports are expected to grow five-fold to 8.2 mn MMBtu/day in 2016-17. The current cost at which India buys LNG (USD 13.7/MMBtu) is significantly higher than even the revised price of gas (USD 8.4/MMBtu). India would need to almost triple its production to avoid expensive imports. With the revised prices, this seems to be a possibility.

The revision in gas price will not only encourage the upstream companies to invest in exploration to increase gas production, but a good amount of this additional revenue will also flow back to the government in the form of direct and indirect taxes and also in profits from leading public sector undertakings such as Oil India and ONGC. For Oil India, this move is expected to increase profits by INR 10bn. While for ONGC, profits are expected to increase by INR 80bn.

Fertilizer manufacturers and power producers, the major consumers of gas, have predictably opposed the price increase. They now want the government rather than their customers to absorb it. The average rise in power tariff due to higher gas prices would be close to INR 0.15/kWh. It currently looks like the increase in cost will be absorbed by both, the government/taxpayer and the power/fertilizer consumers. In any case, the increase in gas costs may well be a short term concern, as in the longer term the share of expensive imports will decrease as more affordable gas production in India rises.

Apart from the economic aspects, an increase in Indian gas exploration will increase the supply security and reduce CO 2 emissions wherever gas replaces coal (India’s dominant power source). For the expansion of solar and other renewables this is also good news. Gas plants are an ideal balancing source for renewables and will reduce the cost of storage or grid up gradation, thus making any large-scale, grid-interacting renewable power generation both less costly and more manageable.

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BRIDGE TO INDIA in collaboration with Greenpeace launched the report ‘Rooftop Revolution: Unleashing Delhi’s Solar Potential’ yesterday i.e. July 23rd 2013, at the India International Centre as a part of Greenpeace’s campaign ‘Switch on the Sun’

The report proposes that Delhi can be a 2 GW solar city by 2020

The report provides arguments, analysis and data to the Delhi government, the distribution companies (DISCOMS) and the people of Delhi to show why solar makes sense

Panel discussion following the report’s launch collectively concluded that it is the right time for the Delhi government to come up with the state’s solar policy

‘Switch on the Sun’, a campaign initiated by Greenpeace calls for the development of renewable energy projects, particularly solar power projects to develop sustainable cities. The initiative is currently emphasizes on the need for Delhi to go solar in the wake of rising grid prices and increased dependency on other states to satisfy the state’s power needs. Greenpeace believes that with the second highest per capita income in the country, Delhi is in a very good position to take the lead in transitioning to decentralized sustainable energy generation.

The report proposes that Delhi can be a 2 GW solar city by 2020 and provides a roadmap for the same. With reducing costs, solar is increasingly becoming a competitive energy source. Hence it is proposed that this target be achieved without the support of government incentives. At the launch of the report Tobias Engelmeier, Managing Director, BRIDGE TO INDIA, stated that a stable long term policy for solar was the need of the hour. He emphasized on the fact that Delhi possesses the geographic potential, the infrastructure and the money to support solar; however, it lacks the ambition to give solar the required initial push. Tobias explained that for Delhi to go solar there was a need to improve the financing for solar, develop a pool of technically skilled workforce and demonstrate the feasibility of solar in the city. The report provides arguments, analysis and data to the Delhi government, the distribution companies (DISCOMS) and the people of Delhi to show why solar makes sense for the city.

The launch of the report was followed by a panel discussion comprising of some of the important stakeholders of Delhi’s energy sector. The panel discussed and debated over several issues and problems related to Delhi going solar. The discussion ended with a collective opinion that as solar was increasingly becoming competitive with grid power, it was infact the right time for the Delhi government to come up with an independent solar policy for the State. Everyone agreed, as it is concluded in the report, that the government and commercial consumers should be the first movers to go solar in the city. The government could do so by aggregating projects and tendering them out to achieve benefits of scale. Commercial consumers, being the highest paying consumers of power, would find solar to be a more viable option in the coming years, considering the increasing cost of grid power.

‘Rooftop Revolution: Unleashing Delhi’s Solar Potential’ can be downloaded by clicking on the following link: http://www.wordpress-117315-688799.cloudwaysapps.com/our-reports/policy-briefs

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India is expected to have an energy deficiency of 6.7% in the coming year i.e. 2013-2014. The actual peak demand of power has exceeded the planned production in India for years, causing power outages for the average Indian consumer. The grid infrastructure too collapses at times under the strain of excess electricity loads during peak summer months. The Northern grid failure in 2012 disrupted life in the country and questioned the reliability of the grid infrastructure and load management in the country.

Consumers (residential, commercial and industrial) can hedge against rising power tariffs and power outages by going solar

The Indian government can reduce dependency on costly coal imports, reduce emissions and create new jobs

Solar could create new business opportunities for Indian DISCOMS

As a local, de-centralized source of power, rooftop solar allows consumers to be directly in control of their electricity supply. Consumers can produce and consume their electricity locally, making their electricity supply more reliable and secure. Further, the prices of electricity have increased drastically since 2011, with certain states such as Delhi, Uttar Pradesh and Tamil Nadu hiking power tariffs recently by 20%, 40% and 37%, respectively. With increased costs of fossil based power generation, this trend is likely to continue. Solar prices, on the other hand, have declined globally. System prices have decreased by 47% in the past ten years. Solar prices are expected to further decline at the long-term rate of 5-8% driven by technology improvements. Thus by switching to solar, consumers -residential, commercial and industrial, can hedge against increasing electricity prices.

For large-size commercial and industrial consumers, going solar is also a great way of fulfilling their 2% CSR obligation (mandated as per the Companies Bill 2011) as solar is also one of the few CSR initiatives that also make economic sense for such consumers; it could prove to be cheaper source of energy to meet their electricity needs. For instance, retail apparel store, Shoppers Stop, in Mumbai has installed a 30 kW solar system to promote itself as a ‘green’ company and to hedge against rising costs of power in Mumbai.

Considering the country’s increasing power demand and the rising costs of coal imports, it would also make sense for the Indian government to promote the adoption of solar. Adoption of solar would not only make the country less dependent on the costly imports but would also lead the way for a more sustainable growth. Further, the solar industry is capable of developing an ecosystem that creates jobs for system installers, transporters, project commissioners, system maintainers, grid monitors and power quality controllers. The solar industry has the capacity of creating more than 320,000 new full-time jobs by installing 100 GW of solar power. Considering the current unemployment rate of 3.8%, these new jobs could absorb a considerable amount of the country’s workforce. By focusing on cleaner energy and job creation the Indian government can project itself as a progressive administration to the world.

Finally, DISCOMs are the only stakeholders that may feel threatened by solar or may have concerns related to financial expense or the technical challenges associated with its integration. However, we believe that they should view solar as a business opportunity. With strained fossil fuel supplies, the need of curtailing carbon emissions and rising power demand, the shift to renewables is inevitable. By investing early enough DISCOMS could begin preparing for the future. Solar would, in fact, act as a supplementary source to the existing conventional energy system. Moreover, solar could also provide security in case of grid malfunction. e.g. Jodhpur DISCOM used wind power when the Northern and Eastern power grid failure occurred in 2012.

We believe that solar in India makes sense for all stakeholders. Its adoption will be primarily driven by the increasingly favorable economics of solar and by customer demand, but all stakeholders would actively shape its future by making solar their success too.

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Power grids all over the world were originally designed for one-way supply of power from the grid to the end consumers. Solar PV systems, when connected to the grid create a two way supply of power (from the grid to the consumer and vice versa) and multiple power sources. This does not fit the original design of grids and can create operational problems. Moreover, a traditional grid can only accommodate a certain level of PV into its current structure without affecting its power supply. This means that the potential for solar may be vast for a particular country, but issues related to grid connectivity could limit the potential that can actually be exploited.

Solar PV systems connected to the grid can adversely affect the quality and supply of power, however, most of such connectivity problems have workable solutions

There is no study that determines the Indian grid’s ability to host solar PV. Studies conducted globally indicate that a grid can accommodate 15-20% PV penetration without destabilizing its power supply.

With standardized connectivity guidelines in place and with the help of intelligent equipment that regulate power supply, the Indian power grid can accommodate at least 20% of PV penetration.

There are many problems that may be encountered with the integration of solar PV to the Indian grid. When the grid receives power from different power sources (multiple small PV systems) the quality of power can be adversely affected. The grid may also get destabilized when a large number of PV systems get disconnected from the grid at the same time because of voltage fluctuations. Further, cloud cover and rain can adversely affect the capacity of PV systems to produce energy at a given point of time and this may create problems for the grid operator in managing the power supply of the grid. Most of these problems, however, have feasible solutions. Simple standards for equipment and guidelines for connectivity can ensure that power supply and its quality are not affected. In fact, if done right, the integration of PV systems could also stabilize the grid. The Central Electricity Authority (CEA) is currently working on a report that specifies such standards for grid connectivity. Further, the intermittent power supply of solar PV systems can also be managed by better weather forecasting and load (power demand-supply) management.

The number of solar PV systems that can be connected to the grid without affecting the current functioning of the grid still remains uncertain. There has been no detailed study on the ability of the Indian grid to handle distributed, intermittent power sources such as PV systems. Even in countries such as Germany or the US, where studies have been conducted, there is no clear indication of what a grid of specific characteristics can handle. Several studies indicate that PV systems can power 15% of the peak load without affecting a grid’s existing supply structure. But with a number of countries already reaching 15% PV penetration levels, this thumb rule is being considered for revision in many parts of the world, such as in the US. Many studies have also concluded that the grid has the capacity to tolerate much higher PV penetration levels, provided considerable investments are made in equipment like intelligent transformers, storage devices that regulate the quality of power and stabilize the grid and advanced ‘smart’ grid management solutions. With the help of such solutions countries like Germany have managed 40% PV penetration on their grid.

Currently, in India, solar power has a very small share (<1%) in the overall energy mix, although the percentage will be substantially higher in parts of Gujarat and Rajasthan. With only a limited amount of PV on the grid, PV penetration is not actively discussed in India at the moment. But given that 15% is considered to be a safe and perhaps overly conservative number, we believe that India’s power grid can accommodate at least 20% of PV penetration without requiring major investments in additional infrastructure. However, a detailed study of the grid infrastructure would be required. Pilot projects to understand the PV hosting ability of the grid network would be essential as well.

India is at a stage where a large part of the grid is either being created or being re-vamped. This is the right time for India to learn and adapt. India should follow the example of countries like the US and Germany to understand how the grid’s capacity to host solar can be increased. Such countries have been working towards the adoption of solar for years now and thus have a better understanding of the complexities of the traditional grid and advanced technologies that can facilitate the integration of solar.

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Until now, most of the solar capacity in India is ground mounted and under policy based projects. The cumulative capacity of rooftop based projects in India is under 200 MW. However, this is likely to change as solar PV becomes cheaper and the prices of conventional power move up. We have already seen mass adoption of solar PV for rooftops in the US and Germany. Increasingly, these installations are moving towards parity and away from the traditional feed-in-tariffs (FiT). India is very well positioned to move quite quickly as the parity based market. Factors such as frequent power cuts, increasing prices of conventional power, high irradiation and the falling costs of solar are music in the ears of the people looking to grasp the opportunity.

Straight forward sales model requires consumer to pay full system cost upfront.

In a RESCO model consumer need not pay any amount upfront but needs to pay a per unit price for power.

The consumer can sublet his rooftop to a project developer and get monthly rent in the local micro utility model

As the parity demand for solar power begins to come in from the Indian power consumers, many new opportunities will arise in the sector. As more and more individuals and companies rush in to meet this demand, they will innovate and create various business models. The consumers will benefit as the competition and options increase. Currently, the following business models are available in India:

Straight forward sales model

A consumer can purchase a solar power plant or just solar power via different models. In the most common model, the consumer purchases a system as he would purchase any other electronics item, by making 100% of the payment upfront or financing the system through a bank.

This is the most common business model for solar deployment in India, an Engineering, Procurement and Construction (EPC) company, or individual components manufacturing company (such as modules or inverters) installs the system. The plant owner pays the full cost of the PV system upfront. This model (sometimes referred to as the ‘CAPEX model’) is pursued by the majority of solar companies, including TATA Power Solar, EMMVEE Photovoltaics or Moserbaer.

The main drawback of the CAPEX model is that the plant owner needs to be able to finance the entire plant. Solar has a heavily ‘front loaded’ cost structure, with a high initial investment and very low operating costs. A consumer might not have the required liquidity to finance a system upfront or get the best debt terms. Nevertheless, one advantage of this model is that consumers are eligible to claim accelerated depreciation.

Renewable Energy Service Company (RESCO) model

Under the RESCO model, the consumer can install a solar power plant and not pay anything upfront. A power purchase agreement is signed between the installer and the consumer at a mutual price (tariff). In another model, the consumer can get a solar system installed at his rooftop and also get rent for subletting the rooftop. The consumer need not pay anything and he has the choice whether or not to consume the electricity.

Under this model, a third party investor comes in to invest into a PV plant on a rooftop and sells solar power to a power consumer. The consumer does not make any investment. If the solar power is viable, the consumer can benefit from savings on the electricity bill right from the start. Under this model, the investor and the consumer agree on a tariff (per kWh of solar power) and timeline of a power purchase agreement. The investors typically offer a tariff lower than the current grid tariff and equally the escalation of the grid tariff is lower than the expected escalation of the grid tariff.

The most significant advantage of this system, apart from the fact that it entails zero investment, is that the RESCO is responsible for the operations, repair and maintenance of the system. It is not the consumer’s responsibility to ensure proper functioning of the system. As the size of project increases, this model becomes more feasible due to economies of scale. The size of project can either grow individually, or as a collection of small projects bundled together.

Local micro utility model

Under this model, solar power developers could rent large, bundled roof spaces from building owners in a designated area, install PV systems and sell the power generated to the rooftop owners. The project developers would particularly target those consumers who might not have the resources or would be unwilling to invest in rooftop solar. Developers can offer building owners a lease income on their rooftop space.

This model allows project developers to bundle rooftop space in a community and thereby minimize the legal, commercial and technical transaction costs by increasing the size of individual plants. This makes the model especially useful for the deployment of solar for residential consumers.

The key USP of this model is that it unlocks a greater number of residential rooftops for PV systems. This is achieved by improving the economies of scale for the developer and providing an easy income opportunity to the rooftop owner.

All the three models are already being offered in India and we can expect a lot of innovation within these models. Also, we can expect the emergence of several new models as the market matures and the competition increases.

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In a recent petition, Gujarat’s energy company Gujarat Urja Vikas Nigam Ltd. (GUVNL) claims that the levelized tariff of INR 12.54/kWh being paid to the state’s solar power developers is too high and should be reduced (refer to our last weekly update). The petition (refer) states that actual project costs incurred by developers in 2011 (INR 120-130m/MW) were significantly lower than initially assumed (INR 165m/MW). As a result, the developers ended up making ‘windfall gains’ while putting an unnecessary financial burden on the government and, by extension, on the public. Two years after signing of the PPAs, the GUVNL is asking for a retrospective reduction in the levelized tariff to INR 9/kWh.

Project cost considered before was rightly insisted on by developers as they were based on the costs of the few installations in India that had been set up till then

Non-adherence to the 70:30 debt equity ratio by the developers should not be help against them

A decrease in solar tariff will not have much impact on the total energy bill however, may discourage investors to further invest

We believe that GUVNL’s claim is fundamentally flawed.

As per the tariff order dated 29 th January 2010, the Government of Gujarat (GoG) decided on the levelized tariff for solar power of INR 12.54/kWh. This tariff was finalized considering that the capital cost for setting up the projects was INR 165m per MW. GUVNL claims that the developers insisted on the existence of high capital costs while submitting their comments during the allocation process while they ended up setting up projects at INR 120-130m per MW. We agree that projects were later commissioned at lower costs, however, the project cost considered at that time was rightly insisted on by developers as there were very few installations in India then and these costs were based on the cost of projects that had been set up till date. This is reinforced by the fact that in February 2010, one month after the Gujarat tariff order, the Central Electricity Regulatory Commission (CERC) proposed a tariff of INR 17.91/kWh for projects under the NSM in the FY 2010-2011, based on an assumed capital cost of 169m/MW.

The tariff of INR 12.54/kWh is also not ‘too high’ even when assuming project costs of INR 120-130m. The tariff was also in line with the levelized tariff of INR 12.16/kWh determined by the competitive bidding process under the NSM which took place much later in November 2010, almost 10 months after the Gujarat tariff order. Even under the NSM bids, at the time it was assumed that developers probably speculated the reduction in solar costs that were going to follow. This means that the tariff computed by the GoG coincidentally turned out to be fair. If the prices for solar PV hadn’t fallen, it would have given a fairly low return and probably would not have attracted the kind of investment that it did.

Further, GUVNL’s claim of non-adherence to the 70:30 debt equity ratio by developers may be true for some but should not be held against the developers. A debt equity ratio of 70:30 is a general thumb rule for financing projects as per most banks. However, in case a developer is not able to get financing and he puts his own balance sheet on the line to obtain recourse loans. Most of the debt funding in Gujarat based on recourse finance and benefits of such a move should rightly accrue to the developer.

The reluctance of banks to lend to some of the projects also shows that projects were not making windfall gains. We also believe that even if developers managed to leverage the financing structure to their own advantage by employing more debt, then the benefits of that too should accrue to them.

Further, the GUVNL states that the revision would be an act in the interest of the public as otherwise a cost differential of INR 3.54/kWh (between 12.54 and 9) would be passed on to the end consumer in the form of increased cost of power. Solar accounts for around 1.4% of the total electricity consumption in Gujarat. The cost of solar power has a minute share in the total energy bill of the consumer. This 3.54 excess cost will lead to an increase in the price of electricity by around INR 0.035/unit. However, with a loss in investor sentiment, the decrease in tariff may lead to losses in terms of investments forgone with the cancellation of new prospective infrastructure projects in the state.

Moreover, as per the Gujarat Energy Development Agency (GEDA), the GoG had accounted for an expense of INR 21 bn/year for solar tariff payments (refer). This means that the payment liability should have been adjusted in the budgets for the 25 years to fulfill the government’s obligations as per the PPAs.

BRIDGE TO INDIA believes that the GERC should not accept the petition. The petition itself has shaken investor confidence in solar power projects in India. With an investment of INR 80bn at stake, any revision of a closed contract will not only adversely affect India’s solar story, but will also have a negative impact on investments in other infrastructure projects in India in general.

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Gujarat Urja Vikas Nigam Limited (GUVNL), the off-taker for 852 MW of installed solar capacity in the state, has submitted a petition to Gujarat Electricity Regulatory Commission (GERC) to intervene and facilitate the re-negotiation of tariffs for the already installed projects.

GUVNL claims that a capital cost of INR 165 m/MW was assumed to determine the tariff , however, most developers have been able to set up projects within 120 m/MW

GUVNL explains that the assumption was made because of comments submitted by the developers who claimed existence of high capital costs

According to BRIDGE TO INDIA, even a windfall gain for developers does not justify a retrospective action unless the developers agree on it

Projects that were commissioned (or ‘deemed to be commissioned’) before January 29th 2012, have been awarded a tariff of INR 15/kWh for the first 12 years and INR 5/kWh for the remaining 13 years. This works out to an effective average tariff of INR 12.54/kWh. GUVNL claims that a capital cost of INR 165 m/MW was assumed to determine the tariff offered. However, most developers have been able to set up their projects at a capital cost of INR 90 m to INR 120 m. This has resulted in a windfall gain for the developers.

Ideally, GUVNL should not have signed the Power Purchase Agreements (PPAs) at the given tariff if it thought that the capital costs assumed did not reflect the actual price point in the market. However, GUVNL claims that the developers insisted on the existence of high capital costs while submitting their comments during the allocation process. This, according to GUVNL, amounts to a fault on the developer’s part. Therefore, as an off-taker, GUVNL has the right to ask for a retrospective change in tariffs.

GUVNL is of the opinion that a ‘reasonable and prudent tariff’ should be around INR 9/kWh (refer). For now, the petition has been listed for admittance and the hearing has been scheduled for July 23rd 2013.

BRIDGE TO INDIA believes that this step is detrimental to investor confidence. The state entities should honor the conditions of the signed agreement. Solar prices have been falling and most tariff determination orders at the central and state level become outdated by the time they are released. This is the primary reason why allocation processes in India usually follow a bidding based mechanism to determine the tariffs. Even a windfall gain for the developers, if any, does not justify a retrospective action unless the developers are willing to voluntarily agree to any such change.

According to us, projects in Gujarat are receiving a reasonable Internal Rate of Return (IRR) of 15% to 18%, and are not making a windfall gain to begin with. If Gujarat wants to continue to promote itself as an investor friendly state that offers policy stability, the state government should intervene and ensure that a retrospective action is not taken. If GUVNL is of the opinion that it should not be paying the existing tariffs, it should blame the policy formation process and ask the state for compensation. More details of the petition are awaited.

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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With a widening energy deficit and increasing power tariffs, India’s electricity sector is in dire need of improvement and innovation. One of the main upcoming drivers for rectifying India’s energy issues will be residential solar rooftop installations, which will prove to be one of the most viable, accessible and reliable power solutions for homes and other buildings in India.

IndiaSolarHomes.com has been developed to facilitate and increase awareness on residential solar in India

The Solar Calculator, a vital feature of the website, calculates the size and cost of a solar rooftop system as per the electricity bill and rooftop area of a particular building

The website also provides a list of solar vendors, rooftop solar news and a discussion forum to enable discussions between solar experts and enthusiasts

IndiaSolarHomes.com, developed by BRIDGE TO INDIA, is a comprehensive platform to facilitate and increase awareness on residential solar. The first of its kind in India, this website engages with prospective and existing residential solar energy consumers in order to build a network of ‘solar home’ enthusiasts in India. The residential solar energy sector will experience rapid growth and is an inevitable future for the Indian green energy market. At the moment, the key challenges to solar rooftop deployment are a lack of awareness amongst end-consumers and the lack of reliable information. IndiaSolarHomes.com seeks to address that.

IndiaSolarHomes.com offers complete information for future solar home owners in India through its various tools. The website’s vital feature, the Solar Calculator, estimates a building’s solar potential based on the open rooftop area and average monthly electricity bill. The calculator immediately elucidates the system size and cost, monthly power generation, monthly electricity savings and the share of solar in total power consumption.

Once this information is received, the user can access a list of Solar Vendors accredited by the MNRE along with their region and contact information. Alternatively, a Discussions Forum is also hosted to enable interactions between existing or prospective solar home owners, experts and enthusiasts. Open to all, this forum is a platform to enable the exchange of ideas, experiences, recommendations and thoughts about residential solar in India.

The News section of the website covers all the major developments for rooftop solar in India. The news, filtered from BRIDGE TO INDIA’s market information website – IndiaSolarMarket.com, covers updates on subsidies, policies, examples and new developments on India’s rooftop solar sector.

Solar power is believed to bring about the much needed revolution in India’s green energy sector. As the most viable option for alternative energy at the residential level, solar is already being identified as the energy source of the future. According to BRIDGE TO INDIA’s analysis, a city like Delhi alone has a residential solar installation capacity of 1.5 GW. This means solar could be used to power as many as 3,00,000 homes in Delhi. ‘Going green’ will very soon mean ‘going solar’.

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Bihar State Power (Holding) Company Limited (BSPHCL) had recently issued a tender for an allocation of a 100 MW capacity in the state. Today (July 1st 2013), is the last date for the submission of the bids. The solar projects are expected to meet the solar renewable purchase obligations (RPOs) of the state-owned power distribution companies.

Allocation of projects should be under a policy that defines planned capacity of allocations, the time-frame and responsibility of various state entities

Under the grading mechanism used for project allocation in Bihar, the quantum of allocations to be made was never clear

State governments should come up with well thought of policies to allow more clarity and healthier competition

Such tender based allocations are becoming fairly common in the states that have no formal solar policies. Recently, the power distribution company Brihan Mumbai Electric Supply and Transport Undertaking (BEST) from Maharashtra has signed an agreement with Welspun to buy power from a 20 MW solar project in order to help meet the solar RPO. Mahagenco, the power generation company of Maharashtra, which has developed and recently commissioned its own 125 MW project in the state, plans to release a tender for an allocation of 75 MW soon.

While it is a good sign that these state level entities are serious about meeting their RPOs, the announcement and process for these allocations is often not very well communicated and many serious developers are unaware of such allocations. This means that the competition is low and the state might end up paying a higher price for the solar power. It would be better to allocate projects under a policy. A policy typically defines the planned capacity of allocations and the time-frame for such allocations. A policy also helps streamline the process by defining the responsibility of various state entities. It can provide incentives such as lease of government land at a discounted price and/or waiver or land conversion charges, etc. Such pre-defined processes help give more clarity to the developer and will allow for the tariff to be determined in a more competitive manner.

There is often a lot of ambiguity about the allocations which take place in states that do not have a policy. For example, Bihar was earlier looking to allocate projects based on a grading mechanism – the Bihar Renewable Energy Development Agency (BREDA) had received applications for 776 MW and completed its final evaluation on December 10th 2012. Under this mechanism, projects were graded based on aspects such as technical criteria, financial criteria, possession of land, distance from sub-station and the obtaining of a No Objection Certificate (NOC) from the pollution board, etc. The quantum of allocations that were to be made from these applications was never clear.

The state governments are aware of their obligations and should just come up with well thought through policies to define the how and within what time-frame they wish to meet their obligations. In addition any allocation process should be realistically and professionally managed. This allows for more transparency and clarity, less ambiguity, healthier competition and -ultimately -cheaper power for the state.

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BRIDGE TO INDIA has launched the July 2013 edition of the INDIA SOLAR COMPASS, a quarterly market analysis report to the Indian solar market. This post is an excerpt from the report’s ‘Overview’ section.

In the previous quarter (April 2013 to June 2013), the Indian solar market was predominantly focussed on new project allocations in Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Punjab, Rajasthan and Karnataka. Each state allocation came with its own set of challenges. However, overall, they have been able to create a significant interest from developers and will fuel demand for components and EPC in the next year. The signing of Power Purchase Agreements (PPAs) has not been completed for most states, except Rajasthan, but it is expected that the total signed capacity will reach more than 1.5 GW. In the coming weeks, the market will eagerly await allocations for a capacity of 750 MW under the National Solar Mission (NSM), phase two batch one, the process for which is to begin in July.

Despite the changed allocation process, from what had been communicated earlier, developers in Andhra Pradesh and Tamil Nadu have shown a will to make it work

The viability of tracking systems is expected to improve only in so far as their cost decreases as a percentage of the total plant cost

BRIDGE TO INDIA expects that India’s cumulative installed capacity will exceed 2 GW by the end of 2013

The most worrying aspect of these allocations has been the kind of uncertainty that we have seen in Andhra Pradesh and Tamil Nadu. Both the states have had to resort to changing the allocation process significantly from what had originally been communicated. In both cases, this had been a result of a poorly planned and executed process. On the positive side, both states and the developers have shown resilience and a will to make it work. Tamil Nadu now expects to allocate a capacity of 690 MW. In the case of Andhra Pradesh, the arbitrary and ex-post changes in tariff identification will hurt investor confidence more permanently. The state is expected to allocate a capacity of around 300 MW as compared to the planned 1,000 MW, even after originally being oversubscribed.

The sudden influx of allocations helped reduce the intense bidding competition that had previously characterized the Indian market. Allocations in Tamil Nadu and Uttar Pradesh were both under subscribed and the average tariff quoted by the developers across all allocations was more than INR 8 (Euro 0.12/$ 0.16)/kWh. This is significantly higher than the tariff of INR 6.45 (Euro 0.10/$ 0.13)/kWh, currently offered in Rajasthan.

As most prominent developers in India have been allocated projects under one or multiple state policies, these allocations are also expected to reduce the level of competition for projects under the NSM. Adding to this, as developers can opt for project capacities as high as 100 MW under the NSM, informed smaller and new developers will most likely stay away from the bidding based competition.

In our ‘Key Question’ in this edition, we look at tracking technology. Only about 80 MW of the 1,746 MW solar PV capacity installed in India is using some form of axis tracking technology. The question we asked was: under Indian conditions, does an increased yield and revenue justify the additional investment for an axis tracking technology? We found that at current prices, the increase in the Equity Internal Rate of Return (EIRR) increases only marginally when using horizontal single axis and dual axis tracking systems. For vertical single axis tracking systems, the EIRR actually decreases. Even a marginal increase in EIRR probably does not justify the additional risk involved in adopting this technology. Therefore, the low adoption of axis tracking technology in India makes sense. In the future, the viability of tracking systems is expected to improve only in so far as their cost decreases as a percentage of the total plant cost.

A capacity of over 1.7 GW has already been installed in India and close to 1.5 GW of PV is currently under development. BRIDGE TO INDIA expects that India’s cumulative installed capacity will exceed 2 GW by the end of 2013. There’s also a lot of momentum building up for new capacity additions in 2014, which could easily exceed 2 GW. This is expected to take India’s installed solar PV capacity to 4 GW by the end of 2014. Until now, 80% of India’s solar PV projects have been installed in Gujarat and Rajasthan. In future, the focus will shift from the West to the South (Tamil Nadu, Andhra Pradesh and probably also Karnataka).

Click here to read more from the INDIA SOLAR COMPASS- July 2013 Edition

Since 2003, Ernst & Young has been releasing its global quarterly publication, renewable energy country attractiveness index (RECAI) that ranks 40 countries on the attractiveness of their renewable energy investment and deployment opportunities. This index is based on a number of macro, energy market and technology-specific indicators.

India’s RECAI ranking for solar investments has gone down perhaps due to high cost of financing and infrastructure barriers

Only 500 MW of 2.5 GW capacity allocations expected in 2013 are likely to have a DCR depending on the result of the case at WTO

Depreciating value of an Indian rupee would keep investors away from India in the last quarter, however, in the long run India is likely to remain attractive for solar investments

In the 37th issue of RECAI for May 2013 (refer), India has lost considerable ground in the index for the country’s attractiveness for solar investments. In the previous quarter, for example, India was ranked third in position for solar PV after the US and China and was ranked fifth in position for solar CSP. This gave India a second overall position in the solar index. This quarter, however, India has moved down to the eighth position for solar PV, retaining the fifth position for solar CSP.

According to Sanjay Chakrabarti, E&Y India, the reason for the drop has been that the bankability is jeopardized by the high cost of financing and significant infrastructure barriers (refer). He goes on to explain that there are issues in India with regards to the US complaint with the World Trade Organization (WTO), regarding domestic content requirements and India’s anti-dumping investigation for solar cells from the US, mainland China, Taiwan and Malaysia.

BRIDGE TO INDIA, however, believes that there is very little explained in the report about reasons that have resulted in a drastic downward trend for investment attractiveness for India. Markets such as Germany, Japan, Italy, Australia and Canada, which have moved up with respect to India are perhaps more mature than the Indian market and are expected to see more volumes in any case.

Not much has changed in the past quarter as far as the bankability and financing of projects is concerned. There are a lot of issues with the same, however, lenders are getting more comfortable with solar projects with time (refer to the Decision Brief on ‘Bankability and debt-financing for solar projects in India‘).

The domestic content requirements (DCR) have been around since the beginning of the NSM. In the current scenario, of the 2.5 GW capacity allocations expected in 2013 across India, including all state policies, only about 500 MW is likely to have a DCR. Even this can be put to question if India loses its case at the WTO. The interim order on the anti-dumping can be expected soon and it would be unwise to pre-judge the result.

Key reasons that would keep investors away from India for the last quarter would be the depreciating Indian Rupee and the uncertainty and flip-flops seen in the Andhra Pradesh (refer) and Tamil Nadu (refer) allocations. The Indian Rupee has lost over 10% of its value against the US dollar in the last quarter. Since 2011, it has lost over 32%. A weakening Rupee has a severe impact as it increases the cost of imported equipment, of servicing of un-hedged external debt and of future currency hedging. However, it is unlikely that these factors have been taken into consideration for the purpose of their analysis.

BRIDGE TO INDIA believes that while India’s long term attractiveness for investments into solar is intact, the current position for its placement among global peers might be debatable.

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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Andhra Pradesh, Tamil Nadu, Uttar Pradesh and Punjab have all recently issued Letters of Interest (LOIs) after carrying out their respective processes for allocation of new solar PV projects. These allocations would cumulatively account for a capacity of almost 1.5 GW.

Andhra Pradesh is now looking to allocate a solar PV capacity of 350 MW and not 1000 MW, while Uttar Pradesh planned to allocate 200 MW but received bids for just 140 MW

Punjab allocates a total capacity of 268 MW for projects in the range of 1 MW to 4 MW and in the range 5 MW to 30 MW

All the new state and national level allocations being undertaken in the current financial year are expected to account for a capacity of around 2.4 GW.

Andhra Pradesh has offered a tariff of INR 6.49/kWh to developers after initially trying to offer projects based on a sub-station level bidding process (read our previous blog for our analysis on allocations in Andhra Pradesh). At this tariff, the state is now looking to allocate a capacity of 350 MW. Of this, seven companies with a capacity of 53 MW have unconditionally agreed to the terms and tariff and another 27 companies with a capacity of 297 MW have given their conditional acceptance. Some of the prominent developers who are looking to get projects in the state are Essel Mining and Infrastructure (35 MW), Kranthi Edifice (30 MW), Mahira Power Systems (20 MW), Premier Solar (two projects of 18 MW and 5 MW each) and SunBorne Energy (15 MW).

Uttar Pradesh had planned to allocate a capacity of 200 MW but bids have been received for just 140 MW. Of this, a project for 5 MW has been disqualified, leaving 135 MW for allocation. These projects are expected to sign a power purchase agreement (PPA) for a period of 10 years as compared to most other policies, where the term for the PPA is usually 25 years. Most developers are open to the shorter duration of the PPA as this would cover their loan repayment period and potentially allow them to sell the generated power at a rate higher than the current tariff beyond 2024 (read our previous blog for our analysis on allocations in Uttar Pradesh). Some of the prominent developers looking to get projects in Uttar Pradesh are Essel Infra (50 MW), Moser Baer (20 MW), Sri Colonizers (20 MW), Azure Power (10 MW) and Jakson Power (10 MW).

Punjab has been planning to allocate a capacity of 300 MW. The plan has been to allocate the projects in two categories, i.e., category one for project capacities from 1 MW to 4 MW and category two for project capacities from 5 MW to 30 MW (read our previous blog for our analysis on allocations in Punjab). For category one, after receiving the bids, the state is now looking to allocate a capacity of 68 MW to 22 projects and for category two, the state is now looking to allocate a capacity of 200 MW to eight projects. Prominent developers hoping to formalize a PPA in Punjab are Welspun (30 MW and 2 MW), Azure (30 MW and 2 MW), Essel Infraprojects (30 MW), Moser Baer (30 MW), SolaireDirect (20 MW) and Punj Llyod (20 MW).

BRIDGE TO INDIA has covered the allocations for 690 MW in Tamil Nadu in the last weekly update (refer). We would like to issue a clarification with regards to this update. We had mentioned that this capacity of 690 MW also includes the new interests received from developers who had not participated in the bidding process. However, this capacity of 690 MW is only from the developers who had earlier participated in the bidding process and any new interests would account for a capacity over and above the said capacity. Prominent developers hoping to formalize a PPA in Tamil Nadu are Mohan Breweries (110 MW), United Telecom (100 MW) and Welspun (60 MW).

Apart from this, Rajasthan has recently allocated 75 MW and Karnataka is also in the process of allocating 130 MW. Allocation for a capacity of 750 MW is also expected under the National Solar Mission (NSM) and the process for these allocations is expected to begin in July 2013. All the new state and national level allocations that are being undertaken in the current financial year (April 2013- March 2014) are expected to account for a capacity of around 2.4 GW.

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BRIDGE TO INDIA has launched the June 2013 edition of the

In December 2012, Tamil Nadu had announced a bidding process for a capacity allocation of 1,000 MW. Issues such as low bankability of the Power Purchase Agreement (PPA), limited time available for planning and commissioning and the need for developers to meet the lowest quoted tariff for successful allocation caused the allocations to be undersubscribed (refer).

Developers asked to meet a ‘workable’ tariff of INR 6.48/kWh with an escalation of 5% per year for 10 years

TANGEDCO gets proposals for a cumulative of 690MW on extending deadline for developers to 31st May 2013

A new response on deadline extension was seen because of more available time for developers to scout for evacuation capacity, to plan and commission projects

Bids were received for only 499 MW. Developers were subsequently asked to meet the lowest submitted tariff which came out at INR 5.97/kWh with an escalation of 5% per year for 10 years – an unattractive tariff for most developers. To avoid a complete failure of the process, the state decided to offer a ‘workable’ tariff of INR 6.48/kWh with an escalation of 5% per year for 10 years (read BRIDGE TO INDIA’s April edition of the India Solar Compass to read more). Even at this tariff, initially, interest was limited. In February 2013, Tamil Nadu Generation and Distribution Corporation (TANGEDCO) cleared proposals for the first batch of bidders with a cumulative capacity of 226 MW.

Seeing the low response, TANGEDCO provided additional time until 31st May 2013 to developers who originally chose not to accept the offered tariff and PPA being offered. Apart from this, new interests were also invited through a public advertisement. All new interests were to be made to the Chief Engineer (CE) at TANGEDCO. The new interests had to initially show the company’s financial strength to undertake the project and the availability of land and evacuation. Apart from this, they were supposed to submit a detailed project report. By the end of the deadline, proposals for a cumulative capacity of 690 MW have been submitted. According to unconfirmed reports, the key projects that now make up for the new capacity addition are a 110 MW project by Raasi Green Energy, a 100 MW project by L&T and a 40 MW project by Reliance.

None of these larger projects were a part of the initial bidding process. Of this, Raasi Green Energy had signed a Memorandum of Understanding (MoU) for a 100 MW project with Tamil Nadu Industrial Development Corporation (TIDCO) back in December 2012 but had also not participated in the bidding process.

Apart from this capacity of 690 MW, a 100 MW project by a Korean company, Shinsung , is expected to be awaiting final approval from the developers who are trying to narrow down on a low cost financing options before making the commitment.

No specific changes have been made to the PPA or any other term for agreement that make these projects more bankable than it was earlier. Under the bidding process, the maximum capacity for project size was limited by the evacuation capacity listed for each district in a list put out by Tamil Nadu Energy Development Authority (TEDA). Based on that, most projects were planned for a capacity between 1 MW and 10 MW with just one project that was as large as 50 MW. However, the newer projects had enough time to scout for evacuation capacity on their own. The larger capacity has potentially made these projects financially feasible for the developers. Other key reasons for the new response could be availability of more planning and commissioning time and no uncertainty with regards to tariff determination through a bidding process.

A capacity for 350 MW has been tied up for in Andhra Pradesh as well. Look out for a brief analysis on the same on our blog during this week.

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We observe a trend in the Indian solar PV project development space towards bilateral, open access, contracts (often under the ‘group captive’ model) for sale of power to industrial consumers.

Many project developers are keen on the market for bilateral sale of power, while some are already selling power directly to industrial consumers

Project developers plan for only a portion of Renewable Energy Certificates (RECs) to be sellable given the uncertainty of the REC mechanism

Rather than building a system at the client’s location, developers opt for a ‘group captive’ model, since it offers more bankability and flexibility

First Solar became the latest entrant to a group of prominent developers that have announced their interest in this market (refer). According to market sources, developers such as Kiran Energy, SunEdison, Moser Baer and Welspun are keen on the market for bilateral sale of power. In the past, we have already seen projects by M&B Switchgear in Madhya Pradesh and EMMVEE in Andhra Pradesh selling power directly to industrial consumers.

These projects typically rely on the Renewable Energy Certificate (REC) mechanism to become financially attractive. However, given the uncertainty of the REC mechanism, most developers have planned for only a portion of the RECs to be sellable. For example, while calculating a project’s financial viability, a developer may consider a sale of only 50% of the RECs generated by 2017. Based on such assumptions, developers have been able to offer a tariff of INR 4.00 – 8.00/kWh to industrial consumers. A focus is on states such as Madhya Pradesh and Andhra Pradesh, where the open access charges for solar power have either been waived off or are below INR 1.50 per kWh.

Since, there are significant risks associated with supplying power to a single customer and building a system directly at a client’s location. To mitigate this risk, many developers are more comfortable with providing power through the grid to multiple off-takers located in industrial clusters. The plant would be set up nearby. This is called a ‘group captive’ model. Under this model, in case of a dispute with one or more of the off-takers, a developer can easily find another off-taker for that share of power, making the model more bankable. It can also give the developer some flexibility to sign short-term power purchase agreements (PPAs), opening up a new customer segment. Along with flexibility and bankability, this model also provides scale (project sizes are typically 10 MW and above), which can help bring down the tariff, if the scale effect is larger than any additional grid charges.

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Coal India Limited (CIL) recently announced its foray into the Indian solar power sector with an initial project of 2 MW (refer).CIL is the largest coal mining company in India and accounts for 80% of the coal production in the country.

CIL plans to set up solar power projects in Ranchi and at company owned coal mining areas in order to reduce existing electricity bills

Additionally, Neyveli Lignite Corp and Oil India Limited are actively venturing into the solar market

A capacity of 2.3GW, driven by commercial parity, is expected to be installed by 2016.As solar power becomes more viable, the shift of at least a certain percentage of consumers to distributed generation is inevitable

The company has said that this project will help them save on their energy bills. The project is to be set up at the company’s Central Mine Planning and Design Institute located in Ranchi, in the Indian state of Jharkhand. In addition, the company plans to set-up installations at the company owned coal mining areas and staff colonies to reduce its existing energy bills. Neyveli Lignite Corp, another publically owned coal mining company, is also actively venturing into solar power generation by setting up a 10 MW project. Recently, Oil India Limited (OIL), India’s oldest and biggest oil exploration and production company, also announced its foray into the solar sector. OIL is actively looking at project development and investment opportunities. State level conventional power companies such as Karnataka Power Corporation Limited (KPCL) and Gujarat Power Corporation Limited (GPCL) have already set up solar projects in their respective states.

The foray of conventional power companies into solar carries a notable underlying message. Firstly, that solar power provides viable business opportunities for companies. Secondly, as in the case of CIL’s foray into solar, that solar power can also help save on energy costs. This is expected to be a key driver for solar PV in the years to come. BRIDGE TO INDIA expects a capacity of 2.3 GW driven by commercial parity to be installed by 2016. Thirdly, these companies realize the potential for solar and do not want to miss the bus on the business opportunities arising from this potential.

In Germany, for example, distributed generation of power using solar PV has taken a significant share away from conventional power sources. A similar story has started to play out in the US. In both these places large conventional power companies and power distribution companies have not been able to successfully capitalize on this shift. Instead, some have even been openly against it. As solar power becomes more viable, the shift of at least a certain percentage of consumers to distributed generation is bound to happen. Now, the choice is in the hands of conventional power majors whether they want to capitalize on this potential to their benefit or resist the shift.

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