Category: Projects

Uttar Pradesh has announced a bidding process for a 200 MW capacity (refer to the Request for Proposal (RfP), PPA and Escrow agreement documents). The state has also finalized its draft solar policy. It is now called ‘Uttar Pradesh Solar Policy 2013′ (refer to the policy document). The policy aims to achieve an installed capacity of 500 MW till March 31st 2017.

PPAs in the Uttar Pradesh Solar Policy will be signed only for a period of 10 years

This covers a typical debt repayment period and is significantly more attractive for lenders and beneficial for developers

Due to heavy losses suffered by power distribution companies in Uttar Pradesh, full subscription but low competition in terms of tariff are expected

A unique aspect of this policy is that the PPA will only be signed for a period of 10 years. This covers a typical debt repayment period, so lenders should not have issues with regards to the PPA timeframe. Considering that the PPA is signed at a tariff of around INR 7 (USD 0.14/EUR 0.11)/kWh, in all probability, the solar project will be able to sell power at a tariff greater than this tariff after 2023. The APPC in India is currently at around INR 3.5/kWh. Assuming an annual cost increase of 7% p.a., in ten years, the APPC will be at around INR 7/kWh. If power prices increase more than 7% p.a., the new PPA can be significantly more attractive. For this reason, we believe that a shorter time period for the PPA can actually be beneficial for the developer.

Like in Tamil Nadu (refer), power distribution companies (discoms) in Uttar Pradesh are also making heavy losses. According to recent estimates, the losses have reached INR 310 bn. Recently, the Indian Credit Ratings Agency (ICRA) and CARE Ratings have compared 39 utilities from 20 states in a grading exercise conducted by the Ministry of Power and the Power Finance Corporation (refer). Four discoms from Uttar Pradesh were at the bottom of the ranking and along with eight other utilities were awarded the “C” grade. As the allocation capacity is limited to just 200 MW, we expect it to be completely subscribed but the competition in terms of tariff to be fairly low.

We will discuss the various Indian solar policies in-depth in our upcoming, 10th INDIA SOLAR COMPASS, published through our website on the 1st of April.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

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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The Indian state of Punjab has released a request for proposal (RfP) document for allocation of 300 MW of solar PV in the first phase of its state solar policy (refer to the RfP document). Punjab had earlier set a target of 1 GW of new solar capacity by 2022 in its ‘New and Renewable Sources of Energy Policy – 2012′ (refer to the policy document), which was released in December 2012.

Punjab is the first state to allow the use of agricultural land for setting up projects

50 MW is to be allotted for companies with no experience in setting up solar projects, while 250 MW is to be allotted for experienced companies

The policy is expected to attract higher tariffs than other states due to a higher cost of land and lower irradiation than other states

Project developers are given various incentives such as exemption from Value Added Tax (VAT) on equipment, exemption from entry tax for equipment supplies, exemption from payment of fee and stamp duty for registration / lease deed charges for the project’s land requirement and exemption from change of land use (CLU) charges. There is no domestic content requirement under the policy. Punjab is the first state to allow the use of agricultural land for setting up the projects. This is especially relevant as almost the entire state is made of up cultivable land as opposed to Rajasthan and Gujarat where large tracts of desert wasteland can be used for setting up solar projects.

The project allocation has been divided into two categories:

A total of 50 MW is to be allotted for newly incorporated or existing companies that have no experience in setting up and operating solar projects. The minimum capacity of the project has been set at 1 MW and the maximum capacity at 4 MW. The allotment of project capacities in this category will be in the multiples of 1 MW.

A total of 250 MW is to be allotted to experienced companies that have installed and commissioned at least one project with a capacity of 5MW or higher anywhere in the world which is in operation for at least one year before the last date of submission of e-bid anywhere in the world. The minimum capacity of the project can be 5 MW and the maximum capacity allowed for a single developer is 30 MW. The allotment of project capacities in this category will be in the multiples of 5 MW.

The benchmark tariffs for the bidding process have been fixed at INR 8.75/kWh for companies not availing accelerated depreciation and INR 7.87/kWh for companies availing accelerated depreciation. The RfP allows a period of six months for achieving a financial closure and 13 months for commissioning from the date of signing the PPA. The developers have to submit bank guarantees worth INR 4m/MW. Developers face a fine of 30% of this guarantee in case the project is delayed up to one month and the entire guaranty will be en-cashed for a delay of two months.

Punjab policy is expected to attract higher tariffs than other states like Rajasthan, Tamil Nadu and Odisha. This is primarily due to the high cost of land, which can be up to at least 5-10 times more than in Rajasthan, and a lower irradiation, which can be up to 20% lower than in Rajasthan.

The pre-bid meeting is scheduled for 3rd April 2013 and the last date for bid submission is 25th April 2013.

Overall, the policy has no salient features that make it either particularly attractive or risky, except for the fact that Punjab has a loss making power distribution company and payment security will be an issue. Given the short timelines as well as the fact that the policy requires developers for Category – II to have more than one year of experience in running a plant, established developers are clearly favoured over new entrants (who can still go for Category – I plants).

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

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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As the Indian solar market is moving from subsidy-driven PV projects with public PPAs to commercially-driven private PPAs, two trends are emerging to service India’s power customers: large PV plants (e.g. 100 MW), located in high irradiation areas selling power through the grid directly to end-users and local, captive PV plants (e.g. 100 kW). Both might have a role to play in India. Which model will provide the end customer with cheaper solar power will depend on economies of scale and the cost of using the grid.

Large plants make sense in areas with good grids and favourable policies

Small plants make sense in areas with bad grids

A new household level retail market is fast emerging

The Indian solar market is abuzz with talk of large PV plants. We have been in various interactions with developers who are looking to build PV projects of 50 or 100 MW, sometimes 200 MW. Even 1 GW projects are being considered. To be sure, there is a long and stoney path between talk and realization. Yet there is a clear trend towards conceptualizing large plants.

In some ways, this is a natural progression from the 5 MW plants allocated under the National Solar Mission (NSM) phase 1 batch 1 (a ‘learning’ size), followed by the 10 to 50 MW plants allocated under subsequent policies. It also means that the transaction costs of such plants make sense. The developer can get a much higher return for time invested. Such projects can easily absorb the fees of extensive data gathering, detailed project reports, expensive consultants and lawyers or the cost of international travel. Most importantly, it is a size that lending institutions and certain equity investors find attractive to due diligence and perhaps fund (refer to our report on bankability and financing of solar in India). This resonates well with those accustomed to traditional power plants and other large infrastructure projects. However, it does not imply that the price of the solar power offered to the market can be exceedingly low and the return of the project particularly high.

According to our estimates, the cost per MW of installed solar capacity between 5 and 100 MW comes down by around 5-10%. (There is a significant drop in prices upon reaching 1 and then 5 MW and the economics might change significantly above 100 MW, bearing in mind that there might also be adverse effects of scale, such as an increased cost of acquiring suitable land or new evacuation infrastructure that might have to be built.)

A key determinant of the cost of power to the end customer that can be supplied through such projects will be related to the grid: outage times (often more than 20%) and various fees such as cross-subsidy surcharges, open access charges, banking, wheeling, etc. Some policy makers are thinking about reducing or entirely waiving grid charges for solar projects. The recent solar policy of Andhra Pradesh is an example. This can be a game-changer.

An alternative to building large projects, supplying solar power through the grid to end customers is to supply power directly to the customer through an on-site plant. This avoids or at least greatly reduces the need to use the grid or acquire land – two large headaches of solar in India. On the other hand, financing is more difficult to obtain as projects are much smaller in size and there is a higher off-taker risk. What happens if the on-site power customer no longer wants to buy the power? A key issue here is to ensure that the power customer is bankable and contracts can be enforced (refer to our Project Development Handbook). The risk can also be mitigated through a portfolio of projects across which default can be managed. In such a portfolio, also, financing and sourcing can be done for a larger number of MWs, unlocking similar scale effects as large projects can. The American solar power provider SolarCity, which successfully went public in December 2012, has installed over 40,000 systems. It gets excellent module prices and good financing conditions.

At projects sizes between 1 MW ans 100 MW, the market moves from a utility (power sale) model to an equipment sale model – with a number of hybrids (downpayment, lease, etc.) emerging along the way. One of the most dynamic markets in India today is the rooftop PV market for households, where many new companies and business models are emerging, especially in the South, in Kerala (refer) and Tamil Nadu (refer to our Tamil Nadu Policy Brief). Here, net-metering is the potential game changer.

The described markets will have fundamentally different success factors and drivers. Sustainable success will require such long-term USPs as access to low cost financing, to power customers or to a strong sales and marketing network (refer).

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

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CSP in India has had a bad run over the last two years. The enthusiastic initial party mood was quickly followed by a collective implementation headache with a number of challenges threatening the viability of projects. Now, further allocations have been postponed. At the same time, the focus shifts from large power plants to hybrid models. India is increasingly able to produce large parts of the value chain locally.

CSP projects in India are in trouble and policies are on hold

CSP has lost out against PV

Hybrid and de-central applications may give CSP a new future in India

In the past two years, Indian CSP projects have faced numerous difficulties: DNI data is not accurate, financing costs in India are high, banks are hesitant to lend (refer to our report on financing solar power in India), government support is waning, gas water and land are in short supply. Timelines are too ambitious and margins too low. The resulting cutting of corners has backfired. The complexity of setting up CSP plants has been systematically underestimated. Today, the only CSP plants up and running in India are a 2.5 MW solar tower in Rajasthan by Acme Telepower and a 3 MW parabolic trough project by IIT-Mumbai in the Solar Energy Center in Gurgaon. Around 500 MW of the NSM Phase 1 capacity is still under construction – all of it with significant delays. Much will likely never get built. Karnataka only managed to get bids for 20 MW out of 30 MW on offered last year. Rajasthan received no bid for its 100 MW offered this year. Currently, under the National Solar Mission (NSM) Phase II, CSP has been put on hold.

At the same time, solar PV has taken the limelight. There have been hick-ups in PV as well, but because the technology is simpler, faster to build and projects come in smaller ticket sizes, the learning curve has been faster. In addition, the cost reduction of PV globally has outperformed that of CSP.

CSP power plants retain a key benefit over PV in that they can produce better quality (more stable, predictable) power. This is crucial for a country with a fragile power grid infrastructure such as India. However, this advantage over PV might become less pronounced as policies start to shift from grid-connected, Feed-in-Tarff (FiT) driven to encouraging de-central solutions as in Tamil Nadu (refer) and Kerala (refer).

However, CSP might yet still stage a comeback in India. And if it does so, it will be on its own terms, increasingly de-hyphenated from PV. The availability of DNI data is improving. A local supply chain has already developed. Indian companies have started to manufacture tube receivers, frames, curved mirrors and other key components. Costs are falling, with much more potential for localization of manufacturing.

What can help CSP even more, is a policy shift towards hybridization of CSP with other technologies. In 2012, the Ministry of New and Renewable Energies (MNRE) has released a dedicated program for 20-50 MW CSP hybrid plants. The MNE will provide support in the provision of land, water resources, grid connectivity, geo-technical reports, PPA distribution licenses and the environmental clearance. The hybrid plants shall include the following combinations: a CSP plant with hybrid cooling to reduce water consumption, a CSP plant with steam temperatures higher than 500°C, a CSP plant with more than 10 hours of storage to achieve 24/7 operation and a CSP plant with 30% natural gas support. The focus of these hybrid plants is clearly on developing solutions tailored to Indian challenges and requirements.

In addition, CSP would be able to provide process heat solutions to factories reeling under power shortages and rising power process across the country. This would be relevant especially for industries with high energy and heat demands such as pulp and paper, steel, cement, or textiles. What needs to be done at this stage is to provide more working examples of how solar technology can reduce energy costs and improve energy security.

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

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Karnataka has announced a second round of allocations under its state solar policy. In the last round that took place one year ago, 80 MW was allocated (refer).

Allocations of 130 MW of PV as well as CSP projects are targeted

The policy aims to meet the RPOs of distribution companies, and makes no attempt to put forward more ambitious targets like in other states

The state has opted for a reverse auction based on a benchmark tariff of INR 14.50/kWh for PV and 11.35/kWh for CSP

The new bidding process aims to allocate a capacity of 130MW (refer to the PPA and Request for Proposal (RfP) documents). The pre-bid meeting will take place on 12th March 2013 and the bid submission due date is 28th March 2013.

In the first round, 50 MW was reserved for PV and 30 MW for CSP. However, since proposals for just 20 MW of CSP came in, the remaining 10 MW had been transferred to PV. This time round, no demarcation has been made for PV and CSP. Given that the maximum size of a single project is 10 MW as per the RfP document, it is unlikely that any developer will bid for CSP. The minimum size for a single project is 3 MW.

The primary aim of these allocations is to meet the Renewable Purchase Obligation (RPO) of the state’s power distribution companies. No attempt has been made to deviate from this limited objective and put forward more ambitious targets like other states such as Gujarat, Andhra Pradesh and Tamil Nadu have done. The bidding process in Karnataka is similar to its previous allocations as well as to phase one of the National Solar Mission (NSM): a reverse auction, based on a (rather surprising) benchmark tariff of INR 14.50/kWh for PV and 11.35/kWh for CSP. Unlike other new policies in Tamil Nadu, Andhra Pradesh and Rajasthan, the state has not opted for the L1 process, wherein developers are asked to meet the lowest bid.

Stability in Karnataka might be considered a good thing on the face of it. However, solar is a new market and the regulatory environment has been evolving constantly over the last two years, with plenty of opportunity to learn from different policies.

For example, Gujarat came out with the concept of solar parks. Solar parks help developers streamline the development process. Andhra Pradesh became the first state to waive open access, wheeling and other grid-related charges, thereby opening up the markets for direct third party power sales (refer). Tamil Nadu pioneered Solar Purchase Obligations (SPOs), effectively shifting the cost of solar from debt-ridden power distribution companies to large power consumers (refer). Both Kerala and Tamil Nadu are planning to offer net-metering, which can open up the immense potential of the residential market. India is currently a great laboratory for solar policies (refer), with a key focus on ensuring bankability (refer). To stand still in such a dynamic market means losing out on opportunities to deliver more solar power more rapidly to more consumers at lower rates.

Jasmeet Khurana works on project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

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.

What are your thoughts? Leave a comment below.

BRIDGE TO INDIA has come out with its latest report, ‘Bankability and Debt Financing for Solar Projects in India‘. The report looks at debt financing for solar projects in India from two perspectives: the lender’s point of view and the borrower’s point of view. The lender’s point of view addresses the bankability of solar projects in India by covering all the risks and their respective mitigation strategies. Here we help the developer’s understand the steps they need to take to increase their chances of receiving non-recourse financing. From the borrower’s point of view we cover how the project finances can be structured in an optimum manner. We go into the details of how bridge financing can be used to solve liquidity issues. Also, various sources of financing have been discussed in detail.

Lenders have concerns with debt recovery and the legal enforceability of claims in India in general. This is a concern that extends to any project-related finance in India

On the intermediate level, with respect to the Indian solar market, banks have two main concerns: the first is the limited availability of irradiation data and the strength of PPAs

Unavailability of non-recourse financing is a critical hurdle in the expansion plans of developers as they cannot continue to accumulate recourse on their balance sheets

Till the time non-recourse financing becomes more readily available in the Indian market, access to the right financing options will remain the key differentiator across different developers and their projects

Solar projects in India still struggle to raise debt finance. So far, only a small percentage of projects have attained non-recourse financing. Most have worked with either limited recourse or full recourse finance. Banks that have in the past provided non-recourse financing are either Indian commercial banks or international lenders with a development mandate. There are several reasons why non-recourse finance is difficult to obtain. They relate to three layers of the market:

On the macro level, lenders have concerns with debt recovery and the legal enforceability of claims in India in general. This is a concern that extends to any project-related finance in India. Even cross-defaulter clauses of converting debt into equity only have a limited appeal. The best way for a project promoter to reduce this concern is through a strong company reputation and banking relationship as well as through the actual track-record of debt repayment and future plans and debt requirements (the larger the risk to future business of being labeled a ‘defaulter’, the higher the incentive to repay the debt). Recovery of Debts Laws (Amendment) Bill, 2011 was passed in December 2012 in the Indian parliament. Recent modifications of debt-recovery rules will make it easier for banks to recover bad loans and thereby to make more non-recourse financing available in the future.

On the intermediate level, with respect to the Indian solar market, banks have two main concerns: the first is the limited availability of irradiation data, which forms the basis for projecting future revenues. The second is the strength of public power purchasing agreements (PPAs) due to the weak financial health of India’s public utilities. On account of these risks, the market is slowly maturing: more on-ground measuring stations and actual generation data from existing plants provide a stronger set of data. With respect to the strength of PPAs, payments are sometimes backed by guarantee funds and sometimes passed on to the private sector (through Renewable or Solar Purchase Obligations. For Renewable Energy Certificates (RECs) the main questions hover around the enforcement of Solar Renewable Purchase Obligations (RPOs) and Solar Purchase Obligations (SPOs in Tamil Nadu), which create the demand. The project promoter will need to be conservative on yield assessments and evaluate the off-take and REC options very carefully.

On the project level, there can be projects that are simply not well developed. A well- developed project usually starts from the perspective of the debt provider (bankability) by identifying and mitigating risks. The second step is proving viability to the lenders. Our report will primarily focus on steps for improving the bankability of the projects and arranging for project debt.

Currently, a dynamic, early stage, uncertain and regionally diverse regulatory environment also negatively impacts project bankability by keeping the transaction costs for lenders high and visibility low. The nature of solar power projects – with their high upfront capital requirements and low operational costs, typical of infrastructure projects – further emphasizes the bankability challenge. Another issue is that since many Indian banks currently have excess exposure to the conventional power sector, they have very limited funds left over for solar projects. Apart from that, interest rates in India have been at an all-time high. Solar projects financed by Indian banks, non-bank financial companies (NBFCs) and infrastructure funds end up paying an interest rate of over 13% per annum.

Unavailability of non-recourse financing is a critical hurdle in the expansion plans of developers as they cannot continue to accumulate recourse on their balance sheets. In addition, the high cost of financing significantly adds to the cost of solar power in India as compared to more mature solar markets.

Till the time non-recourse financing becomes more readily available in the Indian market, access to the right financing options will remain the key differentiator across different developers and their projects. This is exceptionally important in a competitive project allocation landscape that exists in India. International financing from export credit agencies (ECAs) such as the US EXIM bank and development finance institutions (DFIs) such as the IFC has helped some developers secure a lower cost of debt. Even after completely hedging for currency, a project is able to derive a rate differential of around 100 basis points. These financing sources are also more open than commercial banks to financing solar projects as they tap into funds allocated for climate initiatives and/or have a mandate to promote exports from the host country.

As a trend, project developers and other key stakeholders in the solar industry realize that conventional financing from banks is not the sole answer to scaling up of solar power in the country. Innovative mechanisms need to be worked out. Currently, this innovation is working at two levels: lack of liquidity is prompting project developers to look for instruments like suppliers’ credit and construction finance to get the projects up and running quickly (gaining speed) and at the same time, the high Indian interest rates are spurring efforts to acquire debt from outside the country without a full or partial financial hedge against currency fluctuations.

Download ‘Bankability and Debt Financing for Solar Projects in India’ for free.

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

Since the announcement of the National Solar Mission (NSM) in early 2010, there has been considerable development in the Indian solar market.

The Indian solar market is poised for further growth with the announcements for new solar policies

New policies provide several opportunities, each with different sets of permits, clearances and approvals.

The absence of structured information deters new entrants into the market and imposes challenges on players that are already in the market

The overall installed capacity has increased from 22 MW in 2010 to over 1,050 MWtoday. This growth was propelled largely by the NSM and the Gujarat State Solar Policy. The market is now poised for further growth with the announcements of solar policies from states such as Tamil Nadu, Andhra Pradesh, Chhattisgarh and draft policies of phase two of the NSM. Meanwhile, the Renewable Energy Certificate (REC) mechanism provides an alternative to the Feed-in Tariff (FiT) policies. This provides investors, project developers and EPC players several opportunities. The challenge is that each of the policies requires different set of permits, clearances and approvals – at different timelines and costs. Navigating through these procedures and assessing their relative risks and returns can be challenging.

At the same time, an un-structured, ill-informed approach to project development jeopardizes project timelines and affects the profitability of projects. From a bankability perspective, structured and well-documented information is key to achieving financial closure. Although information is available, it is often distributed, haphazard and uncritical. This absence of structured information deters new entrants into the market and imposes challenges on players that are already in the market.

The Project Development Handbook from BRIDGE TO INDIA aims to present relevant information in a structured manner to provide a sound overview of the processes, timelines, costs, challenges and opportunities in project development in India. The manual shall help in the assessment of projects in terms of profitability and bankability across various off-take options. The handbook is meant for investors, project developers and EPC players.

Click here to download BRIDGE TO INDIA’s latest INDIA SOLAR DECISION BRIEF, ‘The Project Development Handbook’.

Jasmeet Khurana, Market Intelligence Consultant at BRIDGE TO INDIA has expertise in project performance benchmarking, success factors for module sales, financing and bankability of projects in India.

For a significant part of 2012, project developers in India have had very limited visibility on their project plans and pipelines. This scenario is expected to change with the announcement of new policies.

The Andhra Pradesh solar policy will provide various exemptions under the open access mechanism and will allow developers to sell under the REC mechanism

The Tamil Nadu solar policy aims to create demand for solar power by enforcing obligations on select power consumers

Implementation of Viability Gap Funding under phase two of the NSM will emphasize the shift from a government-backed to consumer driven off-take

The India solar market is anticipating many alterations with the recently released state solar policies in Andhra Pradesh and Tamil Nadu, the expected announcement of the guidelines for phase two of the National Solar Mission (NSM) in December 2012 and phase three allocations under the Gujarat solar policy in January 2013. Each of the newly announced policies is taking an innovative route to promote investments in solar power and set a precedent for other states to follow.

Andhra Pradesh solar policy aims to remove regulatory hurdles for captive use and third-party sale of power, provides exemptions from various levies under open access mechanism and allows developers to sell Renewable Energy Certificates (RECs). Project developers have lauded the policy as it provides a conducive environment for investments and at the same time does not put any financial burden on the state exchequer.

A part of the Tamil Nadu solar policy promises higher tariff if the power is sold to the state-owned distribution company, but given the poor financial health of the distribution company, it is unlikely that many project developers will be interested in that. To ensure investments into the state, a large part of the policy aims to create demand for solar power by enforcing an obligation to buy solar power on select power consumers.

The market can be seen to be moving away from the state backed Feed in Tariff (FiT) and towards a consumer driven off-take. Implementation of Viability Gap Funding (VGF) for NSM projects will also be a step in that direction (refer to the October 2012 edition of India Solar Compass to read more). The falling costs of solar are responsible for such a shift in the market and a key learning for other states at this stage is that a transparent and conducive regulatory framework can go a long way in promoting investments into solar power. This can now be done without putting any significant financial burden on the state exchequer.

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Write to us at contact@bridgetoindia.com for any further information.

Mr. Jasmeet Khurana covers projects and financing as a consultant in the Market Intelligence team at BRIDGE TO INDIA. 

The bankruptcy announcement by Abound Solar has highlighted the risk of projects losing their module warranties as module manufacturers across the world fail. Two projects in India are using Abound Solar modules and they will have to face the liability if the technology does not perform as expected till the year 2036. As more manufacturers are expected to fail, a large number of projects in India may find themselves without warranties.

Abound Solar has decided to file bankruptcy and has blamed aggressive pricing actions from Chinese solar panel companies for its failure

As there is no track record for new technologies like CdTe, company accruals for warrantee claims on modules are based on guessing the cost of repair and replacement in 25 years

The continuously falling costs of c-Si puts the pressure on the financial health of thin film manufacturers and may cause some more to fail

Failing companies will leave projects with warranties that will not be honored in the future

On June 28th 2012, US based manufacturer of thin film cadmium telluride (CdTe) PV modules, Abound Solar, announced that the company intends to file a petition for protection under the U.S. Bankruptcy Code this week. According to the company, aggressive pricing actions from Chinese solar panel companies have made it very difficult for a startup company like Abound to scale in current market conditions.  In the past year, many companies like Solyndra and Evergreen Solar have failed. Most solar manufacturers are in a bad financial condition and more consolidation in the market is expected.

Most module suppliers have a 25 year power output guarantee. This guarantee and its terms are an important part of the purchase criteria for a project developer. Manufacturers set aside an adequate portion of their premiums at the time of sale in a reserve fund as accruals to service all claims arising out of these guarantees. CdTe is a new technology and its performance has not been proven over long periods of time. At the moment, company accruals for such modules are based on guessing the cost of repair and replacement in 25 years, and the frequency of such claims. As an example, another CdTe manufacturer, First Solar, had more than anticipated warranty expenses in 2010-11. Their claims reached levels as high a 1% and they announced an increase in their accruals to meet more future claims. There are very few solar manufacturers that actually insure their product warranties. Only a couple of companies like Canadian Solar and Suntech are known to have a warranty insurance mechanism in place.

A company writing 25 year warranties should have a 25 year reserve. Realistically, as Abound is a new company, their accruals will most likely not be able to meet future claims. In India, Abound has sold modules to Punj Lloyd for their 5MW project in Rajasthan and to Solarsis for their 2MW project in Andhra Pradesh. Modules also have higher claim rates in hot climatic conditions like India. This increases the financial liability of these projects. They will most likely receive pennies on the dollar for any claims that they might have and face full liability if the technology fails to perform during the long lifetime of the project. This makes the bankability of the module supplier an important part of all purchase conditions as most manufacturers have a bad financial health and many of them will exit the market in the coming months and years.

In India, 55% of all installed capacity is thin film. From a price perspective, thin film technologies like CdTe and CIGS enjoyed a cost advantage over c-Si modules in the past. In the last two years, the cost of c-Si modules has plummeted and the cost advantage enjoyed by less efficient thin film modules has diminished. According to the US Department of Energy, China offered more than $30 billion in government backed loans to its solar manufacturing companies in 2010 alone. We know that, most of the solar manufacturing in China is c-Si based. This gives c-Si an advantage in terms of scale and decrease in price over thin film as a technology. The new found cost advantage of c-Si, in turn, puts the pressure on the financial health of thin film manufacturers. If thin film suppliers find it difficult to compete and continue to fail, a large part of the installed capacity in India will find itself without warranties and guarantees on their modules.

BRIDGE TO INDIA is launching the INDIA SOLAR NAVIGATOR.

This online, analytical tool is designed to provide you with up-to-date, in-depth business insight on the Indian solar market. It will cater to international investors, companies and institutions looking to leverage the Indian solar opportunity as part of their long term growth strategy.

Look at the introductory video above to know more. For any specific question, write to us on contact@bridgetoindia.com

There is a lot of talk on how smart grids are needed to solve intermittency in power generation introduced by renewable sources of energy. But what does a smart grid mean?

An excellent paper from Carnegie Mellon University titled The Many Meanings of Smart Grid sums up the different aspects.

Image from ecotechninja.com

At the level of the customer:

1) Meters that can be read automatically without sending someone to read it once a month. This saves cost and eliminates errors in meter reading.

2) Time-of-day and time-of-use meters: Time-of-day meters charge different rates at different times during the day (This is because demand is higher during certain periods than others). Time-of-use meters are real-time meters which reflect spot prices of electricity. Both technologies are intended to reduce peak loads so as to ensure that less generation and transmission capacity is needed.

3) Meters which communicate to the consumer through a display providing information about the current rate of electricity use and the price. This promotes energy conservation and a reduced demand during times of peak prices.

4) Load management: Meters that are intelligent enough to avoid turning on appliances during times of high prices of electricity. For example, scheduling your washing machine to operate at night, when prices are typically the lowest.

At the level of the distribution system:

1) Distribution system automation: Most distribution systems have a tree like structure known as Distribution Feeders . This means that if the main feeder is damaged due to lightning, the entire network goes down. A smart grid would, however, be able to route power through an alternate feeder to avoid disruptions.

2) Selective load control: Today, if there is an emergency (storm, terrorist attack, etc.) and the demand outstrips supply, then entire sections of the distribution network will have to be disconnected to reduce the demand. With a smart grid, this can be better managed to ensure that critical services like fire services, hospitals and police stations remain functional.

3) Managing distributed generation and islanding: Distributed energy sources (from renewable energy for example) that supply power to a certain geographical area should be given the flexibility to cut themselves off from the main grid in case of an emergency. The current set up does not allow this.

At the transmission system:

1) Measurements and monitoring: Smart grids allow for better monitoring of the entire system thanks to the host of sensors and computing integrated with the transmission system. This can promote efficiency, avert breakdowns and reduce the time taken to detect a problem.

2) Routing of power: Routing of power follows the laws of physics and not economics. Sometimes power flows where it is not wanted which leads to a waste. Smart grids can deal with better routing of power through advanced switching devices.

3) Distributed and autonomous control Today s grid is controlled centrally. Research shows that this may not be the most efficient manner to deal with emergency situations due to the differences in grid requirements in different areas (known as grid topology). Smart grids will allow decentralization of control.

As India s policy makers strive to establish standards for smart grids , there is a need for an understanding of the definition of Smart Grids which would serve as the foundation in bringing different stakeholders to a common platform.

[The paper can be downloaded from: http://wpweb2.tepper.cmu.edu/ceic/pdfs_other/Smart_Grid_July_09.pdf]

According to the latest information available to BRIDGE TO INDIA, Juwi India Renewable Energies Pvt. Ltd., the Indian subsidiary of the Juwi Group, has completed the construction of three solar PV projects worth a cumulative 17.7MW in India. These projects are of 10MW in Rajkot and 2.5MW in Surendernagar, both in the western Indian state of Gujarat, and a 5.2MW plant located in Jodhpur in the western state of Rajasthan.

According to our information, the projects are yet to be officially commissioned by the developers. At the moment, they are in the process of obtaining the final clearances from the state authorities. As a result, the names of the developers have not been made public so far. Based on our assessment, the developers are Green Infra Ltd. for the 10MW plant in Rajkot and AES Solar for the 5.2MW plant in Jodhpur, while the developer for the Surendernagar project is unknown.

Juwi is one of the largest solar EPC companies in the world with INR48 billion (EUR800m) in revenues in 2010. Juwi India was established in the southern Indian city of Bangalore in February this year. The company opened another office in Delhi in May this year in order to focus on project opportunities in western and northern Indian states.

The completion of the 17.7MW worth of projects marks a crucial first step for JUWI in India. It has so far partnered with Lanco Solar for a 75MW PV plant in Maharashtra. The project is being developed by MAHAGENCO. Based on our information, Juwi’s role in this project is limited to the design and engineering of the plant. Besides this, it currently does not have any projects under construction in India.