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Transcript of BRIDGE to INDIA_ India Solar Compass_October 2013
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7/27/2019 BRIDGE to INDIA_ India Solar Compass_October 2013
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DISCLAIMER 2013 BRIDGE TO INDIA Energy Pvt.
Ltd.All rights reserved
October 2013, New Delhi
This report is owned by BRIDGE TOINDIA and is protected by Indian
copyright and international copyright/intellectual property laws under
applicable treaties and/or conventions.The user agrees not to export any
report into a country that does not havecopyright/intellectual property laws
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BRIDGE TO INDIA hereby grants theuser a personal, non-exclusive, non-
reundable, non-transerable license touse the report or research purposes
only pursuant to the terms andconditions o this agreement. BRIDGE
TO INDIA retains exclusive and soleownership o each report disseminated
under this agreement. The user cannotengage in any unauthorized use,
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CONTENTS
1. Overview 01
2. Market Dashboard 022.1 Market Compass 022.2 India Solar Market Prices 02
2.3 Installed Capacity in India 03
3. Policy and Projects Outlook 043.1 National Solar Mission 04
3.2 State policies 05
Tamil Nadu 06
Andhra Pradesh 06
Karnataka 07
Madhya Pradesh 07
Rajasthan 07
Uttar Pradesh 07
Punjab 08
3.3 Renewable Purchase Obligation 08
3.4 REC projects 08
4. Industry4.1 Interview: Mr. HR Gupta, Managing Director, Indo Solar 10
5. Key question: How does the group captivemodel sale o solar power work in India? 125.1 Background 12
5.2 Denition 12
5.3 Regulations: Theopen access mechanism 12
5.4 Benets othe group captive model 15
5.5 Group captive power plants under an OPEX model 16
5.6 The business case or group captive power projects 17
5.7 Risks 21
5.8 Conclusion 22
6. Annexure 236.1 Glossary o terms 23
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India added a meager 155 MW in
the previous quarter (July 2013 toSeptember 2013) as compared to the
cumulative 780 MW added in the rsttwo quarters o 2013.This slowdown is
primarily due to the lack o allocationslast year. In addition, or some projects
under the Karnataka and MadhyaPradesh state policies, the deadlines
have been extended without penalties.
The mood is urther suppressed,
because the eagerly awaited phasetwo o the National Solar Mission
(NSM) continues to be postponed. It iscurrently awaiting cabinet approval.
However, with elections coming up andconcerns over Indias high scal decit
remaining, the Request or Selection(RS) document might be urther
delayed.
While the NSM slacks, there has beensome activity on the state level. In the
last two quarters, new allocations ora cumulative capacity o 1.5 GW have
been proposed.There is still conusionabout how many Power Purchase
Agreements (PPAs) will actuallybe signed rom these allocations.
For example, out o the total 2 GWcapacity planned under Tamil Nadu
and Andhra Pradesh state policies,even government ocials assume that
only 50% might actually be realized.So ar PPAs or 60 MW have been
signed (all in Andhra Pradesh). The keyreasons or project delays have been
problems related to land acquisition,
delay in achieving nancial closureand delay rom developers end dueto the recent rupee devaluation.
The rupee devaluation has madeimported equipments and oreign
loans more expensive. Projects thatwere calculated too tightly or even
with alling equipment costs in mind,might not be viable to build under
current conditions. In act, Chinesemodule prices or Indian supplies have
stabilized, i not increased, in the last
couple o months. Thus delay might
also translate into abortion in somecases.
In spite o the various actors ordelay, government ocials in the
south Indian states o Tamil Nadu andAndhra Pradesh seem condent that
many more PPAs will be signed bythe end o this year. Projects would
then be commissioned between thelast quarter o 2014 and rst quarter
o 2015. Over and above that, AndhraPradesh is now inviting more interests
and wants to sign PPAs in excess o500 MW. I a signicant part o these
prospective PPAs get signed, theoverall outlook o the market appears
positive and we can expect a signicantcapacity addition over the next one
year.
Also, there has been some amounto new interest in the third party sale
o power through various businessmodels and we see the rst projects
coming up in this segment. Therevenue or such third party sale o
power is oten combined with therevenue rom Renewable Energy
Certicates (RECs) and/or the benetrom Accelerated Depreciation (AD).
Models such as group captive arebeing discussed or larger project
capacities. In this edition, we areproviding an in-depth assessment o
the group captive model in our keyquestion section.
Indias total installed PV capacity atpresent stands at 1.96 GW. Apart rom
that, around 1.5 GW is currently atdierent stages o development. I
PPA signing picks up or the projectsallocated under the Tamil Nadu and
Andhra Pradesh state policies andi the NSM is announced within this
year, then we can expect a cumulativeinstalled capacity o around 3.5 GW or
utility scale projects in India by the endo 2014.
1. OVERVIEW
India added a meager155 MW in the previous
quarter (July 2013to September 2013)as compared to thecumulative 780 MW
added in the frst two
quarters o 2013.
Indias total installedcapacity at presentstands at 1.96 GW.
Apart rom that, around1.5 GW is currently
under dierent stages
o development.
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Source: BRIDGE TO INDIA
2. MARKETDASHBOARD
Indication Trend PV
Lowest FiT Decreased ` 5.51/kWh1
Interest Rate Unchanged 13%
Average Capex Decreased ` 65/Wp
c-Si modules (China, Taiwan) Decreased $ 0.58/Wp*
Thin Film modules (US and Malaysia) Decreased $ 0.53/Wp*
c-Si modules (Japan, Europe) Decreased $ 0.65/Wp*
Thin Film modules (Japan) Decreased $ 0.60/Wp*
B
RIDGETOINDIA,2013
----------------------1The lowest tari o ` 5.51/KWh (0.07/kWh, $0.09/kWh) has been mentioned by Sun Pharma underKarnataka bidding process. However, as per a governement ocial, who did not want to be namedthere is some dispute in the Karnataka bids and the process is on hold until urther clarity.
B
RIDGETOINDIA,2013
GROW
INGEM
ERG
IN
G
MATUR
ENAS
CEN
T
2.1 MARKET COMPASS
*$ rate has been used to avoid eect o currency fuctuations
All prices are or a reerence 10MW project
All prices are without duties and taxes
2.2 INDIAN SOLAR MARKET PRICES
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2.3 INSTALLEDCAPACITY IN INDIA
BRIDGE TO INDIA, 2013
Source: BRIDGE TO INDIA
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3. POLICY ANDPROJECTSOUTLOOK
We would describe the last quarteras being dominated by policy
instability: We have seen conusion inTamil Nadu over the tari proposed
by its regulatory commission; theannouncement o the creation o the
new state o Telangana rom AndhraPradesh, which put the allocations and
uture bankability o projects underquestion; Gujarat briefy contemplated
a retrospective tari revision; andnew allocations in Karnataka seem to
have been put on hold due to a dispute(reer below). Moreover, there has been
no penalty levied or delayed projectsunder the Madhya Pradesh and
Karnataka policies, which is settinga bad precedent or the upcoming
projects in those states. On the brightside, in the last quarter (July 2013 to
September 2013), the states o Punjab,Uttar Pradesh and Karnataka allocated
new projects.
A capacity o close to 1.5 GW is
currently under dierent stages odevelopment across India. With this
proposed capacity addition we canexpect Indias cumulative PV capacity
or utility scale projects to reach atleast 2.5 GW by mid o 2014 and closeto 3.5 GW by the end o 2014. Earlier,
BRIDGE TO INDIA had predicted aninstalled capacity o 4 GW by the end
o 2014. However, due to delays in thesigning o PPAs in Andhra Pradesh
and Tamil Nadu and due to a no-show o phase two o the NSM until
now, we have revised our projections
downward.
In the upcoming quarter (October 2013to December 2013), the bulk o newly
commissioned projects will come notrom policies, but rom the private
sale o solar power under the RECmechanism.
3.1 NATIONALSOLAR MISSIONProject developers have been looking
orward to the new allocations underbatch one o phase two o the National
Solar Mission (NSM) or some timenow. The drat RS document was
released in April 2013 and the biddingprocess was originally expected
or May o this year. However, therehas been no ocial news since. As
per recent statements by ministryocials, the nalized policy and
related documents have now been
submitted to the Union Cabinet orapproval. However, with concernsabout Indias high scal decit and
with the model code o conduct orthe upcoming elections, it is unlikely
that the policy will be approved soon.I the allocations under the NSM are
not annonced within a month, thereis a high probability that it might be
postponed until ater the generalelections in May 2014. BRIDGE TO
INDIA, however, is optimistic that thebidding process or the NSM will begin
this year itsel.
In the last quarter, thestates o Punjab, UttarPradesh and Karnatakaallocated new projects.
The fnalized policy andrelated documents
or phase two o theNSM have now been
submitted to theUnion Cabinet or
approval.
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Table 3-1: Overview o the state policies in India
Tamil
Nadu
Andhra
Pradesh
Karna-
taka
Punjab Madhya
Pradesh
Uttar
Pradesh
Rajasthan Total/aver-
age
Allocationdate
Jun-13 Jun-13 Apr-12 Jul-13 May-12 Jul-13 Mar-13 Most o theallocationshappened inthe rst halo 2013
PPAs signedas onSeptember2013 (MW)
0 60 60 0 225 0 75 420
Tari (INR/kWh)
6.48(with an
escalationo 5% p.a.or the rst10 years)
6.49 7.94 8.5(60 MW)
5.51 8.05 (130MW)
7.2 8.63 7.9-8.05 8.01 9.27 6.45 7.59
New PPAsexpected tobe signed bythe year end(MW)
500 80 100 230 0 120 0 1,330
Furtherallocations(MW)
None 500* None None None None RS or 1MW x 50announced
550
Delayedprojects(MW)
NA NA 50 NA 120 NA NA 170
Expectedcommi-ssioningdate oprojectsunderdeployment
Dec-2014 Dec-2014
Mar-14(50 MW)Dec-14(110MW)
Dec -14 Mar-14 Dec-14 Mar-14 250 MW byMarch 2014;1,240 MWby Dec-14
Expected
period oprocurem-ent
Jan 14
Mar 14
Jan 14
Mar 14
Ongoing Jan 14
Mar 14
Ongoing Jan 2014
Mar 2014
Ongoing Most o the
procure-ments willtake placebetweenJanuary-March 2014
Key Projects MohanBreweries(110 MW),UnitedTelecom(100 MW),Welspun(60 MW)
EsselMining(35 MW),KranthiEdice(30 MW), MahiraPower(20 MW)
EsselInra (10MW),HelenaPower(10 MW),SaiSudhir(10 MW)
Welspun(32 MW),Asopus (34MW), EsselInra-projects(30 MW)
Acme(25 MW),Moserbaer(25 MW),Welspun(25 MW)
EsselInra (50MW),Moserbaer(20MW), Srideveloped(20 MW)
RohaDyechem(25 MW),EsselMining(20 MW),EnergoEngineering(10 MW)
* Based on an interview with the Andhra Pradesh state department ocials, this will be based on direct allocation at
the pre- determined tari
B
RIDGETOI
NDIA,2013
Source:BRID
GETOINDIA
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----------------------21 EUR = INR 80 and 1 USD = INR 603http://bridgetoindia.com/blog/?p=1605
Tamil NaduTamil Nadus tender in December2012 led to an issuance o Letter o
Intents (LOIs) or 690 MW o projects.As per our discussion with the
ocials, no PPAs have been signedas o September 2013 but all PPAs
are expected to be signed in thenext couple o months. The states
nodal agency, Tamil Nadu EnergyDevelopment Agency (TEDA), has
oered a tari o `6.48/kWh (0.08/kWh, $0.10/kWh) with a 5% escalation
or the rst 10 years. The Tamil NaduElectricity Regulatory Commission(TNERC), the regulatory agency that
is required to sanction all taris,has proposed a separate tari o
`5.78/kWh(0.07/kWh, $0.10/kWh)2without escalation. The PPA with the
developers is only bankable i TNERCapproves the tari being oered
by TEDA. TEDA has tried to assurethe project developers that the new
proposed tari will have no bearingon their projects and that TNERC
will provide a sanction or the tariscurrently being oered.
In a situation where the taris beingoered by TEDA are not approved by
TNERC, we can expect a majority othe project developers to back out. On
the other hand, i TNERC approvesthe older taris, the largest capacity
addition in 2014 can be expected romTamil Nadu. As there has been an
initial delay due to the concerns overthe tari revision, we might not see
300 MW projects being commissionedby June 2014 as predicted by us in the
July 2013 edition o the India SolarCompass. Instead, we expect a capacity
o 200 MW to be commissioned bySeptember 2014.
Andhra PradeshMost investors are currently skepticalabout projects in Andhra Pradesh
taking o anytime soon. One reason
is that the initial retrospective changein tari by the state3 has led to a
loss in condence in the processes
being ollowed. Out o the 1,700 MWo original applications submitted in
2013, applications or less than 150MW is expected to nalize. Another
reason or a poor response rom
investor and developers in the state isthe expected split o Andhra Pradeshinto two separate states (the new
state is to be called Telangana. As perour discussions with the government
ocials, they do not oresee theproposed division o the state to have
a considerable impact on the solarprojects.However, some developers
have their reservations. This isespecially true or those who have
projects in central Andhra Pradesh,where the distribution company might
be biurcated in the uture.
Around 61 MW o PPAs have alreadybeen signed and as per the ocials
o New and Renewable EnergyDevelopment Corporation o Andhra
Pradesh, another 80 MW o PPAs areexpected soon. As there is an incentive
or early commissioning in AndhraPradesh, project developers who have
a head start in terms o nalizing landprocurement and partner selection
or Engineering Procurement andConstruction (EPC) beore signing o
the PPAs, will be able to benet romthat. We expect that at least a capacity
o 60 MW will be commissioned aheado schedule and within the third
quarter o 2014.
Apart rom this, Andhra Pradesh has
provided an open oer or developersto take up projects at the existing
taris. Four to ve large projects (up to100 MW) are expected to take up this
oer.
TEDA has tried to
assure the projectdevelopers that thenew proposed tari
in Tamil Nadu willhave no bearing on
their projects and thatTNERC will provide a
sanction or the taris
currently being oered.
Out o 1,700 MW ooriginal applications
submitted in 2013,applications or less
than 150 MW areexpected to fnalize in
Andhra Pradesh.
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Andhra Pradesh has also opened
up a window or new interests ordevelopers to set up solar projects at
the same tari that is being oeredto the existing projects (`6.49/kWh
(0.08/kWh, $0.10/kWh). As per our
conversations with the ocials, theyare expecting resh applications oaround 500 MW. However, given the
low taris in the state, BRIDGE TOINDIA thinks that their estimates are
too optimistic and we do not expectthat the resh additional capacity will
exceed 200 MW.
Karnataka
A capacity o 60 MW had been allocatedunder the Karnataka state policy inApril 2012. As per the PPA, these
projects were to be commissioned byOctober 2013. However, due to delay in
land acquisition and nancial closure,only one project with a capacity o 10
MW by Jindal Aluminum has beencommissioned on time. The ocial
deadline has been extended until2014 without nes or the delays.
According to unconrmed sources,
the recent allocation process or acapacity o 130 MW has been put onhold as some companies have disputed
the published taris, claiming someprocedural mistake. These allocations
are likely to remain on hold untilthere is more clarity. We think that
commissioning o any part o thenewly allocated capacity o 130 MW
within the next year is unlikely. Thelet over capacity o 50 MW rom the
allocations in 2012 is expected to becommissioned by the end o the rst
quarter o 2014.
Madhya PradeshIn Madhya Pradesh, our projects o
25 MW each, one project o 20 MW andanother o 105 MW were allocated in
May 2012. The 25 and 20 MW projectswere to be commissioned by June 2013
and the 105 MW project by December
2013. However, as o September 2013,only a 105 MW project by Welspunhas been commissioned ahead o
schedule. As so oten, the delay is citedas being due to diculties in achieving
nancial closure coupled with delays
in acquiring land or projects has led tosubstantial delay in the commissioning
o the remaining projects. One projectdeveloper commented that the delay
o their project has been due to the
recent rupee devaluation.
The deadline or the remainingcapacity o 120 MW has now been
extended until March 2014 and noneo the project developers is being
penalized. Hence, we expect a capacityo 80 MW to be commissioned beore
the new deadline.
RajasthanA capacity o 75 MW that has been
allocated in Rajasthan seems tobe on track. As per ocials in the
department, all projects are expectedto meet their deadline o March 2014.
Also, they mentioned that most othe projects have either secured
nancial closure or are in the processo nalizing it. Given the experience
under most solar policies and goingby the previous experinece o the
developers, we, however, expect thattwo to three projects with a capacity o
around 25 MW will be commissionedby the March 2014 deadline and the
remaining by around June 2014.
Uttar PradeshUttar Pradesh has nalized
agreements with seven projectdevelopers or a cumulative capacity
o 130 MW. The developers are:
Jakson Power (10 MW), Moser Baer(20 MW), Sree Developers (20 MW),DK Inracon (10 MW), Reex Energy
(10 MW), Azure power (10 MW) andEssel Inraprojects (50 MW). The
PPAs in the state are expected to besigned beore the end o the year.
The government has urther signed amemorandum o understanding with
National Hydro Power Corporation(NHPC) or a proposed 100 MW solar
project. It is not yet clear when thisproject is to be nalized. Most o the
mentioned project developers willlikely do their own EPC and might be
able to complete their projects ahead
The recent allocation
process in Karnataka,or a capacity o 130
MW has been puton hold as somecompanies have
disputed the publishedtaris.
Uttar Pradesh hasfnalized agreements
with seven projectdevelopers or a
cumulative capacity o130 MW.
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----------------------4EPC providers are setting up solar parks specically or REC or captive projects. These parksprovide land and grid-connectivity assistance to solar project developers.
2014. This is because the time spent in
selecting an EPC partner will be savedand the allocation o internal resources
will be more ecient. Also, as allthe decisions regarding the technical
design, selection o equipment and
timelines will be taken by the projectdeveloper itsel, it is expected thatthere will not be any procedural delays.
PunjabPunjab has nalized agreementswith 26 project developers to develop
a cumulative capacity o 250 MW.Some o the key projects in the
state are: Asopus Inrastructure (34
MW), Welspun Solar (32 MW), EsselInraprojects (30 MW), MoserbaerClean Energy (30 MW), Azure Power
(30 MW), Solairedirect (20 MW), PunjLloyd (20 MW). The projects have been
given six months or nancial closureand 13 months or commissioning.
The average tari in Punjab is `8.28/kWh (0.10/kWh, $0.14/kWh).This
is higher than most other states,largely due to the high land costs and
relatively low irradiation in the state.
As the debt nancing is usually doneater the land has been bought, theseprojects will look more attractive to the
lenders at the time o debt nancing.Due to this reason, the debt nancing
or projects in Punjab is expected tobe relatively easier. None o the PPAs
have been signed until now and weexpect them to be signed by the end
o the year. As a result, it is unlikelythat there will be any major capacity
additions rom Punjab in the rst halo 2014. However, we might see an
additional capacity o around 100 MWby September 2014.
3.3 RENEWABLEPURCHASEOBLIGATIONRecently, there has been more
condence in the market with regards
to the enorcement o Renewable
Purchase Obligation (RPOs) inIndia. Delhi distribution companies
(DISCOMs), or example, have alreadyincluded the RPO compliance expenses
in the tari. The Madhya Pradesh
Electricity Regulatory Commissionhas mandated the DISCOMs tocomply with RPOs. Similarly, the
obligated entities in Punjab havebeen mandated to comply with the
RPOs o nancial year 2011-12 and2012-13. West Bengal is planning to
comply with its solar RPO by the endo 2013. These developments are an
indication that more states are gettingserious about implementing RPOs.
As more states begin to implementthe RPO mechanism the demand or
solar power will increase. This canprovide an additional impetus to the
solar market. For example, or thestates that are not currently meeting
their RPOs, National Thermal PowerCorporation is setting up various
power plants across the country orthe DISCOMs in these states. Many
o these projects are expected to becommissioned by March 2014. Thisincludes the 50 MW project in Madhya
Pradesh (EPC contracted to Tata PowerSolar), 10 MW and 15 MW project in
Uttar Pradesh (EPC contracted toBHEL) and 10 MW project in Orissa
(EPC contracted to BHEL).
3.4 REC PROJECTSOut o a capacity o 155 MW that has
been added in India in the previous
quarter, around 40 MW is or theprojects under the REC mechanism.With projects or third-party sale o
power gaining popularity and severalsolar parks4 coming up primarily
in the states o Madhya Pradesh andRajasthan, in the next one year, we
expect an additional capacity o 150MW or projects that use a combination
o revenue through RECs withindustrial or commercial taris.
Punjab has fnalized
agreements with 26project developers todevelop a cumulative
capacity o 250 MW.
Out o a capacity o155 MW that has been
added in India in theprevious quarter,
around 40 MW is orthe projects under the
REC mechanism.
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Figure 3-1: Projected quarterly PV installations in India (in MW)
Source:BRIDGETOINDIA
B
RIDGETOINDIA,2013
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As o today, with some exceptions,
most o the photovoltaic (PV)manuacturing capacity in India is
either lying idle or operating at a verylow capacity. Indian manuacturers
have largely been unable to competewith international module suppliers
on costs. To revive their ortunes,manuacturers are banking on the
implementation o anti-dumpingduties (ADD) and a domestic content
requirement (DCR). DCR is onlyapplicable or the NSM projects in
India and it is expected that batchone o phase two o the NSM would
have a capacity o around 200 MW
earmarked or domestic modules.This is despite the act that the UShas challenged DCR in the World
Trade Organization (WTO). However,this would be insucient to support
the 2 GW o manuacturing capacityin India. ADD on the other hand has
the potential to change the supplydynamics in the Indian solar sector
drastically. In the January 2013 editiono the India Solar Compass, BRIDGE
TO INDIA had orecast that going by theprocedure ollowed or ADD, an interim
order could be announced as early asJuly 2013. Given that no interim order
has been announced until date, it canbe assumed that this investigation is
taking longer than usual. This might bedue to the act that this is a high prole
case with considerable internationalscrutiny and pressure. As per the
normal procedure, the nal outcomeshould have been expected 23rd
November 2013 (one year rom thedate o initiation). However, given that
the nal outcome has to be precededby an interim order, the investigations
might well miss the deadline.
BRIDGE TO INDIA has maintained thatimposition o ADD would be negative
or the Indian solar sector as it willdrive up costs and slow down adoption
o the technology, which should be
the primary goal. Nevertheless, thisis a legal and not a political procedure
and i dumping has taken place, then
ADD will most likely be imposedirrespective o the implications on the
industry.
To present a contrarian view, we asked
HR Gupta, Managing Director o IndoSolar, to share his views on the Indian
solar manuacturing sector. Indo Solaris Indias largest cell manuacturer
with a current manuacturing capacityo 160 MWp. The company has plans to
increase the capacity to 360 MWp.
4.1 INTERVIEW: HR
GUPTA, MANAGINGDIRECTOR, INDOSOLAR1. What is the current state o the
Indian solar manuacturing industry?
Cell manuacturing in India ispractically idle. These acilities are
either underutilized or completelyshut. Module makers are mostly
catering to the o-grid requirementand are now also receiving some
enquires rom Europe. However,sizeable orders and visibility is not
there. Some module manuacturersare also developing their own projects
and using their own modules orthese projects to keep their plants
operational.
2. What can be expected in terms o
DCR and anti-dumping duties? By
when can we expect some clarity onthe subject?
My understanding on DCR is that the
documents or phase two o the NSMare awaiting cabinet approval.
On ADD, we are now in the 20th month
since we sought remedial action and10th month since initiation. There is a
high probability that the matter will bedecided next month.
4. INDUSTRY
An anti-dumping duty
has the potential tochange the supply
dynamics in the Indiansolar sector drastically.
HR Gupta,
Managing Director,Indo Solar
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3. I anti-dumping duties are enorced,
the taris or solar power are
expected to go up. Do you agree? Is it
justied?
The cost o solar power on a dumping
basis has already wiped out aroundUS$ 80 Billion in market capital and
the supply side o the solar value chainhas been decimated globally.
I one allows only negative marginson the supply side, soon there will
be no supply side at all. In order tomaintain a stable production capacity
and allow or R&D, prices should
be commensurate to support thesustainability o the sector.
4. What would be your recipe to make
the manuacturing o solar modules
competitive in the long run?
I you closely analyze costs, aswas done by NREL and MIT, in the
US, you will see that operationalmanuacturing costs are similar
globally. In India, we have high costo debt and high power costs but
these can easily be optimized whenmanuacturers are bankable, can
borrow cheaper oshore and switch togrid power.
Manuacturing o solar cells and
modules is already competitive andthe bill o materials is anyway similaramongst all manuacturers.
In India, we have high
cost o debt and highpower costs but these
can easily be optimizedwhen manuacturers
are bankable andcan borrow cheaper
oshore and switch togrid power.
Errata rom the previous edition o the India Solar Compass (July 2013):
Correction is in the table on page 19. Satec Enviro supplied only the steel or the
trackers. They did not install the tracking system as reported by us. Insolare hasinstalled the trackers or their project.
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5. KEYQUESTION: HOW
DOES
THE GROUPCAPTIVE MODELWORK?
5.1 BACKGROUNDUntil now, the Indian solar markethas been dominated by policy basedprojects that rely on government
incentives or obligations. However, aall in the cost o solar power and a
rise in the cost o conventional powerhave prompted many companies to
explore business models whereinsolar power can compete in the
power market without governmentsupport. India is currently in a situation
where parity or many industrial andcommercial consumers is within reach.
In such a situation, viability enablers
such as accelerated depreciation, anyadditional revenue through the RECmechanism or any other incentive such
as a waiver o open access charges orelectricity duty can tilt the balance to
make solar power an attractive optionor power consumers and investors
alike. Several new business modelsare evolving in India to tap into this
opportunity. Generation o solar powerunder the group captive model is one
o most talked about business modelsin the Indian market at present.
5.2 DEFINITIONThe group captive model is based onthe Electricity Act 2003. The act allowsor a structure or supply o power to
a group o consumers, treating themas captive consumers, as long as the
ollowing conditions are met:
i Not less than 26% o the ownershipis held by captive consumers.
ii Not less than 51% o the aggregate
electricity generated in such plant,determined on an annual basis, is
used or captive consumption.
5.3 REGULATIONS:THE OPEN ACCESSMECHANISMTypically, group captive power projectshave to operate within the ambit o
the open access mechanism. Openaccess allows large power consumers
(typically with a connected load o 1
MW and above) to buy power directlyrom the open market.
On the basis o the type o contract,open access is categorized as: Short
term open access (STOA), mediumterm open access (MTOA) and long
term open access (LTOA). Typically,solar power plants under the group
captive model opt or the LTOA basedagreements.
While open access consumers can
buy directly rom the group captiveproject or the open market, they
are subject to several charges that
are incurred or using the alreadyavailable transmission and distributioninrastructure. These include:
i Connectivity charges These are
recurring, xed charges payableby a consumer or the electricity
connection provided by thedistribution licensee DISCOM. This
varies with the connected loadand is chargeable within a range
o ` 15/kW/per month (0.19/kW/
per month, $0.25/kW/per month)to ` 500/kW/month (6.3/kW/per month, $8.3/kW/per month)
depending on the category oconsumer.
ii PoC charges Point o connectioncharges are transmission charges
introduced to recover the xedcosts o the transmission network.
They take into consideration thedistance o the customer rom the
load center (generator) and thedirection o the node in the grid.
These charges and the relatedlosses are applicable to captive
generating plants and consumersconnected to a central or state
transmission network (66 kVA or132 kVA) or a DISCOM network
(11kVA and 33 kVA). Generally, thecharges are in the range o `0.08
0.16/kWh (0.001 0.002/kWh,$0.001 0.003/kWh)
iii Transmission charges These
charges are payable to thetransmission licensee (state
transmission unit) or using thetransmission inrastructure.
Typically, group captivepower projects haveto operate within the
ambit o the open
access mechanism.Open access allows
large power consumersto buy power directly
rom the open market.
While open accessconsumers can buy
directly rom thegroup captive project
or the open market,they are subject to
several chargesthat are incurred orusing the already
available transmissionand distributioninrastructure.
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Figure 5-1: Key charges and losses taken or an average case ogroup captive sale o power in India
These charges are in the range
o `50,000 to 200,000/MW/month (625 2,500/MW/month,
$833- 3,333/MW/month or LTOAconsumers and in range o `0.10
0.50/kWh (0.001 0.006/kWh,
$0.002 0.008/kWh) or STOAconsumers.
iv Transmission losses Losses
are considered or the assumedelectricity units lost in the
transmission line between thegenerator and the consumer.
Typically, these are in the range o2 6 %.
v Wheeling charges These chargesare payable to the distributionlicensee or using the distribution
network. They are applicable to allpower generating plants connected
to the distribution grid at 33 kV orbelow and availing open access.
They are typically in the range o`0.10 0.80/kWh (0.001 0.01/
kWh, $0.002 0.013/kWh).
vi Wheeling losses These are the
losses incurred while transportingelectricity through the distribution
network. They are determined bythe State Electricity Regulatory
Commissions (SERCs) or eachconsumer categories and typically
range rom 4 10 %.
vii Cross Subsidy Surcharge These
are charges payable by consumerswho opt or supply through open
access. In India, industrial andcommercial clients cross subsidize
electricity rates or agricultural
and residential consumers. When aconsumer opts or open access, thedistribution licensee loses a high
value consumer who would havesubsidized low paying consumers.
This surcharge is designed to makeup or the lost cross subsidy.
viii SLDC/RLDC charge Theseare charges payable by STOA
consumers who avail services o
the state/regional load dispatchcenter (SLDC/RLDC). Such services
include scheduling, revisions inscheduling and energy accounting.
They are typically in the range o`1,500 2,500 (19 31, $25 42)
per day or part o the day.
The largest impact is that o the Cross
Subsidy Surcharge (CSS), wheelingcharges and transmission charges.
CSS, however, is waived o or group
captive projects. Thereore, we areonly concerned with the wheeling andtransmission charges. These charges
currently vary between zero and`2.12/kWh (0.03/kWh, $0.04/kWh)
depending on the state.
The largest impact,
amongst all the openaccess charges isthat o the Cross
Subsidy Surcharge,wheeling charges andtransmission charges.
Transmission andwheeling losses vary
signifcantly acrossstates.
BRIDGE TO INDIA, 2013
Source: BRIDGE TO INDIA
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As we can see in the Figure 5-2 the
impact o open access charges andlosses will be the lowest in Andhra
Pradesh, Uttar Pradesh and Delhi andthe highest in Maharashtra, Himachal
Pradesh and Odisha. The overall
impact can vary between `0.63/kWh- 2.74/kWh (0.008 0.03/kWh, $0.01-
0.5/kWh).
Figure 5-2: State-wise costs associated with the open accessmechanism (without any concessional benets, in INR/kWh)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Additional cost impact on solar power under the open access mechanism(without any concessional charges)
Open accesslosses (impactin INR/kWh)
Open accesscharges
Delhi
Madhy
aPradesh
Andhr
aPradesh
Bihar
Karnataka
Utta
rPradesh
Chhattisgarh
TamilNadu
Gujarat
WestBengal
Haryana
Punjab
Rajasthan
Kerala
Ma
harashtra
Himacha
lPradesh
Odisha
Andhra Pradesh and Uttar Pradesh, or
example, have completely waived othese charges or the solar projects.
Odisha and Himachal Pradesh, on theother hand, have the highest charges
among all states. Transmission andwheeling losses also vary signicantlyacross states.
A combination o these can vary rom7.74% to 12.25% o the total power
supplied. The tari orders in Karnatakaand Rajasthan account or the lowest
losses in India, Punjab and MadhyaPradesh account or the highest.
In some states,developers can avail
concessional open access charges.For example, Andhra Pradesh and
Uttar Pradesh have waived o theopen access charges or solar power
and Madhya Pradesh, Punjab andGujarat are known to provide some
concessions in terms o charges and
losses considered.
However, according to Central
Electricity Regulatory Commission(CERC) guidelines, RECs cannot be
claimed i concessional wheeling anddistribution charges are being availed.
Thereore, developers must choosebetween the two benets.
Source:
BRIDGETOINDIA
B
RIDG
ETOINDIA,2013
The impact o open
access charges andlosses will be thelowest in Andhra
Pradesh, UttarPradesh and Delhiand the highest in
Maharashtra, HimachalPradesh and Odisha.
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Additional cost impact on solar power under the open access mechanism(with concessional charges)
Open accesslosses (impactin INR/kWh)
Open accesscharges
States withconcessionalcharges
UttarPradesh
AndhraPradesh
Delhi
MadhyaPradesh
Bihar
Gujarat
Karnataka
Chhattisgarh
Punjab
TamilNadu
WestBengal
Haryana
Rajasthan
Kerala
Maharashtra
HimachalPradesh
Orissa
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Figure 5-3: Cost associated with the open access mechanism orselcted states at currently available concessional charges (inINR/kWh)
5.4 BENEFITSOF THE GROUPCAPTIVE MODELApart rom the incentives such as a
waiver o CSS, power banking acilitiesand concessional open access charges,
group captive consumers also have theollowing benets:
i The key benet o the group captive
model is that bankability risks othe o-taker can be minimized by
spreading it across multiple powerconsumers. Along with that, in case
a power consumer stops buyingpower, another o-taker can easily
be accommodated instead.
ii Smaller power customers can come
together to build a larger project,
thereby benetting rom economieso scale.
iii In some states, it is also possibleor power consumers to get
additional power entitlement.This means that users are usually
entitled to draw a certain amounto power rom the sub-station andin case they need more power, they
would need to get an additionalsanction at a one-time cost or, in
some cases with revised tari.A group captive model can help
provide an additional entitlementwithout changing the sanctioned
load rom the sub-station.
iv Accelerated depreciation (AD)
benets and revenue throughthe sale o RECs might provide
additional nancial incentives.
Source:BRIDGETOINDIA
B
RIDGETOINDIA,2013
The key beneft o the
group captive model isthat bankability risks
o the o-taker can beminimized by spreading
it across multiplepower consumers.
Smaller powercustomers can come
together to build alarger project, thereby
beneftting romeconomies o scale.
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----------------------5Accelerated depreciation reers to any one o several methods by which a company, or nancialaccounting or tax purposes, depreciates a xed asset in such a way that the amount o depreciationtaken each year is higher during the earlier years o an assets lie. As this is subtracted rom thecash fow, it allows the company to avoid paying taxes on the depreciated amount. An accelerateddepreciation o 80% in the rst year is allowed or inrastructure projects under section 80 (I) o theincome tax act.
Figure 5-4: Financial structuring or a group captive projectwhere the power consumer is not the investor
Capital cost o the project
Debt (70%) Equity (30%)
Preerentialstock (99%)
100% o the participative,cumulative & convertiblepreerence shares will be
held by the investor
Commonstock (1%)
26% o the commonstock will be held bythe power consumer
The remaining 74%o the common stock will
be held by the investor
5.5 GROUP CAPTIVEPOWER PLANTSUNDER AN OPEXMODELGroup captive solar power projects
may be an attractive option or captiveconsumers who can not only buy power
at cheaper rates rom the plant but canalso, by investing into the project, avail
accelerated depreciation5 benets.
Third party investors and independentpower producers (IPPs) who wish to
oer an Operating Expense (OPEX)model (i.e. sale o power rather than
sale o a power plant) can also availthe AD benets by adopting a certain
nancial structure.
In such a case, a Special Purpose
Vehicle (SPV) can be ormed with
joint holding o the investor (the
developer) and the power consumer.The project will be owned by the SPV.
I a third party investor wants to havethe maximum AD benet, the equity
structure o the SPV could be as
ollows:
i 1% common equity
ii 99% preerential equity
In such a structure (reer to the Figure5-4), the power consumer just invests
the equity portion (30%) o the required26% o the common stock (1%) into
the SPV. This means that or a 1 MWproject to be set up with a capital
cost o e.g. ` 70 million (875,000,$1,166,667), the power consumer just
needs to invest ` 54,600 (683, $910)to make the project eligible or the
group captive scheme. The investor orIPP can provide the remaining equity.
BRIDGE TO INDIA, 2013Source: BRIDGE TO INDIA
Third party investors
and independent powerproducers (IPPs)
who wish to oer anOperating Expense
(OPEX) model can alsoavail the group captive
benefts by adoptinga certain fnancial
structure.
The power consumerjust needs to invest
` 54,600 (683, $910)to make the project
eligible or the groupcaptive scheme.
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There is no rule to speciy the split
between the preerential stock andthe common stock and it can vary
rom project to project. The groupcaptive regulations states that the 26%
minimum share required or the power
consumer is o the equity (or commonstock).
Disclaimer: Most project developers
claim that this fnancial structuring is
completely legal and ollowed or several
power projects or other sources o
power. However, some government
ofcials are known to have raised
concerns over the legality o such a
model.
As a new SPV is created or thepurpose o the project and does not yet
have a prot on its balance sheets, itcannot avail the benets o accelerated
depreciation (AD) on the SPVs assets.
Based on common understanding o
the accelerated depreciation benet,it does not make sense or a newly
created SPV to claim the benet as ithas no existing prot on its balance
sheets that it can oset against thedepreciation claimed. However, one
o the project developer pointed usto a Supreme Court ruling which
said that accelerated depreciationcan be claimed by the part or ull
owner o the SPV. Based on theinormation provided, we understand
that Section 32 (I) o the Income TaxAct was amended in 1997 and there
is a Supreme Court ruling rom the
case o Seth Banarsi Dass Gupta v.CIT 166 ITR 783, that says that basedon the changes in section 32 (I) o the
Income Tax Act, an owner or a ractionowner o the SPV is entitled to claim
depreciation on the asset owned by aSPV. However, based on our discussion
with tax experts, we do not believethat there is any viable way or a SPV
to claim AD. Moreover, General Anti-Avoidance Rules (GAAR) under the
Direct Tax Code (DTC), which is likely to
be implemented rom April 2015, willmake it extremely dicult or anyoneto carry out nancial manipulations
just rom the taxation perspective.
Thereore, investors looking to sell
power (OPEX model) using the groupcaptive mode should not expect to avail
the benets o AD.
5.6 THE BUSINESSCASE FOR GROUPCAPTIVE POWERPROJECTSA group captive project must be
able to supply power to a consumerat a tari that is below the existingalternative cost o procuring power.
Solar will always compete with othersources o power that can be bought
using the open access mechanism.However, as the availability and price
o other sources o power may vary bylocation and circumstances, we have
not included such a comparison in ouranalysis.
The main parameters or the analysisare as ollows:
i For the grid tari or industrial andcommercial consumers,we have
chosen HT 33 kVA consumer tarisor our analysis.
ii LTOA transmission charges andwheeling (distribution) charges
or HT 33 kV consumers wereconverted into `/kWh.
iii The intra state transmission andwheeling losses are considered and
the percentage values have beenconverted into `/kWh.
iv Equally, the open access chargesand losses have been converted intoINR/kWh.
v The viable solar PPA tari iscalculated or our dierent REC
scenarios (no RECs sold, 25% o theRECs sold, 50% o the RECs sold
and 75% o the RECs sold). For eachscenario, we have calculated an
option with and without AD benet.We have let out the scenario or
100% o the RECs being sold aswe think that there is no realistic
possibility o that happening.
Based on common
understanding othe accelerated
depreciation beneft, itdoes not make sense
or a newly created SPVto claim the beneft as
it has no existing profton its balance sheets
Solar will alwayscompete with other
sources o powerthat can be bought
using the open accessmechanism.
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----------------------6http://bit.ly/mVPsSl
vi The equity IRR expectation is taken
as 15%.
vii Irradiation level has been taken as
averages or each state.
The ollowing assumptions have been
made or the analysis:
i Wheeling and transmission chargesare usually given in percentage
terms. We have converted it intoINR/kWh or a better understanding
and analysis (generation o 1.6million units/MWp installed has
been used or this conversion).
ii For all other calculations, the
capacity utilization actor (CUF) or
each state has been used as perCERC6.
iii Size o solar power plant is 10 MW.
iv RECs traded at the foor price until2017, post which no urther REC
revenue
v Plant lie and PPA period o 25
years
vi No escalation o the tari
throughout the PPA period
vii CAPEX o ` 65 million/MW
(812,500/MW, $1,083,333/MW).
viii O&M costs o ` 1 million/MW/year
(12,500/MW/year, $16,667/MW/year)
ix Debt Equity ratio o 70:30
x When no RECs are sold, the
concessional open access chargeshave been considered as ollows:
o Andhra Pradesh, Uttar Pradesh:transmission and wheeling
charges exempted
o Punjab, MadhyaPradesh:concessional wheeling
losses o 2%
Based on our modeling, i up to 25% o
RECs are sold, group captive powerplants can be viable in the ollowing
states: Delhi and Maharashtra.
I 50% o the RECs are sold; group
captive power plants can be viable inthe ollowing additional states: Andhra
Pradesh, Karnataka, Punjab, Rajasthanand Tamil Nadu.
I 75% o the RECs are solar, groupcaptive power plants can be viable in
the ollowing additional states: BiharKerala and West Bengal.
I up to 25% o RECs are
sold, group captivepower plants can be
viable in the ollowingstates: Delhi and
Maharashtra.
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Table 5-1: State-wise viability o group captive solar projects in India
Assumption
on RECs being
sold
State Type o
consumer
or whom
solar power
through open
access is vi-
able
Viable solar
PPA tari
that can be
oered to
consumers
(INR/kWh)
Existing tari
being paid by the
consumers (INR/
kWh)
Dierence be-
tween existing
tari and viable
solar PPA tari
(INR/kWh)
RECs not
being availed
(concessional
charges or
open access
considered,
where
applicable)
With ADDelhi
Only
commercial
7.15 7.5 0.35
Maharashtra 8.73 9.83 1.1
Without AD
Maharashtra 9.43 9.83 0.4
25% o the
RECs are being
sold at foor
prices
With AD
Maharashtra Only
commercial
7.91 9.83 1.92
Delhi Industrial &
commercial
6.33 6.6 (industrial),
7.5 (commercial)
0.27 (industrial),
1.17 (commercial)
Without ADDelhi Only
commercial
7.04 7.5 0.46
Maharashtra 8.61 9.83 1.22
50% o the
RECs are being
sold at foor
prices
With AD
Andhra
Pradesh
Onlycommercial
5.6 6.28 0.68
Karnataka 6.36 7.00 0.64
Maharashtra 7.09 9.83 2.74
Punjab 6.04 6.58 0.54
Rajasthan 5.93 6.25 0.32
Tamil Nadu 6.51 7.00 0.49
Delhi Industrial &commercial
5.51 6.6 (industrial),7.5 (commercial)
1.09 (industrial),1.99 (commercial)
Without AD
MaharashtraOnly
commercial
7.79 9.83 2.04
Andhra
Pradesh
6.27 6.28 0.01
Delhi Industrial &
commercial
6.22 6.6 (industrial),
7.5 (commercial)
0.38 (industrial),
1.28 (commercial)Source: BRIDGE TO INDIA
B
RIDGETOINDIA,2013
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Assumption
on RECs being
sold
State Type o
consumer
or whom
solar power
through open
access is vi-able
Viable solar
PPA tari
that can be
oered to
consumers
(INR/kWh)
Existing tari
being paid by the
consumers (INR/
kWh)
Dierence be-
tween existing
tari and viable
solar PPA tari
(INR/kWh)
75% o theRECs are being
sold at foor
prices
With AD
AndhraPradesh
Industrial &commercial
4.78 5.3 (industrial),6.28
(commercial)
0.52 (industrial),1.5 (commercial)
Bihar 5.27 5.5 (industrial),
5.5(commercial)
0.23 (industrial),
0.23 (commercial)
Delhi 4.69 6.6 (industrial),
7.5 (commercial)
1.91 (industrial),
2.81 (commercial)
Maharashtra 6.27 6.33 (industrial),
9.83(commercial)
0.06 (industrial),
3.56 (commercial)
Punjab 5.22 6.33(industrial) ,6.58(commercial)
1.11 (industrial),1.36(commercial)
Rajasthan 5.11 5.50 (industrial),
6.25(commercial)
0.39 (industrial),
1.14 (commercial)
Karnataka Only
commercial
5.54 7.0 1.46
Kerala 6.04 6.5 0.46
Tamil Nadu 5.69 7.0 1.31
West Bengal 5.87 6.2 0.33
Haryana 5.54 5.85 0.31
UttarPradesh
5.63 6.0 0.37
Without AD
DelhiIndustrial &
commercial
5.4 6.6 (industrial) ,
7.5 (commercial)
1.2 (industrial), 2.1
(commercial)
Punjab 5.89 6.33 (industrial),
6.58(commercial)
0.44(industrial),
0.69 (commercial)
Karnataka Onlycommercial
6.25 7.0 0.75
Maharashtra 6.97 9.83 2.86
Tamil Nadu 5.77 7.0 1.23AndhraPradesh
5.45 6.28 0.83
Source: BRIDGE TO INDIAB
RIDGET
OINDIA,2013
State
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5.7 RISKSApart rom all the generic risksassociated with solar power projects
(reer to our report called, Bankabilityand Debt Financing or Solar Projects
in India (April 2013) or details)7, thereare some risks specic to the group
captive model. These risks can becategorized as ollows:
i Annual revision o open access
charges and rules Open access
charges and rules are otenunclear. On top o this, they are
subject to change every year. Insuch a scenario, assessing the
nancial viability o a long termproject always has an element o
uncertainty attached. The risk isheightened in a scenario where
utilities eel threatened becausetheir high paying customers move
to other power procurementsources. We have already seen
utilities in the US complainingabout the impact o solar power on
their business. In the same manner,the threat perception among Indian
utilities may also increase, whichmay result in higher open access
charges. This risk might be reducedby the overall policy support or
solar power and the power decit inIndia.
ii Structural changes in the powersupply More secure availability o
power can be a signicant driveror consumers opting or power
purchases rom group captive
plants. The South Indian stateso Andhra Pradesh and TamilNadu, or instance, have very high
power decits. As a result, thecost o power on the open access
market regularly reaches as highas ` 8/kWh. However, structuralchanges such as the connection o
the southern grid to the northerngrid, which is expected soon, can
signicantly alter the demand
and supply situation and thus theprices on the open access market.
BRIDGE TO INDIA believes that the
overall decit in power availabilitywill continue to increase and that
taris will continue to rise over themedium and long-term. However,
structural shits may occur on
specic locations.
iii Bankability o the o-taker Incase one o the power consumer
stops buying power rom thegroup captive project and no other
consumer is willing to step in, thisamount o power might have to
be sold to the power distributioncompany at the Average Pooled
Purchase Cost (APPC) o power,probably at a lower price. Some
o the projected revenue would belost.
iv Risk associated with RECs The
REC market in India has notdeveloped as hoped. Even though
the RPO mechanism itsel mightpick up, i states are serious about
implementation, the REC marketwill still remain subdued as the
dierence in the cost o solar powerand the cost o an REC (essentially
solar without power) hasincreased signicantly. While solar
power is now available or third-party sale at ` 7 8/kWh (0.09
0.10/kWh, $0.12 0.13 /kWh),the base price o an REC, where
the obligated entity does not evenget the power component is priced
at a minimum rate o ` 9.3/kWh(0.12/kWh, $0.16/kWh). Moreover,
under current regulations, most
REC demand is still expected onlytowards the end o the nancialyear, when some obligated entities
are looking to meet their RPOs orthe given year. The cash-fow or the
project has to be managed careully,especially with respect to a debt
repayment plan. Developers should,thereore, only assume a limited
sale o RECs in their nancialcalculations and within that too, the
revenue should be expected to belargely concentrated towards the
end o the nancial year.
Open access charges
are subject to changeevery year. In such ascenario, assessing
the fnancial viabilityo a long term project
always has an elemento uncertainty attached.
Even though the RPOmechanism itsel
might pick up, i statesare serious about
implementation, theREC market will still
remain subdued as thedierence in the cost
o solar power and thecost o an REC
----------------------7 http://bridgetoindia.com/our-reports/india-solar-decision-bries#
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5.8 CONCLUSIONBased on the above analysis, BRIDGETO INDIA thinks that the group
captive model is viable in some stateswith/without RECs. Even in the states
where it is viable, it might not be thebest option or the power consumer
as solar power would still need tocompete with other available sources
o power.
The key benet o the group captive
model is that it provides a good wayor solar project developers to reach
the needed scale, it helps reduce thePPA risk by having multiple o-takers
and it also helps reduce legal risks asthe asset can be located outside o the
power consumers premises, vis--vis a single customer captive project,
where the project is typically located atthe customers premises.
In a number o states, a group captiveplant might be able to sell solar power
at taris o around ` 5.50 7.00/kWh (0.06 0.07/kWh, $0.09 0.12/
kWh),up to 50% o the RECs can be
sold. Currently, the sale o powerthrough the group captive and openaccess mechanism is viable without
RECs only in Delhi and Maharashtra.Until now, none o the solar projects
have taken group captive route. Statessuch as Andhra Pradesh, Karnataka,
Punjab, Rajasthan and Tamil Naduwould become viable, i 50% o the
RECs can be sold at the foor price till2017.
There are several scenarios with a
slight deviation rom the above analysisthat can help this model become a
more viable business proposition.These are as ollows:
i An encouraging development isthat open access charges are
being waived o under most newsolar policies. We have already
noted this in Andhra Pradesh
and Uttar Pradesh, where openaccess charges have been waivedo entirely. Madhya Pradesh and
Punjab also oer concessional
open access charges. We expect
this trend will continue. I CERCallows RECs to be availed along
with these concessional charges,as Andhra Pradesh has petitioned
it to , the equation would change
considerably in avor o the groupcaptive model over co-locatedprojects.
ii In the above analysis, no escalationhas been considered. However,
most industry observers believethat power prices in India will
continue to rise. In the wake odebt-structuring plans or the state
distribution companies, drasticupward tari revisions can be
expected. We have already seenupward tari revisions in excess
o 30% in states such as TamilNadu and Uttar Pradesh over the
last year alone. I a developer canconvince power consumers to agreeto an annual increment in the price
o solar power even lower tariscan be oered to the consumers.
Several projects or third-party saleo power are currently being planned
across India under the group captivemodel. Judging by the taris being
oered, many o these projects areexpected to be considering an overly
optimistic scenario or the revenuethrough RECs. We expect that such
projects will not see the light o the dayas it will be extremely dicult or them
to arrange debt. Whether or not groupcaptive projects become mainstream
in India is still an open question.
Compared to the projects on the powerconsumers location, currently, theopen access charges are too high to
provide or any real benet o scale.The key to the short to medium term
success or such projects is regulatorysupport in terms o lower open access
charges or solar power plants. Mostnew policies, are already taking the
steps in this right direction. I morestates ollow this trend, we can expect
to see an increased viability or thegroup captive model in the uture.
Currently, the sale
o power through thegroup captive and open
access mechanism isviable without RECs
only in Delhi andMaharashtra.
The key to the short tomedium term success
or such projects isregulatory support in
terms o lower openaccess charges or
solar power plants.
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6. ANNEXURE6.1 GLOSSARY OF TERMS
AD Accelerated Depreciation
ADD- Anti-dumping duties
APPC Average Pooled Purchase Cost
CAPEX Capital Expenditure
CERC Central Electricity Regulatory Commission
CSP Concentrated Solar Power
CUF Capacity Utilization Factor
DCR- Docmestic Content Requirement
DISCOM State Distribution Company
EPC Engineering, Procurement and Construction
FiT Feed-in-Tari
IPP Independent Power Producers
LoI Letter o Intent
LTOA Long Term Open Access
MTOA Medium Term Open Access
MNRE Ministry o New and Renewable Energy
NHPC National Hydro Power Corporation
NSM Jawaharlal Nehru National Solar Mission
O&M Operation and Maintenance
OPEX Operational Expense
PoC Point o Connection
PPA Power Purchase Agreement
PV Photovoltaic
REC Renewable Energy Certicate
RS Request or Selection
RLDC Regional Load Dispatch Centre
RPO Renewable Purchase Obligation
SERC State Energy Regulatory Commission
SLDC Regional Load Dispatch Centre
SPV Special Purpose Vehicle
STOA Short Term Open Access
SECI Solar Energy Corporation o India
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