Partnership to Advance Clean Energy - Deployment
(PACE-D) TA Program
Accelerating Deployment of Solar Rooftop through Gross
Metering for Karnataka 11th September, 2015
Presented at the
Stakeholder Consultation for RE Hybrids and Gross Metering
Bangalore, India
Presented by
The USAID PACE-D TA Program
• Introduction to the Global and Indian Solar
Rooftop Market
• Solar Rooftop Business Models – the
relationship with incentive structures
• Consumer Analysis of Karnataka
• Objective of Study
• Benefits of Gross Metering
• Business Case for Gross Metering
• Determination of FIT for Gross Metering
Co
nte
nts
Mainstreaming EE in Corporate Loans
• Solar - fastest-growing generation technology globally - key contributor has been solar rooftop.
• Large markets like U.S. and Germany - added more capacity through rooftop
A number of drivers have been pushing the development of solar
rooftop projects across the globe
Country Solar PV Installed Capacity (GW) Share of Rooftop PV (%)
Germany ~38 ~60%
US ~20 ~40%
Japan ~24 ~35%
Australia ~4 ~80%
Solar Deployment areas/
benefits
Supply gap
reduction
Energy
security
T&D loss
reduction
Stimulate
investments
Optimal utilization
of infrastructure
Large ground mounted solar
projects √ √ √
Large commercial solar
rooftop projects √ √ √ √ √
Small household based
rooftops projects √ √ √ √ √
4
Sector Installed by SECI (MW) Installed by States (MW) Total installed (MW)
Commercial 10.9 17.2 28.9
Government 3.0 4.9 7.3
Hospital 1.6 0.5 2.1 Institutional (Schools,
Collages) 2.2 5.1 8.3
Religious institution 0.6 7.5 7.6
Residential 0.0 0.3 0.3
Total 18.35 35.532 54.187
• India’s solar rooftop market potential
~124 GW
• India has set an ambitious target of 40
GW by 2022
• 13 States have notified Solar Policy’s
supporting grid connected rooftop
systems
• 19 states/ UTs have notified regulations
for net metering/feed-in-tariff mechanisms
India’s solar rooftop journey has just started and the sector has the potential for rapid
scale up – however right now the sector is still in infancy with close to 300 MW of installed
While significant potential exists in India, the sector is still in infancy with development of
the requisite eco-system is still falling into place
Policy and regulation
Multiple incentive
structures
Utility’s participation
Simple Procedures
and Processes
Distribution Utility Preparedness
Standardized interconnection processes
Awareness of rooftop solar
Capacity of Utility
personnel
Financing
Financing products and guidelines/
norms
Risks and associated mitigation strategies
Evaluation Tools and
capacity of FI’s
Market and Awareness
Standards & certifications
B2B business models
Contracting structures & their sanctity
6
Solar Rooftop Development
Business Models
Incentive Terms used in the Presentation
• Gross Metering – a framework where all the energy generated is exported
to the grid with no internal consumption at the rooftop owners facility
• Net Metering – a framework wherein the energy generated by the rooftop
system is first used internally (by the rooftop owners facility) and the
excess is exported to the grid only to be netted against imports at later
times
• FIT – A feed in tariff used to denote the price paid by a utility for power
under the gross metered regime
• Solar Tariff - this is the tariff paid for excess power exported to the grid by
the Net Metered consumer under the present Net Metering Regulations in
Karnataka today
Gross Metering and FIT have been used interchangeably in the
presentation and stand for power exported to the grid under gross
metering at a price determined by the Regulatory Commission
Solar PV implementation across the globe has followed two routes – large scale
centralized generation or smaller scale distributed generation
Solar Rooftop
Solar rooftop (aka Consumer-end Driven) Space has seen a number of models emerge –
basically based on ownership, metering and types of rooftops which have been defined by
the policy and regulatory regime, taxation structures and market structures
10
Country Quantity Pricing Fiscal Measures Installed
Capacity
Germany FiT Linked capacity
cap (MW)- introduced
recently
• FiT • Capital Subsidy (way
back)
• Low interest loans
Around 38
GW
Italy FiT Linked capacity
cap (MW)- introduced
recently
• FiT • None
France FiT linked capacity
cap
• FiT • Tax Abatement on
Equipments
Spain Annual Capacity Cap
(MW)
• FiT • Investment
Subsidies (prior to
2004)
US Energy Purchase
(RPS)
• Net Metering • Tax Abatement on
Equipments
• Capital Subsidy
• Tax rebates
Around 20
GW
Japan Energy Purchase
(RPO)
• Now Moved to
FiT
• Capital Subsidy Around 24
GW
As pointed out - globally Policy and Regulatory Instruments have played a critical role in
the development of the solar industry – the same is the case with rooftop solar
• On 10th October, 2013 KERC, under the solar tariff order, determined the tariff for grid
interactive rooftops and small solar PV power plants (Rs. 9.56/kWh)
• Under the same tariff order, KERC suggested that the concept of net metering can be
adopted for grid tied solar rooftop systems
• In pursuance this, BESCOM along with other distribution utilities launched the Net
metering based Solar rooftop program in October 2014
• Despite a supporting policy and regulatory environment and a clear and simplified process
for interconnecting systems, the scheme has not be able to achieve the desired results
• Rooftop capacity around 2.14 MW has been commissioned under the program so far
• Challenges faced by the program are (based on PACE-Ds analysis)
– Difficulties in encouraging consumers with lower retail tariff
– Marketing by developers and equipment suppliers yet to take off
– participation from 3rd party investor still limited due to contracting and payment
security issues
11
Although the state of Karnataka has taken a number of proactive steps in terms of policy
and regulation, the development of Solar rooftop sector in Karnataka has not achieved the
expected results
• India has set an aspiring target of achieving 40 GW though Solar rooftops by
2022, wherein the target for Karnataka is 2300 MW
• To achieve this target, Net Metering alone may not be sufficient.
• The Objective of this study is to analyse and if found suitable propose a
mechanism which can facilitate the development of the solar rooftop sector in
the state
• The focus of the study is to evaluate whether solar rooftops developed under a
gross metering regime using Feed in Tariffs would accelerate the deployment of
solar rooftop in the state
12
Objective of the Study – propose a mechanism which can facilitate development
of the solar rooftop sector in Karnataka
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Total
India 200 4,800 5,000 6,000 7,000 8,000 9,000 40,000
Karnataka 10 275 290 134 403 460 518 2,300
Solar Rooftop Development – The case
of Karnataka
14
Hypothesis – the gross metering framework using Feed in Tariff offers tangible
benefits and has the potential to scale up rooftop deployment in the state
Gross metering - solar financially viable for investor/ consumer but at lower cost limiting utility losses
Simple to design and deploy – experience of utilities in deploying the instrument
Allows wide scale participation from a number of consumers and investors
Limited revenue loss for the utility and long range optimization of public finances
Positive long term impact on tariffs for all consumer categories
Capacity Addition: Consistent and stable curve leading to a well developed industry value chain
Long term regulatory consistency for solar market development
15
Stakeholder Parameter Term
Short (5 years) Medium (5- 10
Years)
Long (10 to 20
years)
Consumers Impact on Tariff Increased burden –
due to differential
between FiT &
APPC/ MCPP
Still higher burden
due to still existing
differential
Negative impact
due to lower
procurement cost
Viability for consumers –
ability to invest rooftops
All consumer categories
Project Size Optimization High – project sizing can be based on space
Utility Sale of power to consumers No Impact on Sales of the Utility
Impact on Utility Cash flow Medium – due to
higher FIT
requirement
Marginal – The FIT
is expected to
reduce in medium
term
Low – FIT
requirement would
be lesser than
APPC
Impact on Average Power
Procurement Cost
High Marginal Low
Developers
/ 3rd Party
Investors
Contract Sanctity High – as DISCOM has signed PPA
Payment Security Issues Low
The gross metering framework provides
more options for consumers but does
burden them in the short term
16
The Gross Metering Framework allows all consumer categories to participate in the solar
rooftop program
• The DISCOMs serve approximately 20 million retail consumers in Karnataka
• In terms of energy sale, Agriculture is the biggest (36%) consumer followed by Domestic (21%).
• Subsidised categories constitute 57% of the total units sold in Karnataka
• Average cost of supply for BESCOM is Rs. 5.50/kWh & for BESCOM, the average retail tariff is
Rs. 4.59/kWh
• Distribution losses (AT&C) for BESCOM are 13.4% of which technical losses at LT level are
12.28%. KERC Supply tariff order, 2015-16
-
5.00
10.00
15.00
20.00
25.00
BESCOM HESCOM GESCOM MESCOM CESC
Sales to Different Consumer Categories (BU)
Agriculture Domestic Commercial Industries Others
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
BESCOM HESCOM GESCOM MESCOM CESC
Consumer Profile (‘000)
Agriculture Domestic Commercial Industries Others
With NEM, Rooftops are not viable for subsidised consumers, Which constitutes to 86% of total Consumers
Procurement from Solar Rooftop projects using the gross metering framework will become
cost completive in the long run and will reduce considerable loss to revenue from utility
• The figure projects average power procurement cost vis-à-vis procurement cost from solar rooftop
projects installed in FY2016
• Increase in electricity demand & fuel prices, utility’s power procurement costs will rise, driving up retail
tariffs and APPC, reducing the gap to FIT - solar FIT remains constant throughout life of the project cycle
• However in the same time the cost of commercial power rises substantially leading to loss in
considerable revenues to the utility
7.4
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9.8
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7.71 10.36
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Rs/
kWh
Solar FIT LT-Commercial APCC LT- Domestic
Short Terms Medium Tem Long Term
Procurement from solar will become cost competitive for distribution utilities in long run
6.3
5.2 4.6
10.0
12.1
14.2
7.9 10.7
13.5
4.7
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Rs/
kWh
Solar FIT Commercial Tariff Domestic Tariff APPC
Solar rooftop FITs will become increasingly competitive with conventional power
generation and considerably lower than the commercial consumer tariffs
• The figure depicts the solar rooftop FITs installed over the years vis a vis changes in retail supply tariff &
APPC
• As per our models, the Solar rooftop FIT will be lower than the average cost of power purchase of utilities
• Utilities stand to lose considerable revenues from commercial and industrial consumers in case of net
metering – gross metering stems that loss
Solar FIT Req. will be
lower than APPC
Short Terms Medium Tem Long Term
Technology Innovations and Improvement in Operational efficiency will help in reducing Solar FIT
requirement continuously
0.00
200.00
400.00
600.00
800.00
1000.00
2015 2016 2017 2018 2019 2020 2021 2022 2023
Rs.
Cro
re
Cost to Utility in NM Cost to utility in GM
Utilities will suffer from higher losses due to revenue reduction than they would through
higher pay-out if gross metering framework was adopted
• Net Metering mechanism will replace the grid energy with energy from solar rooftop thus it
would impact utility sales negatively
• Graph projects the loss to utility under the net metering mechanism from implementation of
solar rooftops vis a vs higher pay-out for FIT under gross metering
• However under gross metering, utility power procurement cost will increase but at a reducing
rate due to a reducing FIT
Cost to utility under
NM ~ Rs. 1600 Crore
Cost to utility under
GM ~ Rs. 733 Crore
The impact of reduced sales due to Net Metering would be much higher than incremental cost of
power procurement under gross metering
• Gross Metering is a more powerful mechanism for developing rooftops as the FIT can be
tuned as per market conditions – the FIT also provides flexibility to promote other solar
uses such as solar based pumping
• Gross Metering allows all consumers to deploy solar rooftops while Net Metering is viable
only for high paying consumers
• With Gross Metering, utilities face no threat of losing customers and business, while they
end up procuring cheaper power over the life of solar projects vis a vis net metering
• In long run, the cost of procurement from solar rooftops would be cheaper than other
conventional sources for utilities
• However Gross Metering based FIT needs frequent revisions and care needs to be taken
on the quantum of capacity procured under this mechanism to limit burden on the end
consumers
20
Inferences till now
21
Capital Cost vis-à-vis FIT
Parameters Units GERC RERC HERC KERC*
Category of Project Rooftop (draft) Rooftop Rooftop Rooftop
Capital Cost (Rs./kWp) 80 56.5 68.0 90.0
Tariff (Rs./kWh) 8.42 6.45 7.19 9.56
• Tariffs provided by various regulatory commissions for solar rooftops:
• Based on our analysis, FIT for solar rooftops will be:
Parameters Units Levellised Tariff for different Capacity
System Size (kWp) 1-10 10-100 Above 100
Capital Cost (Rs./kWp) 75,000 72,500 70,000
Feed-In-Tariff (Rs./kWh) 7.97 7.71 7.44
Thank You
Key Partners: RE Component
Design and development of
innovative financing mechanisms Microfinance Partners
Capacity to design and implement
supportive policies and regulations
Implementation of techno-commercially
viable pilots
• In terms of public
expenditure per unit
capacity addition, Germany
and Japan have had the
most effective frameworks
for promoting solar
capacity development over
the long term
• German investments
focused more on FiT
leaving technology and
supply chain development/
cost reduction to the
market
• Japan focused more on
R&D, investment subsidies
and demonstration projects
– however market unable
to take off – shifted to FiT
in 2010 Deloitte
23
Measures for optimizing public
investments in solar development
Source: (Avril and Lemare,2012)
24
Distribution Losses (AT&C) of Karnataka
Technical Losses @ 11 kV, 5.06%
Technical Losses @ LT line, 6.64%
Loss due to theft, 4.29%
Loss due to defective meters, 0.06%
Loss due to un-metered connections, 1.99%
Loss due to Unrealised Revenue, 2.89%
Source: FOR, Assessment of AT&C Losses of Karnataka, March-2014
• Out of total losses, Technical losses in Karnataka are roughly 11.7%
• With Solar rooftops, impact of technical losses could easily be minimised and Utility’s power
purchase cost can be reduced
Rooftops can
help utilities in
reduction of
technical losses
both at HT and
LT level
• Global Solar Market has witnessed a steep decline in Solar PV system price in last few
decades
• As per Experts, the system cost will keep on falling due to the following factors
– World Demand for panels
– Technological Innovations
– Learning
– Inflation
– Exchange Rate Risk
• To analyse the impact of key drivers on cost of solar power, the PACE-D team used three
cases i.e. Optimistic, Base and Pessimistic case
How will Solar Costs evolve in the future
Impact of Drivers on Cost of Generation from Solar
• To evaluate the impact of key drivers on Solar Cost of Generation, scenarios have been developed i.e.
Optimistic, Base and Pessimistic
• Assumptions
• Optimistic – 5% Reduction in Solar COG annually due to fall in price by technology innovation
with conducive policy and regulatory environment for investors
• Base – 3% Reduction in Solar COG annually due to moderate environment for investors
• Pessimistic – 2% Increase in Solar COG annually due to increase in prices because of low
technology innovations and rise in inflation
₹ 5.5 ₹ 6.3 ₹ 7.4
₹ 8.4
₹ 0.0 ₹ 1.0 ₹ 2.0 ₹ 3.0 ₹ 4.0 ₹ 5.0 ₹ 6.0 ₹ 7.0 ₹ 8.0 ₹ 9.0
FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22
Projection of Solar Cost of Generation (Rs/kWh)
Optimistic Base Pessimistic
Module Prices and their projections
As per IEA- Technology Roadmap Solar PV, The Cost of solar Modules will drop to half in next 20 years
The Price range of PV system will narrow and the Avg. cost will be halved by 2040 or before
• Capital Cost – Comparison of Capex. based bids invited by SECI for solar rooftops and
quotations provided by various system installers
• CUF – Several state commissions (KERC, HERC, GERC, RERC etc.) has considered
CUF of 19% for solar rooftops while determining tariff
• Interest Rates – Rate of interest for raising funds for installation of rooftops has been
considered 11.85% (SBI base rate +200 basis points)
• Return on Equity - Flat ROE of 20% (pre-tax) has been considered for entire life of plant
i.e. 25 years considering continuous cash flow for generator
• Discount Factor – Discount factor has been computed on the basis of WACC
• O&M Expense - O&M of solar rooftops is very low hence 2% of capital cost has been
considered as O&M Expense per year with annual escalation of 5.72% similar to
recommendation of KERC
• Depreciation – for the purpose of computing depreciation benefit, regulatory approach
has been adopted (Straight Line Method)
28
Assumptions for determination of Solar FIT
Financial Parameters for FIT determination
Parameters (Units) GERC HERC RERC KERC Proposed
Capital Cost/MW (Rs. /lakh) 800 680 565 900 720 - 675
Debt: Equity (Ratio) 70:30
Debt Repayment Tenure (Years) 10 10 12 10 10
Interest on Debt (%) 12.70% 13.75% 13% 12.50% 11.85%
Capacity Utilization Factor (CUF) 19% 19% 20% 19% 18%
Return on Equity (Post tax) (%) 14% 16% 20%(Pre Tax)
Discount Factor (%) 10.64% 14.42% 10.89% 13.41% 11.48%
Auxiliary consumption (%) 0%
O & M expenses (Rs. Lakhs/MW) 10 11 13 18 16 (2% of
Capital Cost)
O & M Escalation p.a. (%) 5.72%
Interest on Working Capital (%) 11.85% 14% 12.50% 13% 12.85%
Depreciation for first 10 yrs 6% 7% 5.83% 7% 7%
Depreciation for next 15 yrs 2% 1.33% 1.54% 1.33% 1.33%
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