Solar PV in India

Regulation, setup and simplified project returns

Bhaskar Deol
deol.bhaskar@gmail.com
+44 (0) 753 667 0734
Mission background
• The Jawaharlal Nehru National Solar Mission is a major initiative by the Indian central
government
• Mission anticipates achieving
o Grid parity by 2022
o Parity with coal based power by 2030
o Significant number of off-grid applications for meeting rural needs which are cost-effective
• The solar natural resource in India is bountiful
o 5000 trillion kWh energy potential over India’s land area
o Average 4-7 kWh/m2.d

April 29, 2010 Bhaskar Deol 2

Overview of the national solar mission

Solar Mission

Utility connected
Solar collectors Off-grid applications Manufacturing Solar R&D
applications

• Renewable • Focus on • Remote village • Soft loans for SMEs • Focus on efficiency
purchase obligation applications below electrification for in manufacturing and application
for power utilities 80 ºC 10,000 villages engineering
• Could incentivize
• Applicable to solar • First two phases will • 90% subsidy for off- for promotion of PV, • Focus on storage
thermal and solar promote proven and grid villages solar PV as well as
• Focus on human
PV commercially viable balance of system
• Promotion of solar resource
solar heating component
• Will be phased to lighting for grid- development
technologies manufacture
increase as solar connected areas via
• Pilot
tariff declines • Mandate solar low-cost bank credit
demonstrations
heaters through
• Setup rural power plants for various
building laws
plants in remote technologies and
• Create certification areas applications, e.g. a
mechanisms for solar thermal plant
• 30% capital subsidy
manufacturers with storage, a
for “innovative”
hybrid plant with
• Provide soft loans applications
coal, etc.
• Re-financing facility
for financial
institutions

April 29, 2010 Bhaskar Deol 3

National solar mission
• Mission Goal
o Create framework for deployment of 20GW capacity by 2022
o Ramp up capacity of grid-connected solar power generation
o Promote programs for off-grid applications reaching 2GW by 2022
o Create favorable conditions for local solar manufacturing capability
• End of each phase there will be
o Evaluation of progress
o Review capacity
o Targets for subsequent phase
Phases of the solar mission
Phase Timeframe Capacity Target Details
Phase 1 Up to 2012-13 1 GW
Phase 2 2013-2017 4 GW • Additional 3GW capacity
• Mandatory use of renewable purchase obligation by utilities
back with preferential tariff
• Capacity could increase to 10GW, based on enhanced
international finance and technology transfer
Phase 3 2017-2022 20 GW • Dependent on “learning” of first two phases

April 29, 2010 Bhaskar Deol 4

Roadmap for the Solar mission
Application Segment Phase 1 Phase 2 Phase 3 Planned Measures
Target Target Target
Solar collectors 7 million m2 15 million m2 20 million m2 • Ambitious target to ensure applications below 80 ºC are solarised
Off-grid solar 200 MW 1 GW 2 GW
applications
Utility grid power, 1 – 2 GW 4 – 10 GW 20 GW • Stipulated purchase of electricity from renewable sources to be fixed by
including rooftop the State Electricity Regulatory Commissions
• Phase 1 – 0.25% solar by 2013
• Phase 3 – upto 3% solar by 2022
• Creation of NVVN (NTPC Vidyut Vyapar Nigama), a body to enter PPAs
with solar power developers for 25 years
• Small and rooftop PV installations will be paid by utilities for solar power
generated
• Creation of a renewable energy certificate mechanism
• Creation of a mechanism for utilities to be reimbursed for payouts to
small and residential installations. Payout to utility = Rs. 5.5/kWh with 3%
escalation
Technical and - - - • Custom and excise duty concessions for capital equipment, critical
manufacturing materials and components
capability
• Target 4-5 GW of installed capacity by 2020, including dedicated poly
silicon capacity of 2 GW annually
• Special economic zones / manufacturing parks which may include
• Zero import duty on capital equipment, raw materials
• Low interest rate loans and priority lending
• Special incentives for poly and thin film module manufacture

April 29, 2010 Bhaskar Deol 5

Feed in tariff schedule (2009-10)
National Solar Schedule Guideline
• Developer criteria
• Net worth over past 3 years Technology Tariff / kWh Equivalent
Tariff / kWh
• Turnover
(Mar 22, ‘10)
• Technical criteria
Solar PV Rs. 18.44 € 0.30
• Technical criteria
• IEC Standards Solar Thermal Rs. 13.45 € 0.22
• Central Electricity Authority Standards • Phase 1 cap of 1 GW
• Made in India modules and cells (proposed) • Projects must be commissioned before 2013
• Financial Criteria
• Equity investment on basis of Rs. 10 mill / MW
• Leverage 70:30
• Land Requirement
• Infrastructure criteria
• 50% land arrangements at pre-registration
• Grid connectivity criteria
• Land required 2 Ha / MW
• Less than 1 MW: LT Single /Three Phase
• Agreement of sale with owner or lease > 30 years
• 1MW – 3MW: HT Level (Below 33kv)
• Contracts
• Grid injection at nearest distribution station
• Letter of comfort from equity/debt provider s
(No charges for connectivity)
• Power evacuation agreement with distribution co.
• Permissions
• PPA with purchasing authority
• State authority approval for project
• Miscellaneous
• Land clearance by revenue department
• Rs. 1 mill/MW, 24 month guarantee with application
• Water approval
• No change in equity holding between MOU till PPA
• Environmental and pollution clearance execution

April 29, 2010 Bhaskar Deol 6

National and state level incentives
• Flurry of activity in the area of solar incentives in India
• National and state level incentives have been announced or in process
• Tariffs outlined for rooftop, small and large scale projects
• National level guidelines for process, but states set the actual tariff
• Calls for projects have been largely oversubscribed
• General classification of systems is as follows --

Medium
Small / Rooftop Utility Scale
Installations
Installation >5 MW
1-3MW

• National level guidelines for this
category have not yet been defined
• Some states (e.g. Rajasthan) treat
rooftop systems to be similar to
medium installations and offer a flat
tariff
• FIT given for all solar power
generated
• Metering and billing regulation
currently in process of being defined
• Guideline tariffs for this category
have been defined and under
consultation (refer next slide for
details)
• The national mission puts a cap of
80MW on projects in this category
• For larger projects, some states
have independently defined tariffs
ahead of the National Solar Plan.
• Tariffs awarded to these projects
follow similar guidelines but have
greater variety of options provided to
developers (e.g. accelerated
depreciation, tax incentives, etc.)

April 29, 2010 Bhaskar Deol 7

Small / Rooftop / Medium projects (proposed)
• Sub 33kv connected Rooftop systems
o Completed before march 2013
o Small PV and Rooftop administered by the IREDA and under PPA with local distribution utility
o Tariff determined by state electricity regulatory commission (SERC)
o Only in states with tariff tenure of 25 years on levellised basis
o GBI payable to distribution utility = CERC rate – Rs. 5.5 (3% escalation annual) (project payout remains
constant)
o Proposed for modules and cells made in India

LT Voltage HT Voltage
Voltage 400-volts (3Phase) or 230-volts (1Phase) Below 33KV

Size Less than 1MW 1 – 3 MW

Specification - Need to follow technical connectivity standards

Target Capacity 20 MW 80 MW

Net metering To be announced Yes, tariff only for power exported to grid.

Contract To be announced PPA with local distribution utility

Rate To be announced Rs. 18.44

(OR as announced by the State electricity regulator)

April 29, 2010 Bhaskar Deol 8

Project registration process
•Registration with state level authority (to be announced by individual states)
•Submit supporting document to fulfill eligibility criteria
Pre Registration •Pre-registration is carried out first-come-first-served, after end of the consultation (April 30, 2010)
•Certificate of pre registration issued to these projects, up till total capacity of 150 MW
•Fee of Rs. 25,000 to be paid to the state level authority

•Developer signs an MOU with the local distribution utility

MOU with Utility •Utility agrees to a deemed sale of power from the proposed project

•Application to be submitted to the Program Administrator: IREDA

•Developer submits a board resolution station intention of the company to develop a project
•Developer provides a commitment guarantee (Rs. 1 million/MW) for 24 months
Registration
•All applications meeting these criteria enter an initial shortlist

•Upon signing of a PPA with distribution utility, IREDA issues letter stating eligibility for GBI (Generation based incentive) in 1 month
•Additional guarantees of Rs. 4 million/MW required before eligibility letter is issued.
PPA Contract •Registration certificates issued only upto cumulative capacity of 80 MW is reached.
•Normally, an additional limit of 20MW per state will be applied

•To be completed within 6-months of the date of issuance of registration certificate

Financial Closure

Project •To be completed within 6-months of the date of Financial Closure

commissioning

April 29, 2010 Bhaskar Deol 9

State policy for solar projects
• Gujarat Technology Tariff / kWh Equivalent
o Solar power policy announced in January 2009 Tariff / kWh
o Operative period upto 2014 (Mar 22, ‘10)

o Target 500MW capacity of solar projects > 5 MW Solar PV Year 1-12: Y1-Y12: € 0.25
Rs. 15.00
o Wheeling charges 2% for captive use (*) Year 13-25: Y13-Y25: € 0.08
Rs. 5.00
o Exempt from electricity duty
o Established 1.5% renewable power purchase obligation Solar Thermal Year 1-12: Y1-Y12: € 0.18
Rs. 11.00
for electricity consumed in 2009-12 Year 13-25: Y13-Y25: € 0.06
Rs. 4.00

 Rajasthan Technology Tariff / kWh Equivalent

– Solar power policy under consultation Tariff / kWh
(Mar 22, ‘10)
– Proposed tariff for plants installed in 2010-11 Solar PV Year 1-20 € 0.25
– Proposed tariff for 20 years Rs. 15.27
Solar Thermal Year 1-20: € 0.20
– CDM benefits to be split 75:25 with distribution utility Rs. 11.97
– Same tariff also applicable for rooftop systems for all
solar electricity generated

April 29, 2010 Bhaskar Deol 10

Payment mechanism for solar projects
Projects under state level incentive Projects under national level incentive

Indian Renewable Indian Renewable

Energy Development Energy Development
Authority (IREDA) Authority (IREDA)
• Public limited company • Public limited company

$ $
GBI = FIT – 5.5 / kWh GBI = FIT – 5.5 / kWh
Generation Based Generation Based
3% Annual escalation 3% Annual escalation
Incentive (GBI) Incentive (GBI)

kWh
NVVN
Distribution Utility
• National renewable State Electricity
• Local distribution
energy buyer Distribution Co
company
• Public sector utility
$

$ FIT $ FIT Power Sale

PPA determined kWh PPA determined kWh Agreement
by SERC by NSM

Project Developer Project Developer

• Rooftop • Rooftop
• Small project (1-3MW) • Small project (1-3MW)
• Large (>5MW) • Large (>5MW)

Feed in tariff (FIT), metering and billing regulated Feed in tariff (FIT) determined by National Mission.
by State electricity regulator Metering and billing regulated by State electricity
regulator
April 29, 2010 Bhaskar Deol 11
Solar farm installation process comparison
Germany Spain Italy China US Japan India
Tariff visibility       
Single agency collection       ?
Long term debt market       
Project finance availability       
Approval and permitting       ?
Land acquisition       
Supply chain       
Grid connectivity       ?
• Germany: Easy system. Fast Approvals. Ready funding via KfW. Efficient supply chain. Steady and consistent growth
• China: Still not sure about incentives. Complex incentives at provincial level. Tariff based on “what the market can bear” – Open tendering
• Spain: Launched a very attractive incentive in 2007. Had to abandon it in 2008 after very strong installations
• US: Tax based incentives, which makes it difficult to finance

Source: Morgan Stanley research, presentation

April 29, 2010 Bhaskar Deol 12

Project economics
Sensitivity of IRR to Inflation Sensitivity of IRR to Opex
15.6% 15.5%
Mar '10 - 9.89%
15.4% 15.0%
15.2%
Unlevered IRR

Unlevered IRR
14.5%
15.0%
14.0%
14.8%
13.5%
14.6%
14.4% 13.0%

14.2% 12.5%
0% 2% 4% 6% 8% 10% 12% 14% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60%
Average Annual Inflation Annual Operating Cost

Assumptions Assumptions
 5MW solar plant  5MW solar plant
 Installed price / Wp = $3 = Rs. 144  Installed price / Wp = $3 = Rs. 144
 Total Capex = $15 m = Rs. 720 m  Total Capex = $15 m = Rs. 720 m
 Operating costs = 0.5% pa  Inflation = 7% pa
 FIT = Rs. 18.44 for 25 years  FIT = Rs. 18.44 for 25 years
 10 year tax holiday, then 33%  10 year tax holiday, then 33%
 Average insolation ~ 5.4kWh/m2 (Rajasthan)  Average insolation ~ 5.4kWh/m2 (Rajasthan)

Source: Simplified model

April 29, 2010 Bhaskar Deol 13