PV Solar India Economic Analysis

One of the ideas behind studying economics of solar PV

manufacturing in India is to make it competitive to be able to
sustain local deployment of solar based grid connected projects.
With an objective to improve the economics of solar power and
reach closer to grid parity, we will look at the current cost of
generation and its sensitivity to future module costs and cost of
finance.
The purpose here is also to understand at what cost a project
developer would be interested in setting up a solar PV power
project.

PV Solar India Economic Analysis

The key assumptions for a typical grid connected solar PV
power plant based on poly-crystalline and thin film technologies
are given in the Table next slide.
A thin film module typically requires almost double the area for
panel mounting as polycrystalline module for the same energy
output.
We assume that there would not be significant impact of
additional land requirement on project cost since the state
government may be able to offer unutilized/waste land at low
prices for such projects.

PV Solar India Economic Analysis

Source: ISA-NMCC 2008 Research and interactions with solar PV manufacturers
** Benefits of Energy harvesting have not been considered

PV Solar India Economic Analysis

A power developer would typically look at the benchmark equity

IRR of 11%to 13%. This is equivalent of 14% post-tax return on
equity under existing regulatory environment in conventional
generation projects.
Based on current tariff incentives offered by MNRE (which is
limited to a total national capacity of 50 MW), viz. Rs. 12 per kWh
(total tariff of Rs. 15 per kWh),
The equity IRR falls well short of the expected levels for power
developers, as is indicated in the table above. Further, there is
uncertainty over tariffs available after 10 years. (The GBI is only
available for 10 years)

PV Solar India Economic Analysis

PV Solar India Economic Analysis

PV Solar India Economic Analysis

Sensitivity of cost of generation to interest rates (at various system prices )

 Solar PV market in India

Till 2007-08, India has been seen primarily as a hub for low cost
manufacturing and production of solar PV cells and modules. As a
result, a large part of the 45 MW aggregate capacity of solar cells
and 80 MW
aggregate capacity of SPV modules produced in the country
during FY07
was exported (a cumulative 60 MW of solar PV modules have
been exported till 2007).
During the past five years (2002-2007), India produced 335 MWp
and exported 225 MWp capacity of PV products.
Figure 30 highlights the category wise use of solar PV capacity in
India in he past 5 years.

End Use PV Modules

 Inspired by the semiconductor policy, the state government of

Andhra Pradesh has set up FabCity in the capital, Hyderabad, at
an estimated cost of Rs135 billion (US$3.18 billion). Spread over
1200 acres (486 ha), FabCity will house semiconductor
manufacturing companies working to meet the needs of the
electronic hardware sector and fabrication units for solar PV.

A company called FabCity SPV (India) Private Limited has been

set up to implement the project. The Andhra Pradesh Industrial
Infrastructure Corporation (APIIC), the governments industrial
development agency, will have a 89% stake in this company.
SemIndia Inc. will participate in the development of FabCity as an
anchor industry with an 11% stake.
.

 To date, FabCity has seen nearly a dozen investments

from the solar PV industry worth over $7 billion and,
according to APIIC, another 40 applicants have
submitted proposals.
FabCity is the largest investment ever made in India in
the technology sector. It marks the first step towards
India becoming a $33.6 billion semiconductor market
employing some 3.6 million people by the year 2015
as projected by consultants Frost & Sullivan. Table 3
gives an overview of the investments made in FabCity

Individual company news

Along with government-backed developments a
number of individual companies are also making
efforts to develop PV capacities in India.
Reliance Industries leads the field with the highest
volume of investment, although a company
spokesman explained its plans are still being finalized.
Reliance has, however, submitted an application for a
5 MW grid-connected solar PV project in West Bengal.

Individual company news

Indias Moser Baer Photovoltaic Ltd (MBPVL) currently
has an annual manufacturing capacity of 80 MW for
crystalline cells, 50 MW of thin-film modules and 10 MW of
concentrator modules.
It is aiming for more than 600 MW of thin-film single and
tandem junction and 500 MW of crystalline and
concentrator modules by 2010.
MBPVL will invest Rs 200 billion ($5 million) in a PV and
nanotechnology factory in Tamil Nadu. When operational,
it is expected to generate annual sales approaching $100
million largely through exports

Individual company news

Meanwhile, US-based Signet Solar has signed a memorandum

of understanding with the government of Tamil Nadu to
manufacture 300 MW of thin-film PV modules in a project worth
an estimated $500 million.
The plant will be located in the Sriperumbudur SEZ. It will initially
export most of its production, but will serve the Indian market as
domestic demand picks up. The first shipments from the plant
are expected in 2010. Signet Solar plans to build three plants (1
GW) in India over the next 10 years at multiple locations.
Solar Semiconductor has an order book of $1.52 billion to be
delivered in the next 23 years. It has orders to supply PV
modules to leading players in the global solar market including
Q Cells AG, IBC Solar and ersol Solar Energy of Germany and
Motech Industries of Taiwan.

Individual company news

Solar Semiconductors supply contract with Q-Cells is
worth $170 million, for example. The company already
has two operating facilities with an installed capacity of
6070 MW on the outskirts of Hyderabad.
According to its director, S. Prasad, it will have the lead
in FabCity as the first company to commence
manufacturing by the third quarter of 2008. This will be
its third unit. By end of 2008, we will have a capacity of
210220 MW, said Prasad.

Individual company news

Mola Solaire Produktions GmbH, a manufacturer of
multi-crystalline and mono-crystalline solar wafers, has
signed a five-year contract to supply 125 MW of multicrystalline solar wafers to XL Telecom & Energy Ltd
between 2008 and 2013.
Sharp, the global leader in solar PV technology, recently
made a foray into solar energy in India with its Sharp
Business Systems India Ltd subsidiary. According to a
company spokesman, it will focus its activities on
supplying large-scale grid-connected systems and
targets 8 MW installed by 2010.

Individual company news

Centrotherm Photovoltaics AG of Germany plans to set up a 5000 tonne

capacity (expandable to 10,000 tonnes) polysilicon processing factory at Haldia
in the state of West Bengal in eastern India at an investment of Rs.400 billion
($3.18 billion).
This is a joint venture with SREI Infrastructure Finance Ltd, Environ Energy Deck
Services and US-based Perseus.
The factory is likely to be the first such plant in India and the state government
has already allotted a quarter of the land needed for the 790 acres (320 ha)
project.
The factory will produce both electronic and solar grade silicon and will be
equipped with a 100 MW captive power plant. SREI and Environ Energy together
will have a 50% stake in the project, while Centrotherm is likely to pick up a 15%
stake in the venture.
In addition, the IBM Thomas J Watson Research Centre (the headquarters for
IBM Research in the country) has also expressed a desire to participate in solar
energy and silicon research in West Bengal.

Individual company news

It is not just foreign interests that are exploring the possibility of
expanding solar PV capacities in India. Tata BP Solar, a joint
venture between the giant Tata Group of India and BP Solar of the
UK (and one of the oldest semiconductor manufacturers in India)
is in the advanced stages of a $100 million investment in a 128
MW solar cell manufacturing plant close to its existing facility near
Bangalore, which will eventually be scaled up to 180 MW.
Tata BP Solar recently announced that it has signed an agreement
with Calyon Bank (Credit Agricole CIB) and BNP Paribas to raise
$78 million to fund further development. Tata BP Solar currently
has a module manufacturing capacity of 85 MW.

Other national initiatives

Most urban and industrial centres in India are experiencing peak electricity
shortages of over 15%. Drawing on similar efforts being implemented in
London, Tokyo, New York and Adelaide, the government of India has come up
with a plan to develop 60 cities as solar cities. The proposal envisages a
minimum 10% reduction in total demand of conventional energy after five
years in each of these cities through efficiency and renewable energy
measures. Solar energy will have a prominent role to play since India, as a
tropical country, is blessed with abundant resources. If these solar cities go
ahead, India will become a role model for solar cities worldwide.

To keep pace with the global trend of exercising feed-in-tariff solar power, the
Ministry of New and Renewable Energy has produced a set of initiatives
aimed at bolstering solar generation. Solar PV projects up to a maximum
capacity of 50 MW are to be supported by financial incentives of a maximum
of Rs 12/kWh (28 US cents) for PV projects and Rs 10/kWh (24 US cents) for
solar thermal power projects for a period of 10 years.

With investors rushing to set up solar power projects and adding up to 2500
MW of capacity, the Ministry has asked the Planning Commission and the
Indian Cabinet to expand the 11th Plan solar power programme beyond 50
MW.

Thoughts
The government of India should consider feed-in-tariff schemes in
excess of 1000 MW per year against the present 50 MW, since
the need of the hour is to support PV programmes which are costprohibitive in comparison to other renewable technologies.
This would further encourage local companies to consider
investing in solar PV projects and can help in their economics.
India currently has to depend largely on imports of raw materials
and the rising currency rates make manufacturing a burden.
With government support for PV growing, ample solar resources
and both the labour and the market potential to exploit these
resources India is set to become a major force in the future PV
world.

India's Solar PV Space Attracts Investment

There has been a spate of investments in the solar/photovoltaics

(PV) space in India recently.

In August, as a follow up to its semiconductor policy (the Special

Incentive Package Scheme, or SIPS), the government of India
received 12 proposals amounting to a total investment of
Rs92,915.38 crore. 10 of these proposals were for solar PV, from:
KSK Surya (Rs3,211 crore),

Lanco Solar (Rs12,938 crore), PV Technologies India (Rs6,000 crore),

Phoenix Solar India (Rs1,200 crore), Reliance Industries (Rs11,631
crore), Signet Solar (Rs9,672 crore), SolarSemiconductor (Rs11,821
crore), TF Solar Power (Rs2,348 crore), Tata BP Solar India
(Rs1,692.80 crore), and Titan Energy System (Rs5,880.58 crore).

 In late September, there were three further

announcements, concerning: Vavasi
Telegence, which plans to invest Rs39,000
crore for a solar PV and polysilicon unit; EPV
Solar, which will invest Rs4,000 crore for a
solar PV unit; and Lanco Solar, which will
invest Rs12,938 crore for a solar PV and
polysilicon unit. Another Rs55,000 crore is
likely to follow.

Addition in retail, office complexes and logistics installations in India upto 2012

Prospective area under roof based solar PV in India under the 3 focus
sub-sectors
between 2008 and 2012

Conventional v/s solar PV for roof top applications

Conclusion
Rural electrification
3.87 The Government of India has kept a target of providing
electricity for all by
2012 with a minimum consumption of 1 kW per day per household.
As a part
of this programme, the government has targeted electrification of
18,000
remote villages through non-conventional power sources.
3.88 Power deficiency in India and the need to enhance access of
power to all at
the lowest lifecycle cost provide an ideal situation for the large-scale
introduction of DDG technologies, like solar, wind, biomass and
small hydro.

 3.89 Solar PV installations for rural electrification provide policymakers the

following advantages:
(i) located within short distances of the load centres
(ii) avoid the development of long transmission and distribution
networks and also save large AT&C losses
(iii) savings in carbon emissions
(iv) allow local communities to meet their own energy needs
locally
(v) highest solar irradiance in the world makes solar based DDG
an
attractive alternative

3.90 Although the relative economics of solar PV might not provide an ideal
match for all villages just as yet, solar PV is ideal for villages separated from
the grid by physical barriers.
3.91 Taking a conservative estimate of 25% or 4,500 villages out of the 18,000
villages classified as remote being electrified by solar means a demand of
about 300 MW in the coming next 4-5 years.
Telecom
3.92 Most BTSs in India use DG sets for backup power that suffers from
disadvantages, like high cost of fuel (diesel), fuel transportation and storage,
fuel pilferage, pollution and fuel adulteration. This use is more frequent in
semi-urban and rural areas with long and frequent power outages and old and
unreliable distribution networks.
__________________________________________________________________
______

Study on Solar Photovoltaic Industry: ISA-NMCC 2008 95

3.93 The use of solar PV for backup power applications in telecom provides
operators the advantage of a lower lifecycle cost compared to a DG set.
Based on estimates, the total potential of this market would be around 500
MW in the next 7-8 years (i.e. till 2015).
3.94 The telecom sector has the potential to provide a large and viable market for
solar PV in the future with retail prices of diesel likely to move up and prices
of solar PV panels likely to come down.
Roof based Building Integrated Solar PV
3.95 This segment provides an alternative for reducing the cost of power procured
by commercial buildings and at the same time reducing the burden on local
city grid.
3.96 Based on the analysis undertaken, solar PV can assist commercial building
operators in saving as much as 22% per unit cost. This segment has the
potential of adding upto 1,000 MW of capacity in the coming 5-6 years.

 Largely, these two performance (input) measures represent key

input factors
that are responsible for shaping the national PV promotion
strategy. Based on
these two performance (input) measures, which directly or
indirectly promote
the solar PV sector, the performance of any country can be
measured with
four output factors, which are:
(i) Market development
(ii) Industry development
(iii) Cost reduction of solar PV system
(iv) Country wide acceptance of PV

Typical Indian solar PV manufacturers are partially integrated, viz. they

procure wafers and produce cells and modules. While there are technical
reasons to this partial integration, viz. unavailability of technology, raw
materials etc, an important factor could be high capital requirements for
setting
up such manufacturing capacities comparable with the larger players in
the
industry. Capital subsidy could give a push towards vertical integration
and
reduce the cost of production of the module. The subsidy would
encourage
manufacturers to increase capital content in their manufacturing process
rather
than rely purely on labour arbitrage.

Thin film technology

6.8 The investment required in setting up a 100 MW integrated thin film
plant
(based on A-Si/Micro-Si) from glass to module is around Rs.1,500 crore
with
per MW cost of about Rs.15 crore (in SEZ). If the unit is outside an SEZ,
the
capital investment would be roughly Rs. 1,950 crore with per MW cost of
about Rs.19.5 crore. This excludes cost for making float glass, which has
many
potential suppliers in existing glass manufacturers in India. It is assumed
that
glass would be purchased locally and the cost of the same has been
included in
the cost structure.

 It is worth noting that close to 60% of value

addition (Rs. 50 per watt) in the
chain occurs in the polysilicon and wafer
manufacturing. The bulk of the value
addition in the solar PV value chain is,
therefore, not taking place in India. A
push towards vertical integration hence makes
strong logic for the development
of this sector in India.

Profitability of solar PV sector

Crystalline silicon technology

An analysis of a vertically integrated (Greenfield) 100 MW poly

Crystalline module manufacturing company is considered here on a
sample basis.
Assuming an investment of around Rs. 1,265 crore, the Equity
Internal Rate Of Return (IRR) for the investor has been worked out
over a 10-year Investment horizon.
The debt-equity ratio has been assumed as 50:50.
Production is expected to commence in the FY 2010-11.
The cost of production is expected to drop due to the improvement in
Manufacturing technologies as well as a reduction in raw material prices which
are currently high.

The selling price too is projected to drop with increasing international competition and
thinning of margins for manufacturers.
In the analysis, it is projected that with maturing of the market, margins made by
manufacturers would decrease over time.
An upper band and lower band of cost of production and selling price (reflecting a highly
aggressive and a milder cost and price trajectories respectively) have been used for the
analysis.
The analysis consisting of 2 cases is presented in
Table 34:
(i) Case I: A manufacturing unit located in an SEZ and gets capital
subsidy
(ii) Case II: A manufacturing unit located in an SEZ but does not get
capital subsidy
To analyze a non-SEZ case, an investor would need to take into account tax and
duties structures on capital goods, raw materials, services, electricity, etc. of the
concerned state.
For case I, it is assumed that the capital subsidy will be used to repay the debt.

 As the analysis indicates, without capital

subsidy, the sector is not attractive
enough for international investors,
especially in a scenario where global
competition exists among nations to take
the lead in establishing a solar PV
manufacturing base.

 Encouraging thin film technology is relevant to

Indian conditions because it
offers better economics of power generation for
ground based systems and is
likely to be the cheaper alternative for utility
scale power generation. Hence
fiscal incentives would be critical to the growth
of thin film based
manufacturing capacities in India.

below, we present two cases for a manufacturer partially

integrated (wafer to module as is the case for incumbent Indian manufacturers)
and completely vertically integrated. In the partially integrated case, wafer is
typically procured at Rs. 86 per watt. With value addition of about Rs. 35 per
watt, the cost of production of a partially integrated manufacturer would be
about Rs. 120 per watt. A vertically integrated manufacturer, in comparison,
may be able to produce the same at Rs. 89 per watt. (Table 32). It is assumed
that both the partially integrated manufacturer and the vertically integrated
manufacturer would be able to sell the module at around Rs.145 (international
pricing of c-Si module). This gives the vertically integrated manufacturer a
margin gain of 42 percentage points (63% - 21%) over the partially integrated
one. With a lower cost of production, a vertically integrated manufacturer
would be internationally competitive with healthy margins.

Power generation from grid connected solar PV system

6.28 One of the ideas behind studying economics of solar PV manufacturing in
India
is to make it competitive to be able sustain local deployment of solar based grid
connected projects.
6.29 With an objective to improve the economics of solar power and reach closer
to
grid parity, we will look at the current cost of generation and its sensitivity to
future module costs and cost of finance. The purpose here is also to understand
at what cost a project developer would be interested in setting up a solar PV
power project. The key assumptions for a typical grid connected solar PV
power plant based on poly-crystalline and thin film technologies are given in
the Table 37. A thin film module typically requires almost double the area for
panel mounting as polycrystalline module for the same energy output. We
assume that there would not be significant impact of additional land
requirement on project cost since the state government may be able to offer
unutilised/waste land at low prices for such projects.