“International Workshop

p on
"Solar Power Generation Technologies" PGT)

“Policies / Loans / Incentives for SPV"

Dr. G. Giridhar
Ministry of New and Renewable Energy
N D
New Dellhi
llhi
ggd_cdp@yahoo.co.in

ESCI, Hyderabad, 22nd February, 2011

Don't get me wrong:
I love nuclear energy!
It's just that I prefer fusion to fission.
And it just so happens that there's an enormous
fusion reactor safely y banked a few million miles
from us.
It delivers more than we could ever use in just
about 8 minutes.
minutes And it it's
s wireless!

William McDonough,
Fortune Brainstorm Conference
Conference, 2006
THE SUN
SOLAR ENERGY – Is it Renewable?

y Sun burns 5 million tons of Hydrogen/sec by fusion

y It will burn and can deplete in 4.5 billion years
y Strictly after 4.5 billion years, it is not renewable, but
nobody knows
1. Abundant Reserve
2. P
Practically
i ll Unlimited
U li i d
3. Available every where
4. Good Quality Green Energy
5. Natural Resource
6. Energy Security
Constraints of Solar Energy
y Variable with Time and Place
y Not Evenly Distributed
y Low density
y Not in Directly Useable Form and requires Conversion
Techniques
y Regularly intermittent by night fall and irregularly by
passing clouds, dust, haze, fog and weather changes
Suitabilityy for Solar Power Plants
 SOLAR TERMS
y Beam Radiation or Direct Radiation (Ib):‐
Solar radiation received at earth
surface without changeg of direction and in
line with sun.

y Diffuse Radiation (Id):‐

Solar
S l radiation
di ti received
i d att earth
th surface
f
from all parts of sky’s hemispheres.

y Global Radiation (IG):‐

It is the sum of beam radiation and
diffuse radiation
IG= Ib + Id
y Solar Irradiance or Insolation :‐ :
The rate at which solar energy reaches a
unit area at the earth. w/m2 It is
instantaneous measure of rate and vary over
time.
i
• Solar output 11 year solar cycle
• Earth‐Sun distance 3.5 % annual variation
• Clouds Dominant factor
• Water vapor Selective absorber
• Air pollution 40 % less direct
• Smoke from forest fires Natural or man‐made
• Volcanic ash Global effect for years
• Location
L ti
• Time of day Solar position
• Season
 Renewable Energy at a
Glance in India (as on 30‐06‐2010)
Source/system Estimated Achievement
Power from Renewables potential
I. Grid‐interactive renewable power (MW) (MW)

1 Wind power 45 195 12009.48

2 Bi
Bio power ((agro residues
id and
d 6 881
16 88 901.10
plantations)
3 Bagasse cogeneration 5 000 1411.53
4 53
4 Small hydro power (up to 25 MW) 15 000 2767.05
5 Energy recovery from waste (MW) 2 700 72.46
6SSolar
l photovoltaic
h t lt i power — 12.28
Total 84 776 17173.90
 Renewable Energy at a
Glance in India (as on 30‐06‐2010)
Source/system Estimated Achievement
II. Captive/combined heat and potential
power/distributed renewable power (MW)

1. Biomass/cogeneration (non‐ — 238.17

bagasse)
2. Biomass gasifier — 125.44
3. Energy recovery from waste — 552.72
7
4. Aero generator/hybrid systems — 1.07
Total 417.40
Grand Total 17591.30
 Renewable Energy at a
Glance in India (as on 30‐06‐2010)
Source/system Estimated Achievement
potential
III Remote village electrification ‐ 6867 villages
IV Decentralized energy systems
1. Family‐type biogas plants 120 lakh 42.60 lakh
2. Solar
S l photovoltaic
h t lt i systems
t 50 MW/km2 120 MWp
i. Solar street lighting system 119634 nos
g
ii. Home lighting g system
y 6033 307
3 nos
iii. Solar lantern 797 344 nos
iv. Solar power plants 2.92 MWp
v. Solar photovoltaic pumps 7334 nos
 Renewable Energy at a
Glance in India (as on 30‐06‐2010)
Source/system Estimated Achievement
potential
3. Solar thermal systems
i. Solar water heating systems 140 M. M2 3.53 M. M2
ii. Solar cookers 6.72 lakh
‐
4. Wind
Wi d pumps ‐ 1347 nos
 JNNSM‐ Mission Objectives
Jawaharlal Nehru National Solar Mission has been launched
under
d th
the National
N ti l action
ti Plan
Pl on Cli
Climate
t Change
Ch with
ith an
objective:
To establish India as a global leader in solar energy, by
creating the policy conditions for its diffusion across
the country.

Mission anticipates achieving grid parity by 2022 and

parity will coal based thermal power by 2030.

To adopt a 3‐phase approach from 2010 to 2022.

Aim off th
Ai the mission
i i is i to
t focus
f on setting
tti up an enabling
bli
environment for solar technology both at centralized
and decentralized level.
 Mission Strategy
To create necessary
y environment to attract industry
y and
project developers for investment in power generation,
manufacturing.

To work closely with State governments, regulators, power

utilities and local self government bodies.

To attract banks and financial institutions to provide

necessary finance for setting up solar power projects for
grid/ off‐grid.
To promote off‐grid solar applications to meet light and
power requirements of energy –poor by provision of low cost
credit through re‐finance facility from IREDA
 Mission Approach

Application Phase – I Phase‐II

Phase II Phase‐
Phase III
Segment 2010‐13 2013‐17 2017‐22
Utility grid
1,000-2,000
, , 4000-10,000
, 20,000
,
power (MW)
Off‐ grid
Applications 200 1,000 2,000
(MW)
Solar Thermal
Collectors Area 7 15 20
(M Sqm
(M. S )
Manufacturing
-- -- 4,000-5,000
Base (MW)
Solar Lighting
Systems (Million -- -- 20
Nos)
 Research and Development
p

To set up a solar research council to guide the overall

technology development strategy

To establish a national centre of excellence to

i l
implement the
h plans
l formulated
f l d by b the
h council.il

Maini tasks
k will
ill be
b testing
i and d certification,
ifi i d
developing
l i
standards and specifications, networking among
different research institutions.
 Policy & Regulatory Framework

Solar Power Purchase Obligation

Solar specific RE Certificates

Incentivizing through NTPC Vidyut Vyapar Nigam Ltd. (NVVN) for

•
setting up of large solar power plants.
• Designated as nodal agency for entering into PPA with Solar Power
Developers.
• MoP allocating equivalent amount of MW to NVVN.
• Sale of power as per CERC regulations (to provide Generation Based
Incentive)

Rooftop solar PV and other small power plants connected to LT/11

KV grid with a remunerative feed‐in tariff ( routed through IREDA)
 Solar‐Manufacturing

To establish low cost, high quality manufacturing

facility for solar PV with the targets of 4‐5 GW by 2020.

To provide incentives to establish SEZ for solar

manufacturing
f i parks.
k

To provide soft loans for technology up gradation and

working capital through re‐finance facility from IREDA.
 Financing Mission Activities

Fund Sources
• To provide budgetary support for the activities
• To access International Funds under the UNFCCC
framework

Fund requirement for Phase II

• Review of progress achieved at the end of 11th Plan
• Analysis of the efficacy of the model adopted
 Financial Incentives
¾Soft loan at @ 2 % for domestic sector @ 3% for non
profit
fi organizations
i i andd 5% for f profit
fi making
ki
organizations
¾5 years loan repayment period
¾ 5 years Annual Maintenance Contract
¾85% of project cost as loan,
loan availability for any capacity
and for any end user
¾ 80% Depreciation for end user
¾ Custom and Excise Exemptions
¾GBI based incentives @ Rs 18.45 for SPV and Rs.
15 31f solar
15.31for l thermal
h l power
Generation Based Incentives
¾Eligibility: Any Project that is commissioned after 31st December,
December 2009
¾ A maximum incentive with a 5% reduction and ceiling of Rs. 11.40 per
KWh.
W
¾ The generation based incentive will continue to decrease as and when
the utility signs a PPA for power purchase at a higher rate.

¾Solar PV power generation plants of a minimum installed capacity of

1MWp per plant, either a single unit or modular units at a single location
will be eligible for generation based incentive.
¾ However, 1 MWp capacity may be setup through modular units at a
single location.
 Rates

Secretary, MNRE, announced Quotes of the Winning Bids of SPV and ST

Projects during Inter Solar India Conference held recently in Mumbai

Solar PV:

NVVN reference price : Rs. 17.91/kWh

Lowest winning bid : Rs.11.18/kWh
Average
g bid : Rs 12.16/kWh

Solar Thermal:

NVVN reference price : Rs. 15.31/kWh

Lowest winning bid : Rs.11.14/kWh
 Fund Requirements

First stage Second Stage

A Grid Connected 1,100 MW 20,000 MW

Power Plants

Approximately Rs. 16500 crores Rs. 3,00,000 crores

B Off‐Grid
Off G id 200 MW 2,000 MW
Applications

Approximately Rs. 5,000 crores Rs. 50000 crores

C Solar Thermal 7 million meter square 20 million meter square

collectors

Approximately Rs 7000 crores

Rs. Rs 20
Rs. 20,000
000 crores
 Role of IREDA under JNNSM
Type of system Role of IREDA
Grid connected power projects • Financing of Projects
Small
S ll solar
l power projects
j t and
d rooff • Financing
Fi i off Projects
P j t
top systems • Generation Based Incentive
• Monitoring

Off‐ grid applications • Soft loans through banks by re‐financing

• Monitoring of the systems

S l th
Solar thermall sector‐
t SWHS •Administration
Ad i i t ti off IInterest
t t subsidy
b id
scheme through banks / financial
institutions
•Funding of projects
•Funding through intermediaries
Solar Manufacturing •Soft loans
•Working capital
•Re‐financing facility as per MNRE
 Resource Base
y Authorized Share Capital :Rs 1000 Cr
y Paid-up Capital :Rs 520 Cr
y Net-worth :Rs 871 Cr
y Domestic Borrowings :Rs 773 Cr
y International Borrowings :Rs 1115.69 Cr
 International Partners
• Govt of Netherlands, 1991 : 18 Million Dutch Guilders
• World Bank (1st LoC), 1993 : $ 145 Million
• DANIDA, 1993 : $ 15 Million
• Asian Development
p Bank,, 1997 : $ 100 Million
• KfW, Germany (1st LoC), 1999 : € 61.35 Million
• World Bank (2nd LoC), 2001 : $ 110 Million
• KfW Germany(2nd LoC),
KfW, LoC) 2008 : € 50 Million
• KfW, Germany(3rd LoC) : € 19.9 Million

Lines of Credit in Pipeline

• AFD (France) : € 80 Million
• JICA (Japan) : $ 100 Million
IREDA Financing Schemes
‰Project Financing Schemes
‰Equipment Financing Schemes
‰Financing Through Intermediaries

Quantum of Assistance - Upto 70% of Project Cost

Rate of Interest - 11.25% to 12.75%
Repayment Period - Upto 13 Years
 Channelization of Funds
for Off‐Grid Solar Applications
y Funding under scheme – Project mode.

y Directly by MNRE (approved by PAC)

y Scheduled commercial banks, NBFCs, FIs such as NABARD, NHB,

SIDBI, IREDA etc.

y Additional channels for supply and maintenance (RESCOs, Financial

Integrators, System Integrators, MFIs, Government agencies etc.)
 Components of Tariff
The following are the components of tariff for solar energy:-
1. Capital Cost
2. Capacity utilization factor
3. De-rating
4. Debt-equity ratio
5. Term of loan
6. Rate of interest
7 Interest on Working Capital
7.
8. Return on equity
9. Life of plant and machineryy
10. Rate of depreciation
11. Operation and maintenance expenditure
12. Auxiliary Consumption
13. Accelerated Depreciation Benefit
Capital Cost

¾The cost of a solar power project is mainly dependent on the cost of PV modules
/ plant and machinery, technology adopted, location of the site and capacity

¾The Indian Renewable Energy Development Agency Limited (IREDA) has

recommended a capital cost of Rs.18 to 20 Crores per MW for Solar PV thin film
technology and Rs.22
Rs 22 to 25 Crores per MW for Solar PV single / multi crystalline
technology

¾The Commission decides that the Infrastructure Development Charges (IDC) of

Rs.25.75 lakhs per MW should be loaded to the capital cost. Accordingly, the
capital cost is refixed as Rs.17.1575 crores per MW.
¾Solar PV has one of the highest capital costs of all renewable energy sources, but it
has relatively low operational costs, owing to the low maintenance and repair needs.

¾For a solar PV power plant, the approximate capital cost per MW is approximately
Rs. 16 crores – the precise cost depends on scale.

¾Thi includes
¾This i l d the th costt off panels,
l the
th balance
b l off systems,
t the
th costt off land
l d and
d other
th
support infrastructures.

Component Amount % of Total

(in Rs crores)
Solar panel arrays 8 50

Inverter 2 12

Balance of System 2 13

Installation 2 10

Others (Infrastructure, Margins) 2 15

 Current Capital Cost for Solar PV

Capacity (MW) Capital Expenditure

(Rs Crores /MW)

1‐5 17

5‐10 16

10‐50 15.5

50‐100 15
 Capacity Utilization Factor (CUF)
¾CUF is i the
th ratio
ti off actual
t l energy generatedt d by
b the
th Solar
S l PV project
j t over the
th year
to the equivalent energy output at its rated capacity over the yearly period. CUF for
Solar PV project depends on solar radiation and number of clear sunny days.

¾The Indian Renewable Energy Development Agency Limited (IREDA) has

recommended a CUF of 15 to 20%.

¾The maximum solar radiation in Tamil Nadu is 5.8 kWh/Sq.mtr/day in the Solar
Radiation Handbook,
Handbook 2008 of MNRE has projected annual solar insolation in
Chennai as 5.37. Considering the above, the Commission adopts a CUF of 19% in
this order as adopted by the CERC
 De-rating

¾De-rating factor has not been foreseen by other State

Commissions / CERC. It is natural that any material used
in the PV module for energy conversion, loses its
efficiency due to aging
¾Being a newne area without
itho t information on past
performance parameters, fixation of de-rating factor for a
Solar PV Plant can only be an approximation. IREDA has
recommended a de-rating factor of 0.5 to 1% per annum
 Terms of Loan

¾ The Commission fixed a tenure of ten years with

moratorium
t i off one year in
i its
it Tariff
T iff Order
O d based
b d on the
th
consideration that term loans sanctioned by IREDA
stipulated
p this tenure. The Commission decides to retain
the same tenure in this order.
Rate of interest
¾CERC has considered the long-term PLR of State
Bank of India plus 150 basis points as adequate. IREDA
has recommended interest rate of 12% with repayment
period of 7-8 years.

¾ The
Th Commission
C i i considers
id th t interest
that i t t rate
t off
12% is reasonable.
Interest on Working Capital
¾The Central Electricity Regulatory Commission has included the following
components in working capital in their Regulations, 2009:

(i) Operation and Maintenance expenses for one month;

(ii) Maintenance spares @ 15% of the O&M expenses,

(iii) Receivables equivalent to 2 months of energy charges for sale of

electricity calculated on the normative CUF;
¾ Commission decides to adopt an interest rate of 12% on working capital as
considered in order of 2009 by the Commission along with the following working
capital component :

(i) Operation and Maintenance expenses for one month;

(ii) Maintenance spares @ 1% of the O&M expenses and

(iii) Receivables equivalent to 1 month of energy charges for sale of

electricity calculated on the normative CUF.
Return on Equity
q y

¾ The CERC has adopted RoE of 19% pre tax for the first ten years and 24%
for the remaining 15 years for solar PV projects
projects. The Commission decides to
adopt 19.85% pre-tax return on equity for this order.

Life of plant and machinery

¾The Commission decides to consider the solar PV plant life of 25 years as

considered by CERC in their Terms and Conditions for Tariff determination
from Renewable Energy Sources Regulations, 2009.
Rate of Depreciation

¾The CERC’s regulations recommended ‘Differential Depreciation Approach’

over loan tenure and period beyond loan tenure over useful life computed on
‘Straight Line Method’.

¾ It is p
proposed
p to adopt
p the rate p prescribed in the CERC’s regulation,
g , i.e.
depreciation rate of 7% for the initial 10 years and 1.33% for the remaining
years.
Operation and Maintenance expenses

¾ The O&M expense includes the expenditure on manpower, repairs, spares,

consumables, insurance and overheads.

¾ IREDA has suggested a O&M charges of 0.5% of the capital cost. Commission
decides to adopt the rates prescribed in the CERC regulation. i.e. Rs.9.515 Lakhs
per MW for the first year of the Control period (2010-11) and shall be escalated at
the rate of 5.72% per annum for the remaining periods.
Auxiliary Consumption

¾The auxiliary consumption for solar PV power plant is to be

considered to meet the auxiliary y p q
power requirement for
equipments/devices for cooling of the power conditioning units, lighting
of office/station yard, water sprinklers, monitoring and control units,
communication services etc.

¾ Commission considers 2% of auxiliary consumption is reasonable for

solar PV power plants.

Accelerated Depreciation Benefit

¾For the projects availing the benefit of accelerated depreciation as per
applicable income tax rate @ 33.99%
33 99% (30% IT rate+ 10% surcharge +3%
Education cess) has been considered.
 Channelization of Funds
for Off‐Grid
Off Grid Solar Applications
y Accreditation
A di i

y Performance Monitoring
g

y Refinancing

y MoU signed by IREDA with NABARD, NHB and Central Bank of

India.
Risk Factors in Funding Solar Projects
 Risk Factors in Funding Solar Projects
Regulatory Risk Fixing of the tariff and assurance on the power sale
agreement
Technology Risk Technology yet to be proven on the ground

Implementation Risk Uncertainties in the implementation of the project as

per schedule
Infrastructure Risk Inadequate evacuation facility and clearances on land
and other statutory clearances
clearances.
Repayment Risk Non assurance of repayment from the utilities may
result in repayment risk to the developers/ FIs.
Political Risk Changes in fixing of unallocated power with respect to
change in political system.
Policy Risk Assurance of long term policy with greater accuracy
and uncertainties in development of the solar sector.
 Risk Factors in Funding Solar Projects
Financial Risk •In time financial closure by the project developer.
•High
High cost so funding from single source is a risk.
•Raising of equity

Guarantee and Longg term guarantee

g and warrantyy from the
Warranty Risk technology providers for the new technology.
Suggestions for Risk Mitigation to
finance Solar Projects
 Suggestions
gg for Risk Mitigation
g

y Advocation for long term / stable/ consistent policies at central

/ state level- to honor PPAs and MoUs.
y Frequent / close interaction with all stake holders including
regulatory commissions-
commissions to stipulate appropriate GBI/PPA
based on capital cost.
y Proper
p Resource assessment studies.
y Provision of partial risk guarantee fund from Govt.
y Importance
I off timely
i l clearances
l / approvals
l for
f solar
l projects.
j
y To create special single window clearance cell at state level.
 Suggestions
gg for Risk Mitigation
g
y Promoters to take advance actions to avoid delay of deliveries- to
meet targets under JNNSM.

y To encourage establishment of more manufacturing units/

suppliers in the country- to deliver indigenous cells and
modules as per the requirement of JNNSM .

y To establish a mechanism to have information exchange between

various
ri FI and
FIs nd banks-for
b nk for co-financing
co financing or consortium
consorti m
financing.

y Detailed
D il d site
i survey reports to be
b undertaken
d k through
h h
professional bodies- to maximize performance efficiencies.

y To establish more training institutions for producing skilled

manpower-capacity building.
 Suggestions for Risk Mitigation

y To
T stipulate
l suitable
bl conditions
d for
f recovery off loan
l from
f
operations of solar projects in the event of failure of core
business (for non IPP projects).

y Concurrent monitoring of projects by Fis by appointment of

lenders engineers.

y Periodic inspection / monitoring of projects even after

implementation. (TRA and Generation data)

y Innovative financing models by accessing low cost funds from

international institutions.
 Migrated JNNSM List of SPV Projects
Capacity
Sr. No. Name of Applicant State
(MW)
Maharashtra State Power Generation Co.
1 Maharashtra 4
Limited, (MAHAGENCO), Mumbai
2 Clover Solar Pvt. Ltd., Mumbai Maharashtra 2
3 Videocon Industries Ltd, Mumbai Maharashtra 5
4 Enterprise Business Solutions, USA Punjab 5
5 Azure Power (Punjab) Pvt. Ltd., Amritsar Punjab 2
6 Comet Power Pvt. Ltd., Mumbai Rajasthan 5
7 Refex Refrigerants Limited, Chennai Rajasthan 5
8 Aston Field S
Solar ((Rajasthan)
j ) Pvt. Ltd. Rajasthan
j 5
9 Entegra Ltd, Ansal Bhawan, New Delhi Rajasthan 1
AES Solar Energy Pvt. Ltd., Gurgaon,
10 Rajasthan 5
Haryana
11 Moser Baer Photo Voltaic Ltd., New Delhi Rajasthan 5
OPG Energy Pvt. Ltd., Chennai, Tamil
12 Rajasthan 5
Nadu
13 Swiss Park Vanijya Pvt. Ltd. Rajasthan 5
T t l
Total 54
Migrated JNNSM List of Solar-Thermal Projects
Capacity
Sr. No. Name of Applicant State
(MW)
Acme
A Tele
T l Power
P Limited,
Li it d
1 Rajasthan 10
Gurgaon
Dalmia Solar Power Limited,
2 Rajasthan 10
New Delhi
Entegra Ltd, Ansal Bhawan, New
3 Rajasthan 10
Delhi
Total 30
 THANKS
FOR YOUR PATIENCE