Bridge to India_india Solar Compass April 2013

© BRIDGE TO INDIA, 2013 1

INDIA SOLAR

COMPASSApril 2013 Edition

Market DashboardA snapshot of the market’s

fundamentals

Latest Market In-sightsAn analysis of the policies,

projects, industry and finance

A Key Question AnsweredIs distributed solar PV ready to take

off in India?

OutlookQuarterly projections for the

Indian solar PV market

© BRIDGE TO INDIA, 2013

Illustration by Kavya Bagga

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CONTENTS1 Overview 01

2 Market Dashboard 02 2.1 Market Compass 02 2.2 Indian Solar Market Prices 02 2.3 Installed Capacity in India 03

3 Key Findings 04

4 Policies 07 4.1 National Solar Mission 07 4.2 Tamil Nadu Solar Policy 08 4.3 Andhra Pradesh solar policy 09 4.4 Kerala Solar Policy (Draft) 09 4.5 Punjab Solar Policy 10 4.6 Uttar Pradesh Solar Policy 11

5 Projects 13 5.1 New Installations (grid connected) 13 5.2 Status of on-going projects (PV) 14

6 Financing 17

7 Upstream Industry Analysis 19 7.1 Inverter supply in India 19

8 Key Question: Is distributed solar PV ready to take off in India? 22

8.1 Background 22 8.2 Market fundamentals 22 8.3 Bottlenecks to adoption of distributed solar power 25 8.4 Case for parity driven adoption of rooftop solar 26 8.5 Way forward 30

9 Outlook 31 9.1 Current quarter 31 9.2 Long-term outlook 31

10 Expert’s view 31 10.1 Power-One’s newly launched ULTRA series tries to provide the 33 best inverter solution for the Indian market 10.2 Socomec: Why large central inverters are not an ideal solution 34 for the Indian market

11 Annexure 35



LIST OF FIGURES

Figure 4-1: Schedule for participation in the Punjab Solar Policy

Figure 4-2: Schedule for participation in the Uttar Pradesh Solar Policy

Figure 5-1: Grid connected solar projects installed in the previous quarter – January 1st to March 20th 2012

Figure 5-2: List of projects accredited under the REC Mechanism

Figure 7-1: Central inverter market share by commissioned projects of inverter companies as of February 2013

Figure 8-1: Module prices have fallen by 58% in 3 years

Figure 8-2: India’s widening energy deficit

Figure 8-3: State-wise net internal revenues (` million) for 2009-10

Figure 8-4: Power costs in India are rising at an average of 6% p.a.

Figure 8-5: State-wise commercial tariff vs. LCOE1 of solar power (100kWp system without battery)

Figure 8-6: For 2016, state-wise commercial tariff vs. LCOE1 of solar power (100kWp system without battery)

Figure 8-7: State-wise industrial tariff vs. LCOE1 of solar power (100kWp system without battery

Figure 8-8: For 2016, state-wise industrial tariff vs. LCOE1 of solar power (100kWp system without battery)

Figure 8-9: State-wise residential tariff vs. LCOE1 of solar power (3kWp system without battery)

Figure 8-10: For 2016, state-wise residential tariff vs. LCOE1 of solar power (3kWp system without battery)

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16

19

23

23

24

25

27

28

28

29

30

31


In the previous quarter (January to March 2013), allocations in states such as Tamil Nadu and Andhra Pradesh have captured the industry’s attention. Towards the end of the quarter, Uttar Pradesh and Punjab announced their first project allocations and Karnataka has announced its second. A capacity allocation of 750 MW under phase two of the NSM is also expected soon. These new projects are expected to account for around 2 GW of demand in the second half of 2013 and a blockbuster year for capacity additions in 2014.

There is a clear trend emerging from the recent biddings and a flurry of announcements: the competition for projects (and the aggressive bidding) is reducing. While some developers bid aggressively in Andhra Pradesh, we have seen L1 bids for certain locations in the state go as high as ` 8.89 (€ 0.14/$ 0.18)/kWh. In Tamil Nadu too, while some bids were aggressive, the average bid was in the range of ` 8/kWh (€ 0.12/$ 0.16)/kWh. We can expect a similar trend to continue in Uttar Pradesh and Punjab. Allocations under the NSM are unlikely to be as oversubscribed as they have been in the past. This is primarily due to two reasons: excess capacity available in the market for allocation through various state policies and due to the

introduction of Viability Gap Funding (VGF) which is expected to re-open issues related to the bankability of the new off-takers.

In the last quarter we have seen an accreditation of 57.25 MW of planned capacity based on the REC mechanism. This is the highest accreditation for any quarter until now. Going forward, we expect this upward trend of accreditations to fade out as the new projects are expected to continue facing hurdles with obtaining debt financing.

Even without any government support in the form of domestic content requirements or subsidies, India is slowly evolving into a manufacturing destination for solar inverters. Companies like ABB, AEG and Schneider are already manufacturing in India and Bonfiglioli and SMA are known to have plans to do the same. Such companies are focussing on the central inverter market. Refusol, has recently announced the operationalization of its manufacturing unit that will focus on producing string inverters. Most of these new manufacturing facilities in India have been planned to serve some other international markets as well.

1. OVERVIEW

Allocations under the NSM are unlikely to

be as oversubscribed as they have been in

phase one.

India is slowly evolving into a manufacturing destination for solar

inverters.


Source: BRIDGE TO INDIA


2. MARKET DASHBOARD 2.1 MARKET COMPASS

2.2 INDIAN SOLAR MARKET PRICES

PVLowest FiT ` 6.45/kWhInterst Rate 13%Average Capex ` 68 /Wc-Si modules (China, Taiwan) $ 0.63/W*Thin Film modules (US and Malaysia) $ 0.57/W*c-Si modules (Japan, Europe) $ 0.70/W*Thin Film modules (Japan) $ 0.65/W**$ rate has been used to avoid effect of currency fluctuationsAll prices are for a reference 10MW projectAll prices are without duties and taxes

© B

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Key driversfor the direction of the market

Regulatory EnvironmentExecution Challenges

FinancingViability

GROW

ING EMERGING

MAT

URE NASCENT


2.3 INSTALLED CAPACITY IN INDIA

Source: BRIDGE TO INDIA© BRIDGE TO INDIA, 2013

Note: Circle sizes are only indicative and do not represent the actual difference in installed capacity.

PV24.2 MW

GUJARAT

CHHATTISGARH

ANDHRAPRADESH

UTTARPRADESH

TAMILNADU

WESTBENGAL

HARYANA

ODISHA

MADHYA PRADESH

DELHI

MAHARASHTRA

KARNATAKA

KEY

PUNJAB

ALL INDIA

PV14 MW

9%

22%

36%

15%

1%2% 2%3%

3%

6%

PV8 MW

PV22.5 MW

Gujarat Solar Policy Phase 1 Gujarat Solar Policy Phase 2

Demo Project

Generation Based Incentive

Migration RPSSGP REC Mechanism

NSM Batch 2, Phase 1

Direct RPO Project NSM Batch 1, Phase 1

25%

8%

1%

61%38%

2%

9%2%

46%

9%

23%

75%

44%

33%

9%

47%

58%

72%

28%

42%

33%

33%

64%

36%

21%

21%

46%

12%

RAJASTHAN

CSP3 MW

CSP2.5 MW

PV7.25 MW

PV2 MW

PV2 MW

PV16 MW

PV4 MW

PV5 MW

PV7.8MW

PV441 MW

UTTARAKHAND

JHARKHAND

42%

58%

55%

45%

CSP5.5 MW

PV824.09 MW

PV15 MW

PV1,416.8 MW

PV12 MW

PV12 MW


3. KEY FINDINGS

3.1 POLICY1. Due to the unavailability of

unbundled power, the Ministry of New and Renewable Energy (MNRE) has decided to go ahead only with the allocations for 750 MW based on Viability Gap Funding (VGF).

2. Even though funds for the NSM allocation process have been approved, like all other ministries, the MNRE also faces other budgetary cuts.

3. It is likely that most off-grid projects that apply for capital subsidy in the new financial year will be put on hold until the end of the financial year (March 2014).

4. In the wake of US taking India to the WTO against domestic content requirements (DCR), India continues to support the DCR and argues that it is legal.

5. For the 1,000 MW tender, Tamil Nadu received 92 applications for 104 projects, totalling a capacity of only 499 MW.

6. The state has decided to provide a ‘workable tariff’ of ` 6.48/kWh (at an annual escalation of 5% for the first 10 years of the 20 year PPA).

7. In Tamil Nadu, a capacity of 226 MW has been allocated for and the projects are expected to be commissioned by January 2013.

8. Andhra Pradesh’s solar project tender was oversubscribed. Bids were received from 184 applicants who bid for a total capacity of 1,340 MW.

9. The lowest bid (L1) in Andhra Pradesh was ` 6.58 (€ 0.10/$ 0.13) /kWh. At some substations the L1 is as high as

` 8.89 (€ 0.14/$ 0.18)/kWh.10. Kerala released a draft solar policy

and has set itself a target of an installed capacity of 500 MW by 2017 and 1,500 MW by 2030.

11. Unlike the off-grid capital subsidy scheme under the NSM, the state will incentivize distributed solar through Feed-in-Tariffs (FiTs).

12. Like Tamil Nadu, Kerala has also tried to pass on the financial burden of Renewable Purchase Obligations (RPOs) from the state-owned distribution companies to large power consumers. Solar Procurement Obligations (SPOs) will be mandated for commercial and industrial consumers.

13. Punjab has released a request for proposal (RfP) document for allocation of 300 MW of solar PV in the first phase of its state solar policy.

14. In Punjab, the bid has been divided into two categories, 50 MW for new developers and 250 MW for experienced developers.

15. The benchmark tariffs for the Punjab bidding process have been fixed at ` 8.75/kWh for companies not availing accelerated depreciation and ` 7.87/kWh for companies availing accelerated depreciation.

16. Uttar Pradesh has updated and finalized its solar policy and it is now called ‘Uttar Pradesh Solar Policy 2013’.

17. Uttar Pradesh has announced bidding for 200 MW of capacity on March 15th 2013.

3.2 PROJECTS (PV)1. In the last quarter (January to March

2013) 226.5 MW of solar PV capacity has been added.

2. Under batch two of phase one of the NSM, projects by developers such as Welspun, Mahindra, Kiran Energy, Azure, Gas Authority of India Limited (GAIL), Saibaba Green Power, SunEdison, Green Infra and Fonroche Group have been commissioned.

3. For batch two projects, a significant delay has been reported in the project being developed by Essel Infraprojects.

4. Essel has also won projects in Andhra Pradesh, Rajasthan and Karnataka. It has, in fact, quoted the lowest tariffs in Rajasthan and Andhra Pradesh.


5. The financial bids for the allocation of 100 MW of solar PV projects in Rajasthan were opened on February 11th 2013.

6. The bidding process in Rajasthan does not consider separate tariffs for projects that avail accelerated depreciation.

7. Unlike other states, the PPA signing entity for Rajasthan is the Rajasthan Renewable Energy Corporation Limited and not the power distribution companies.

8. In Madhya Pradesh, Welspun’s 130 MW project in Neemuch district of Madhya Pradesh has arranged for financing and has selected its equipment suppliers.

9. Projects allocated in Karnataka last year are nearing financial closure and are in discussions for vendor selection.

10. In the last quarter, we have seen an accreditation of 57.25 MW of planned capacity based on the REC mechanism. The total proposed capacity of accredited projects now stands 78.16 MW.

11. Giriraj Enterprises, a group company of the Malpani Group from Maharashtra has emerged as the largest player betting on the REC market in India. The company is accredited to set up 40.65 MW of REC based solar projects.

12. The company has gone ahead and constructed 36 MW in Rajasthan.

3.3 FINANCING1. In the last quarter (January –

March 2013), financial closures have being achieved for multiple projects in Madhya Pradesh and Karnataka.

2. It is likely that developers in both Tamil Nadu and Andhra Pradesh will opt for construction/bridge financing to complete their projects on time.

3. Many project developers are now looking at the third-party PPA market. Some PPAs have already emerged from this commercial parity driven market segment but

it is not clear how the lenders will react to such projects.

3.4 INDUSTRY ANALYSIS1. There are up to 18 prominent

inverter suppliers that are present in the Indian market. However, just six companies, i.e., SMA, Bonfiglioli, Schneider, ABB, AEG and Power-One make up for 87% of the current inverter market share in India.

2. From these six companies, power solution companies such as AEG, ABB and Schneider are already manufacturing solar inverters in India.

3. Refusol has also begun the manufacturing of its string inverters in India.

4. As of January 2013, central inverters account for 95% of the installed capacity in the country.

5. Inverter suppliers such as ABB and Power-One plan to launch new central inverter models with the capacity of 1 MW and 1.4 MW respectively.

6. Many of the larger inverter suppliers by market share categorically state that they are not the cheapest and it is not their intention to be the cheapest suppliers in the market.

7. Central inverters being supplied in India can broadly be categorized into three types: monolithic-indoor inverters, modular-indoor inverters and outdoor inverters (IP65 without the requirement of additional casing).

8. Many inverter companies that manufacture indoor inverters can also provide the enclosure for outdoor placement.

9. Currently, central inverter prices in India range between ` 4.2 (€ 0.06/$ 0.08)/kWp (output) and ` 7.8 (€ 0.11/$ 0.14)/kWp (output), depending on the type and brand of the inverter.


3.5 KEY QUESTION: IS DISTRIBUTED SOLAR PV READY TO TAKE OFF IN INDIA?1. Demand creation for distributed

power generation through market fundamentals is more predictable and truly scalable.

2. Plant costs for solar projects have fallen by 58% in the last three years.

3. India had a peak power deficit of 9.3% during the five years ending in 2012.

4. A key cause of India's power deficit is a shortage of coal, which fuels 57% of the country's power plants.

5. The distribution utilities’ cumulative losses rose to ` 1.9 tr (€ 29 bn/$ 38 bn) in FY-2011 from ` 1.22 tr (€ 18 bn/$ 24 bn) in F.Y-2010.

6. States like Tamil Nadu, Odisha, Jharkhand, Kerala and Delhi have already raised tariffs by as much as 15-30% in the past year.

7. The power situation in most parts of India is unreliable and consumers use multiple backup solutions to have power during frequent grid outages.

8. Captive diesel power generation, kerosene-based power generation and battery-based backup are some of the common options.

9. In India, the power tariffs vary by state and also the type of consumer. Hence, there is no single frame of reference for grid parity.

10. Commercial consumers in India will be the first to adopt solar power as parity for them will be reached the earliest.

11. Solar power is already cheaper than grid power for commercial

consumers in Maharashtra, Delhi and Kerala even without any subsidy.

12. Commercial consumers in other states like Andhra Pradesh, Odisha, Tamil Nadu, Gujarat, Karnataka, West Bengal, Uttar Pradesh, Rajasthan and Madhya Pradesh can also reduce their energy costs if they go through the subsidy route.

13. Industrial tariffs are typically 10-15% lower than commercial tariffs. Due to this reason, the industrial segment might scale up later than the commercial segment.

14. States like Delhi, Maharashtra, Odisha, Gujarat and West Bengal are fairly close to being viable destinations for the use of solar power by industrial consumers without any subsidies.

15. In 2016, industrial consumers in Maharashtra, Delhi, Kerala, Andhra Pradesh, Tamil Nadu, Gujarat and Karnataka will achieve unsubsidized grid parity.

16. The residential solar market in India is the largest segment and its opening promises a change of the entire landscape in India. However, as the tariffs for residential consumers are up to 20% lower than the industrial tariffs, an unsubsidized residential solar market will become truly scalable only at a later stage.

17. Unsubsidized solar power is already feasible in some parts of the country. As prices for grid power are expected to increase and cost for solar power is expected to fall, more and more states and customer segments will find investing in solar a lucrative option.


4.1 NATIONAL SOLAR MISSIONThe draft guidelines for phase two of the National Solar Mission (NSM) were published by the Ministry of New and Renewable Energy (MNRE) on December 3rd 20121. Comments and recommendations on the draft were accepted until December 15th

2012. According to the draft policy, MNRE had planned to allocate 800 MW through a bundling of power mechanism (as in phase one of the NSM) and 750 MW through a Viability Gap Funding (VGF)2 mechanism. For a large part of the last quarter (January to March 2013), the MNRE has been trying to arrange for unallocated power from the Ministry of Power (MoP) to use for bundling for projects based on reverse bidding3. However, there is only a limited amount of unbundled power available and all states demand access to this power. The MoP has been unwilling to provide any more unallocated power for the NSM. Due to this, the MNRE has now decided to go ahead only with the allocations for 750 MW based on Viability Gap Funding (VGF).

Earlier, allocations were supposed to begin in December 2012 and be completed by March 2013. This has been delayed because funds from the National Clean Energy Fund (NCEF) have not been released until recently. We expect that the allocation process to begin in May-June 2013. The unavailability of funds is due to the fact that the Indian government is trying to cut back the ballooning fiscal deficit in the country4. Even though the funds for the allocation process have been approved, like all other ministries, the MNRE also faces other budgetary cuts. According to unconfirmed reports, the MNRE has been provided only a small fraction of the requested budget for its off-grid capital subsidy scheme for the next financial year. There are

already many pending applications with the MNRE for subsidy approval. Considering that these pending projects will be given preference, it is likely that most projects that apply for subsidy in the new financial year will be put on hold until the end of the financial year (March 2014).

In order to promote domestic manufacturing of solar cells and modules, India has mandated the procurement of c-Si cells and modules from within the country for projects under the NSM. For the second phase, the government is considering an extension of the Domestic Content Requirement (DCR) to thin-film modules as well. This will pose a risk for sales by US based thin-film manufacturers. To protest against such a measure, on February 6th 2013, the US filed a complaint with the World Trade Organization (WTO) over DCR under India’s National Solar Mission (NSM), which it said discriminates against foreign solar products, including the ones made in the US.

The MNRE has always justified the DCR by arguing that since it is financially incentivizing the use of solar power through subsidies and feed-in-tariffs (FiTs), it has the right to impose conditions. Also, it is the stated goal of the Indian government to create a domestic solar manufacturing industry. However, cases challenging local content rules have received a boost since the WTO ruled against Canada’s domestic requirements for a green energy plan in Ontario province.

The WTO allows domestic sourcing conditions only for government purposes. These are exempt from agreements on most favored nation, market access and national treatment (articles II, XVI and XVII).The Indian argument states that a government backed entity is buying the solar power and hence it should be permissible.The

4. POLICIES

----------------------1Draft policy document: Phase two of the National Solar Mission (NSM)2Refer to the October 2012 edition of the India Solar Compass to read more.3Refer to the January 2013 edition of the India Solar Compass4Refer to the weekly update - Scaling back of government subsidies set to shake up the Indian solar market

The MoP has been unwilling to provide

any more unallocated power for the NSM.

Due to this, the MNRE has now decided to go

ahead only with the allocations for 750 MW based on Viability Gap

Funding (VGF).

The US filed a complaint with the World Trade

Organization (WTO) over the Domestic

Content Requirement (DCR) under India’s

National Solar Mission (NSM), which it said

discriminates against foreign solar products,

including the ones made in the US.

http://mnre.gov.in/file-manager/UserFiles/draft-jnnsmpd-2.pdf

http://bridgetoindia.com/our-reports/india-solar-compass


http://bridgetoindia.com/blog/%3Fp%3D1405



US argues that ultimately the power is sold to private consumers and is therefore not limited to government use and hence a domestic content requirement is in breach of WTO rules.

The Ministry of Commerce and Industry will take the lead in defending the Indian stand at the WTO. It is expected that the MNRE and the Ministry of Commerce will negotiate an agreement with the US during the 60 day consultation period and will resolve the issue outside of formal WTO proceedings.

4.2 TAMIL NADU SOLAR POLICYThe south Indian state of Tamil Nadu announced its solar energy policy in October 2012 and released a tender for 1,000 MW on December 5th 2012. The results for ‘Expression of Interest’ were announced on January 4th 2013 and the state received 92 applications for 104 projects, totalling a capacity of only 499 MW. This was the first time a public tender for FiT based allocation was under-subscribed in India. The key reasons are: poor bankability of Tamil Nadu Generation and Distribution Corporation (TANGEDCO) as an off-taker5, absence of a comprehensive payment security fund to back the PPA, absence of the PPA’s approval from the Tamil Nadu Electricity Regulatory Commission (TNERC), complicated L1 based tariff determination process (where everyone was expected to meet the lowest bid to get the project) and the hasty allocation process pursued by the state that did not provide adequate time for the developers to plan ahead (refer to BRIDGE TO INDIA’s blogs on Tamil Nadu to understand each of these issues in detail)6.

The lowest bid was ` 5.97(€ 0.09/ $0.12)/kWh (at an annual escalation of 5% for the first 10 years of the 20 year PPA). This rendered the L1 process ineffective as, in an under-subscribed

bid, developers refused to meet this tariff, deemed unrealistic by most market participants.

After consideration, the state decided to provide a ‘workable tariff’ of ` 6.48 (€ 0.10/ $ 0.13)/kWh (at an annual escalation of 5% for the first 10 years of the 20 year PPA) at which developers would be comfortable singing a PPA. No explanation was given as to how the state arrived at this tariff. At this tariff, 29 developers have expressed interest for a total capacity of 226 MW and they will be issued Letters of Intent (LoI) for signing PPAs. Welspun Energy (30 MW), Chennai-based jewellers GRT (15 MW) and SunEdison (10 MW) are among those who have agreed to the new tariff. Most other developers who have agreed to sign PPAs are first time developers, planning to develop 1-5 MW capacities.These projects are expected to be commissioned by January 2014.

The state plans to release another tender for 774 MW to achieve the planned allocation capacity of 1,000 MW. In all probability, this tender will also be undersubscribed as the basic issue of bankability is not likely to be resolved.

The state is facing a power crisis. Power cuts can last up to 16 hours a day for households. Industrial consumers face power cuts of up seven hours during the day and another couple of hours at night. Further, industries are not allowed to draw power between 6 pm and 10 pm, the peak period, to ensure availability for domestic consumers. A capacity of 4,005 MW of conventional power was scheduled to be commissioned in the F.Y. 2012-13 but only 664 MW has been commissioned. Expensive solar power can offer quick access to power in the state. At the same time the fundamentals for solar power in Tamil Nadu remain particularly strong.

----------------------5 Refer to BRIDGE TO INDIA’s Tamil Nadu Policy Brief6 Posts on Tamil Nadu on the BRIDGE TO INDIA blog

Tamil Nadu received 92 applications for

104 projects, totalling a capacity of only 499

MW. This was the first time a public tender

for FiT based allocation was under-subscribed

in India.

Tamil Nadu plans to release another tender

for 774 MW to achieve the planned allocation

capacity of 1,000MW. In all probability,

this tender will also be undersubscribed as the basic issue of

bankability is not likely to be resolved.

http://www.bridgetoindia.com/our-reports/policy-briefs

http://bridgetoindia.com/blog/%3Ftag%3Dtamil-nadu


4.3 ANDHRA PRADESH SOLAR POLICY: REQUEST FOR SELECTION FOR 1,000 MWThe power deficit in the southern grid in India has gone up from 3% in 2011 to 16% in January 2013. Like Tamil Nadu, Andhra Pradesh also needs access to more power as soon as possible. The state released its solar power policy on September 26th 2012 and had released a request for selection for 1,000 MW thereafter. Like Tamil Nadu, Andhra Pradesh has also planned an L1 process for the final tariff determination but in Andhra Pradesh’s case, the lowest bid is to be considered at the substation level as compared to the state wise L1 in Tamil Nadu (this takes into account different land costs and irradiation levels across the state).

Andhra Pradesh learnt from the mistakes committed by Tamil Nadu and increased the time durations for financial closure to 210 from the earlier planned 60 days and extended the plant commissioning deadline to 12 months from signing of the PPA instead of the original six months deadline.

To be able to get this power as soon as possible, Andhra Pradesh has decided to incentivize developers to commission the projects before time. Projects completed in 9-10 months from PPA signing date will receive an incentive of ` 300,000 (€4,600/$ 6,000) per MW. Similarly, if the projects are commissioned in 10-11 months, they will receive an incentive of `200,000 (€ 3,080/$ 4,000) per MW and developers that are able to commission their projects in 11-12 months will receive an incentive of ` 100,000 (€ 1,540/$ 2,000) per MW.

Andhra Pradesh power distribution companies are in some financial duress, owing to the state’s deficit

of power and high procurement costs in the short term power supply market. However, Andhra Pradesh power distribution companies have traditionally had a strong balance sheet as the state has a history of raising consumer tariffs regularly. This inspired more confidence from the project development community and Andhra Pradesh’s solar project tender was oversubscribed,with bids were received from 184 applicants who bid for a total capacity of 1,340 MW. The lowest bid (L1) in the whole of Andhra Pradesh was at ` 6.58 (€ 0.10/$ 0.13)/kWh. At some substations the L1 is as high as ` 8.89 (€ 0.14/$ 0.18)/kWh.

The stark difference between allocations in Tamil Nadu and Andhra Pradesh goes to show the kind of impact bankability and process management can have on developer interest.

4.4 KERALA SOLAR POLICY (DRAFT)The south Indian state of Kerala has published a draft solar policy7 on February 27th 2013. This makes it the ninth Indian state to release a solar specific policy document. Under the draft policy, Kerala has set itself a target of an installed capacity of 500 MW by 2017 and 1,500 MW by 2030. Earlier, the state had initiated a 10,000 rooftop solar power programme8.

Until now, all state and central solar policies have emphasized utility scale projects. Kerala’s new policy is unique in its focus largely on distributed power generation. Unlike the off-grid capital subsidy scheme under the NSM, the state will incentivize distributed solar through FiTs. Net-metering and a focus on grid interaction protocols will helptackle the grid stability issues (especially community grids that would be integrated with the state’s ‘no load-shedding’-campaign). This policy is a first step in the right direction and is expected to lead

----------------------7 Kerala Solar Policy Draft8 Kerala’s 10,000 solar rooftop programme

The power deficit in the southern grid in India

has gone up from 3% in 2011 to 16% in January

2013.

Kerala has set itself a target of an installed

capacity of 500 MW by 2017 and 1,500 MW by

2030.

http://anert.gov.in/images/stories/solar/policy2013/draft_solarpolicy2013-02-24.pdf



a significant development in India towards the implementation of net-metering and community grids. If properly implemented, this holds the potential to unlock the immense distributedgeneration potential of India. (See also the net-metering initiative under the Tamil Nadu policy9.)

Like Tamil Nadu, Kerala has also tried to pass on the financial burden of Renewable Purchase Obligations (RPOs) from the state-owned distribution companies to large power consumers. Solar Procurement Obligations (SPOs) will be mandated for commercial consumers with a connected load of more than 20 kVA and industrial consumers with more than 50 kVA on the low tension (LT) transmission network (up to 415 V). Also, SPOs will be applicable to all consumers connected to the high tension (HT) transmission network (up to 11 kV) and Extra High Tension (EHT) transmission network (up to 66 kV). All HT and EHT consumers have to procure 3% of their power from solar until March 2014 and 6% from April 2014 onwards. In future, the SPO requirement will also be applicable for high consuming domestic constomers, i.e., those with more than 500 kWh per month. Open access, wheeling and transmission and distribution charges for captive consumers have been waived off in the state. An exemption on electricity duty and conditional banking of power is also provided.

Given the poor financial health of most Indian state Discoms10, passing on RPO requirements as SPOs directly to consumers seems to be the most viable option for implementing the RPO mechanism and encouraging solar without burdening public funds. In India, roughly 70% of all RPOs have to be met by Discoms that are in bad financial health. Ultimately, the Discoms will have to pass on the RPO burden on the consumers anyway. The mechanism can be made more

implementable and in most cases, more bankable, if the obligations are directly enforced on the end user. If more states implement such an SPO mechanism, it can revitalize the Renewable Energy Certificate (REC) market that is currently written off by many stakeholders due the lack of RPO implementation.

4.5 PUNJAB SOLAR POLICYThe north Indian state of Punjab has released a request for proposal (RfP) document11 for allocation of 300 MW of solar PV in the first phase of its state solar policy. Punjab had earlier set a target of 1 GW of new solar capacity by 2022 in its ‘New and Renewable Sources of Energy Policy – 201212 , which was released in December 2012.

Project developers are given various incentives such as exemption from Value Added Tax (VAT) on equipment, exemption from entry tax for equipment supplies, exemption from payment of fee and stamp duty for registration / lease deed charges for the project’s land requirement and exemption from change of land use (CLU) charges. There is no DCR under the policy. Punjab is the first state to allow the use of agricultural land for setting up the projects. This is especially relevant as almost the entire state is made of up cultivable land as opposed to Rajasthan and Gujarat where large tracts of desert wasteland can be used for setting up solar projects.

The project allocation has been divided into two categories:

1. A total of 50 MW is to be allotted for newly incorporated or existing companies that have no experience in setting up and operating solar projects. The minimum capacity of the project has been set at 1 MW and the maximum capacity at 4 MW.

----------------------9 Refer to BRIDGE TO INDIA’s Tamil Nadu Solar Policy Brief10 Refer to BRIDGE TO INDIA’s decision brief, ‘Bankability and debt financing for solar projects in India’11 Refer to the RfP document.12 Refer to the Punjab’s renewable energy policy document.

Given the poor financial health of most Indian

state Discoms, passing on RPO requirements

as SPOs directly to consumers seems to be

the most viable option for implementing the

RPO mechanism.

The north Indian state of Punjab has released a request for proposal

(RfP) document for allocation of 300 MW

of solar PV in the first phase of its state solar

policy.

http://bridgetoindia.com/our-reports/policy-briefs

http://bridgetoindia.com/our-reports/india-solar-decision-brief

http://peda.gov.in/eng/Data/RfP-300.pdf

http://peda.gov.in/eng/Data/pdfs/policies_acts.pdf


The allotment of project capacities in this category will be in the multiples of 1 MW.

2. A total of 250 MW is to be allotted to experienced companies that have installed and commissioned at least one project with a capacity of 5 MW or higher anywhere in the world which is in operation for at least one year before the last date of submission of e-bid anywhere in the world. The minimum capacity of the project can be 5 MW and the maximum capacity allowed for a single developer is 30 MW. The allotment of project capacities in this category will be in the multiples of 5 MW.

The benchmark tariffs for the bidding process have been fixed at ` 8.75 (€ 0.13/$ 0.18)/kWh for companies not availing accelerated depreciation and ` 7.87 (€ 0.12/$ 0.16)/kWh for companies availing accelerated depreciation. The RfP allows a period of six months for achieving a financial closure and 13 months for commissioning from the date of signing the PPA. The developers have to submit bank guarantees worth ` 4m (€ 615,000/$ 800,000)/MW. Developers face a fine of 30% of this guarantee in case the project is delayed up to one month and the entire guaranty will be en-cashed for a delay of two months.

The Punjab policy is expected to attract higher tariffs than other states like

Rajasthan, Tamil Nadu and Odisha. This is primarily due to the high cost of land, which can be up to at least 5-10 times more than in Rajasthan, and a lower irradiation, which can be up to 20% lower than in Rajasthan.

The proposed timeline for the bidding process is highlighted in Figure 4-1.

4.6 UTTAR PRADESH SOLAR POLICYUttar Pradesh has updated and finalized its solar policy and it is now called ‘Uttar Pradesh Solar Policy 201313. The policy aims to achieve an installed capacity of 500 MW till March 31st 2017. In the first phase of the policy based allocations, the state has announced a bidding process for a 200 MW capacity on March 15th 2013.

A unique aspect about this allocation is that the PPA will only be signed for a period of 10 years. This period covers a typical debt repayment period and lenders should not have issues with regards to the PPA timeframe. Moreover, assuming that a project signs a PPA at a tariff of around ` 7 (€ 0.11)/$ 0.14)/kWh, it will be able to sell power at a tariff greater than the current tariff in 2023. As per BRIDGE TO INDIA, a smaller time period for the PPA can actually be beneficial for the developer.

----------------------13Refer to the Uttar Pradesh solar policy document.

Event ScheduleDate of uploading / publishing of e- NIT (RfS) 11th March, 2013 at 10.00 AMLast Date for submission of pre-bid query / clarifications to be submitted online.

26th March, 2013

Pre-bid meeting at PEDA office 3rd April, 2013 at 11.30 AMLast date & time for submission of processing fee (non-refundable), earnest money deposit (EMD), formats and technical bid and financial bid though e-bid

25th April, 2013 at 12.00 noon

Date and time of opening of techno commercial e-bid

25th April, 2013 at 12.30 PM

Date of opening of price bid To be conveyed separatelySource: BRIDGE TO INDIA

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The Punjab policy is expected to attract higher tariffs than

other states like Rajasthan, Tamil Nadu

and Odisha. This is primarily due to the

high cost of land, which can be up to at least

5-10 times more than in Rajasthan.

The Uttar Pradesh policy aims to achieve

an installed capacity of 500 MW till March 31st 2017. In the first

phase of the policy based allocations, the

state has announced a bidding process for a 200 MW capacity on

March 15th 2013.

Figure 4-1: Schedule for participation in the Punjab Solar Policy

http://neda.up.nic.in/PROGRAMMES/SEP/SOLAR-POLICY-2013-ENG.pdf


Event Schedule DateDate of issue of RfP Zero Date 15/03/2013Submission of written clarification / amendments if any, on the RfP / RfP documents by the bidders.

Zero date + 10 days 25/03/2013

Pre-bid meeting Zero date + 20 days 04/04/2013Revision of RfP and RfP documents (if required) and issuance of revised RfP and RfP documents


Bid submission and opening of non-financial bid


Financial bid opening Zero date + 56 days 10/05/2013Approval of bids and issue of LoI to Successful bidder(s)


Signing of PPA Zero date + 105 days Exact date will be communicated to successful bidders.

Completion of the following tasks:a. Financial closure of the project.b. Land allotment/ purchase.c. Grant for grid connectivity approval.

Zero date + 315days

Commissioning of solar PV power Plant

Signing of PPA + 13 months

Like in Tamil Nadu (refer), power distribution companies (discoms) in Uttar Pradesh are also making heavy losses. According to recent estimates, the losses have reached INR 310 bn. Recently, the Indian Credit Ratings Agency (ICRA) and CARE Ratings have compared 39 utilities from 20 states in a grading exercise conducted by the Ministry of Power and the Power Finance Corporation (refer). Four

discoms from Uttar Pradesh were at the bottom of the ranking and along with eight other utilities were awarded the “C” grade. As the allocation capacity is limited to just 200 MW, we expect it to be completely subscribed but the competition in terms of tariff to be fairly low.

The proposed timeline for the bidding process is highlighted below:


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Figure 4-2: Schedule for participation in the Uttar Pradesh Solar Policy



5. PROJECTS 5.1 NEW INSTALLATIONS (GRID CONNECTED)

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Figure 5-1: New Grid connected solar projects installed in the previous quarter – January1st to March 20th 2012

Size - 2.5 MWTechnology - PVOff-take - REC MechanismDeveloper -

Kanoria Chemicals

Ltd.

Size - 20 MWTechnology - PVOff-take - NSM Phase 1, Batch 2Developer -

Azure Power India Ltd.


Azure Power India Ltd.


Fonroche Rajhans Energy Pvt. Ltd.


GAIL


Green Infra Solar

Projects Ltd


Mahindra

Suryaprakash Pvt. Ltd.


Mahindra

Suryaprakash Pvt. Ltd.


SEI Solar Power


Welspun Solar AP


Welspun Solar AP


Welspun Solar AP

Size - 36 MWTechnology - PVOff-take - REC MechanismDeveloper -

Malpani Group

RAJASTHAN GUJARAT


Shree Saibaba Green

Power

MAHARASHTRA

Size - 5 MWTechnology - PVOff-take - Gujarat Phase 2Developer -

Aatash Power Pvt.

Ltd.


Claris LifeScience

Ltd


Driesatz My Solar


Mi My Solar


Responsive Sutip

Limited


Yantra eSolarIndia Private Limited


Euro Solar Power

Private Limited


Chattel Construc-tions Private Limited

Note: Projects in Gujarat were commissioned in the last quarter, but were not covered in the previous edition of the INDIA SOLAR COMPASS.Project sizes in Gujarat have been updated to two decimal places. As the actual installation figures are not the same as allocated capacity in many cases, there has been a downward adjustment in our overall numbers. Ourprevious figures had overestimated the capacity by 3.19MW, we have adjusted this to correct the total capacity depicted.


In the last quarter (January to March 2013) 226.5 MW of solar PV capacity has been added. The largest capacity addition of 221.5 MW was achieved in Rajasthan, of which 183 MW is under batch two of phase one of the NSM and 38.5 MW is under the REC mechanism. The remaining capacity of 5 MW has been added by a project under batch two of phase one of the NSM in Maharashtra.

5.2 STATUS OF ON-GOING PROJECTS (PV)National Solar MissionAs of April 8th 2013, a total of 330 MW has been commissioned under the batch two of phase one of the NSM. Fonroche Group with Mahindra as its Engineering, Procurement, Construction (EPC) partner and Green Infra with Juwi as their EPC partner, commissioned a part of their capacity in the last quarter (refer to the January 2013 edition of the India Solar Compass). This quarter, projects by developers such as Welspun, Mahindra, Kiran Energy, Azure, Gas Authority of India Limited (GAIL), Saibaba Green Power, SunEdison, Pokaran Solaire Energy Pvt. Ltd, Sai Mathili Power Co. Pvt. Ltd. and NVR Infra amongst others have been completed and the remaining capacity from Green Infra and Fonroche Group has been also been commissioned*.

In the January 2013 edition of the India Solar Compass, we had mentioned that Belectric was involved in the EPC consortium. However, Belectric had clarified to us that the Memorandum of Understanding (MOU) signed by the consortium EPC partner with Belectric was not honored and hence

no responsibility or liability rests withBelectric for the project. Essel has also won projects in Andhra Pradesh, Rajasthan and Karnataka. It has quoted the lowest tariffs in Rajasthan and Andhra Pradesh.

RajasthanThe financial bids for the allocation of 100 MW of solar PV projects in Rajasthan were opened on February 11th 2013. A total of 25 bids worth over 200 MW have been received. Developers could bid for either a 5 MW project or a 10 MW project. The lowest bid has been submitted at ` 6.45 (€ 0.10/$ 0.13)/kWh by Essel Mining and Industries Ltd. This is currently the lowest valid solar bid in India. It has no escalation. The ` 5.97 (€ 0.09/$ 0.12)/kWh bid for a 10 MW project in Tamil Nadu by Mohan Breweries has now been offered a tariff of ` 6.48 (€ 0.10/$ 0.12)/kWh with an escalation of 5% per annum for the first 10 years. This effectively is a tariff of over ` 7/kWh in levelized terms.

According to the project allocation process under the Rajasthan policy, in order to obtain a project, other developers will now be asked to meet this lowest tariff (referred to as L1). Assuming that the current capital cost of setting up a project is at least ` 70m (€ 1.08m/$ 1.4m), this tariff could only make financial sense if the developer is making full use of accelerated depreciation benefits. Unlike the NSM and the Gujarat solar policy, the request for proposal (RfP) document for the bidding process in Rajasthan does not consider separate tariffs for projects that avail accelerated depreciation. For the Rajasthan bids, project development companies that are not backed by an Indian corporate (e.g. Azure Power) as well

In the last quarter (January to March 2013) 226.5 MW of

solar PV capacity has been added.

The largest capacity addition of 221.5

MW was achieved in Rajasthan.

Tariffs in Rajasthan could only make

financial sense if the developer is making

full use of accelerated depreciation benefits.

----------------------*Correction: We had previously mentioned in this report that 210 MW has been commissioned under batch two of phase one of the NSM. Since the completion of the writing of the previous version of this report on March 20th 2013, the MNRE has published an updated list of commissioned projects. In addition, we have had a chance to interact with some company representatives and market stakeholders and would like to clarify that the capacpity commissioned is in fact higher at 330 MW. The new MNRE list can be accessed at http://mnre.gov.in/file-manager/UserFiles/commissioning_status_spv_phaseI_batchII.pdf.

Click here for more information on this correction.

http://www.bridgetoindia.com/our-reports/india-solar-compass

http://www.bridgetoindia.com/our-reports/india-solar-compass

http://mnre.gov.in/file-manager/UserFiles/commissioning_status_spv_phaseI_batchII.pdf%20%0D

http://mnre.gov.in/file-manager/UserFiles/commissioning_status_spv_phaseI_batchII.pdf%20%0D



as international project development companies that do not have prior businesses in India (e.g. SolaireDirect) face a disadvantage in competing for the allocations as they would not be able to avail the accelerated depreciation benefit.

For the Rajasthan bidding process, companies that are backed by Indian businesses with multiple interests such as Essel Mining, Emami Cement, OCL Indian and Jindal Power will stand to benefit as they will be able to make best use of such accelerated depreciation benefits. Apart from that, these companies will also be able to avail recourse-based debt finance for the projects. Non-recourse financing in Rajasthan will be extremely difficult given the poor long term payment security for the PPA signing entity, Rajasthan Renewable Energy Corporation Limited (RRECL).

Madhya PradeshA capacity of 225 MW had been allocated in Madhya Pradesh in May/June 2012. Projects were awarded to Acme Telepower (25 MW), Alpha Infra Properties (20 MW), MK Solar (25 MW), Moser Baer (25 MW) and Welspun (25 MW and 105 MW). The projects with capacities up to 25 MW have to be commissioned by June 2013 and the 105 MW project by Welspun by June 2014.

Welspun’s 130 MW project in Neemuch district of Madhya Pradesh has arranged for financing and has selected its equipment suppliers. Some delays can be expected for projects such as Alpha Infra Properties and MK Solar as there is no report on ground work having been started for any of them.

KarnatakaKarnataka had allocated 60 MW of solar PV capacity in April 2012. The projects were allocated to Essel Infrastructure (10 MW), GKC Projects (10 MW), Helena Power (10 MW), Jindal Aluminium(10 MW),SaiSudhir Energy

(10 MW), United Telecom (3 MW) and Welspun (7 MW). The last date for commissioning of these projects is in October 2013. Welspun, Essel Infrastructure and SaiSudhir Energy are also developing projects under the NSM. It is expected that these projects are nearing financial closure and are in discussions for vendor selection. Developers like Welspun, SaiSudhir and Essel Infrastructure have the capability to carry out their own EPC and are not likely to involve an external EPC for vendor selection and construction.

REC projectsIn the last quarter we have seen an accreditation of 57.25 MW of planned capacity based on the REC mechanism. This is the highest accreditation for any quarter until now. In fact, the total capacity of accredited projects in India till the end of year 2012 was just 20.91 MW. Now, this capacity stands at 78.16 MW (refer to Figure 5-2).

Only two projects (>1MW) by M&B Switchgear and Kanoria Chemicals were commissioned under the REC mechanism in India until the last quarter. Giriraj Enterprises, a group company of the Malpani Group from Maharashtra has emerged as the largest player betting on the REC market in India. The company is accredited to set up 40.65 MW of REC based solar projects. Of this 33 MW is located in Rajasthan and 6.65 MW is located in Maharashtra. Instead of the planned 33 MW, the company has gone ahead and constructed 36 MW in Rajasthan. The EPC contract for this project had been awarded to Sterling & Wilson. According to industry sources, this project is completely equity backed.

Atria Power became India’s first company to get REC accreditation for a CSP project. This project is to have a capacity of 3 MW. Atria Power is also developing a 10 MW CSP project under the Karnataka Solar Policy.

Welspun’s 130 MW project in Neemuch

district of Madhya Pradesh has arranged

for financing and has selected its equipment

suppliers.

Atria Power became India’s first company to

get REC accreditation for a CSP project. This

project is to have a capacity of 3 MW.


BRIDGE TO INDIA expects that many of the other newly accredited projects will not be able to come online as securing

debt finance will be extremely difficult for most of them15.

State RE Generator Capacity (MW)

Date of Ac-creditation

Commis-sioned

Chhattisgarh Amvensys Technologies Pvt. Ltd.

2 29-01-13

Madhya Pradesh

AgarwalJewellers 0.5 16-02-13

KRBL Ltd. 2.5 16-02-13Saboo Sodium Chloro Ltd. 1 31-01-13Tuhina Enterprises 1 30-01-13Saboo Industries 0.5 30-01-13Deepak Spinners Ltd. 1 04-12-12Star Delta Transformers Ltd.

0.5 04-12-12

M/s Gupta Sons 0.5 09-05-12Omega Rank Bearings Pvt. LTD

0.105 09-05-12 üM AND B Switchgears Ltd. 2 03-02-12 ü

Maharashtra Giriraj Enterprises 6.65 16-03-13Enrich Energy Pvt. Ltd 1 12-06-12Jaibalaji Business Corporation Pvt.. Ltd.

1 06-06-12

Jain Irrigation Systems Ltd.,

8.5 20-10-11

Odisha MBPS Control & Power system Ltd.

1 16-03-13

OCL India Ltd. 2.5 28-01-13Rajasthan Hasya Enterprises Pvt. Ltd. 0.1 08-03-13

BMD Pvt. LTD 5 06-03-13Giriraj Enterprises 11 05-03-13 üGiriraj Enterprises 3 05-03-13 üGiriraj Enterprises 19 05-03-13 üImpact Solar Power Pvt. Ltd.

1.5 04-02-13

R. H. Prasad & Company Pvt. Ltd.

0.25 31-08-12

Kanoria Chemicals & Industries Ltd.

5 28-03-12 üTamil Nadu Swelect Energy Systems

Ltd.1.055 20-02-12

----------------------14 Source: REC registry India15 Refer to BRIDGE TO INDIA’s decision brief, ‘The REC Mechanism – Viability of Solar Projects in India’ to read more about the risks surrounding the REC mechanism.

Figure 5-2: List of projects14 accredited under the REC mechanism


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http://bridgetoindia.com/our-reports/india-solar-decision-briefs



In the last quarter (January – March 2013), financial closures have being achieved for projects in Madhya Pradesh and Karnataka. According to reports, Welspun has achieved financial closure for its 130 MW project in Madhya Pradesh, through syndication of debt from multiple lenders with Central Bank of India16 being the lead lender and facilitator. Projects with a capacity of 60 MW (solar PV) in Karnataka are expected to be commissioned by October 2013 and Welspun’s project in Madhya Pradesh is expected to be commissioned by May 2013.

In the last quarter, new projects were allocated in Tamil Nadu and Andhra Pradesh (refer to the policy section of this report to read about the bankability of the respective off-takes). In the upcoming quarter, these will be seeking finance. Due to the poor financial health of the off-taker in Tamil Nadu, it is unlikely that any developer will be able to achieve non-recourse financing. In Andhra Pradesh, less than 20 out of close to 175 bidding companies have prior project development experience. We expect many of the new project developers to also face issues in achieving financial closure.

The deadline for commissioning in Tamil Nadu is January 2014. Due to the bankability issues in Tamil Nadu17, lenders are expected to be hesitant in lending to projects in the state. The deadline for projects under the Andhra Pradesh allocation is expected to be May 2014 and the state will financially reward projects for early commissioning. For projects that are commissioned within ten months from the date of signing of the PPA, a developer will be awarded ` 300,000 (€ 4,615/$ 6,000)/MW, for project commissioned within 10-11 months from the date of signing the PPA, a developer will be rewarded

` 200,000 (€ 3,077/$ 4,000)/MW and for projects that are commissioned within 11-12 months from the date of signing the PPA, a developer will be awarded ` 100,000 (€ 1,538/$ 2,000)/MW. This will incentivize developers to achieve an early financial closure and perhaps look for better terms of re-financing only at a later stage. It is likely that developers in both Tamil Nadu and Andhra Pradesh will opt for construction/bridge financing to complete their projects on time.

Bridge financing can be sourced by using the following means18:

1. Equity - A developer may put in equity to meet the requirement of funds.This is the quickest and easiest option. However, not all the developers have sufficient cash and even those who do, might prefer using a short-term debt instrument.

2. Pre-financing by EPC companies – Pre-financing by EPC companies is prevalent in Europe and the US, but has hardly been used in India. Even in these regions, construction finance is provided only by certain EPCs that are large in size and for certain customers where the risk is considered low. In India, it is extremely rare for an EPC to provide pre-financing for construction. This is primarily due to the low margins for EPCs in India and the perceived construction risk.

3. Bridge financing from a financial institution – Bridge financing is usually available from most lenders at a higher interest rate. The differential is usually of about 100 basis points.Disbursement is much quicker. The developer needs to be in possession of land and a Letter of Intent (LoI) from the EPC companyto be considered for bridge financing by an institution. In such a situation, the EPC needs to

6. FINANCING

----------------------16 Central Bank of India is a commercial bank and should not be mistaken for the Reserve Bank of India17 Refer to BRIDGE TO INDIA’s ‘Tamil Nadu Solar Policy Brief’ to read more.18 Refer to BRIDGE TO INDIA’s decision brief. ‘Bankability and debt financing for solar projects in India’ to read in more detail.

In Andhra Pradesh, less than 20 out of

close to 175 bidding companies have prior project development

experience.

The developer needs to be in possession

of land and a Letter of Intent (LoI) from the EPC companyto

be considered for bridge financing by an

institution.





take an additional risk of spending resources on design and planning, before they know that the project debt has been closed.

4. Suppliers‘ credit – Suppliers‘ credit is not a debt instrument but is used to ease the cash flow strains during the construction period. It is usually given by module manufacturers whose components are worth around 40% of the total project cost. As suppliers’ credit is treated as a short term debt,it is usually used to lower the upfront equity requirement of the project. Due to the oversupply of modules in the market, some form of suppliers‘credit has been made available by almost all module suppliers in India. Such a credit is usually come at an interest rate of around 8%, backed by a letter of credit (LoC).

In the past, bridge financing for the construction period has proved to be a key tool to keep a large number of Indian projects on track with regards to timelines.

Many project developers are now looking at the third-party PPA market. Until now, typically, capital subsidy, REC mechanism, accelerated depreciation, SPO or Corporate Social Responsibility (CSR) helps provide the additional fillip required for a go-ahead to such parity-driven projects. Some PPAs have already emerged from this commercial parity driven market segment but it is not clear how the lenders will react to such projects. According to BRIDGE TO INDIA, if third-party PPAs are signed with bankable power consumers, they can actually be less risky for the lender than policy-backed PPAs. They follow a sound commercial logic where power consumers can save by buying solar power. However, issues such as rooftop lease and access or change of building ownership during the project lifetime need to be addressed to make the lenders comfortable. Developers can also club multiple such projects to create a portfolio and thereby reduce the risk for the lender.

Due to the oversupply of modules in the

market, some form of suppliers‘credit has

been made available by almost all module

suppliers in India. Such a credit is usually come

at an interest rate of around 8%, backed by a

letter of credit.


7.1 INVERTER SUPPLY IN INDIAWhile both Indian and international module suppliers are grappling with uncertainty over the future of DCR and anti-dumping duties, a small group of inverter suppliers are rapidly building market share and in some cases even manufacturing in India.

There are up to 18 prominent inverter suppliers that are present in the Indian market19. However, just six companies, i.e., SMA, Bonfiglioli, Schneider, ABB, AEG and Power-One make up for 87% of the current inverter market share in India20. From these six companies, power solution companies such as AEG, ABB and Schneider are already manufacturing solar inverters in India. SMA and Bonfiglioli have also announced plans to do so. Local manufacturing can reduce costs and highlights a company’s commitment to the Indian market in terms of long term presence, after sales support and availability of spare parts.

As of January 2013, central inverters accounted for 95% of the installed capacity in the country. The primary reason for dominance of central inverters in India is the large size of projects in India and the price difference between central and string inverters. String inverters can cost up to 80% higher than central inverters in USD/kVA (output) terms.

Other benefits of central inverters include a lower installation area, less installation effort, easier maintenance and an easier AC-side distribution of power. On the other hand, Balance of System (BoS) costs, especially with regards to wiring and junction boxes can be significantly reduced by using string inverters. Unlike central inverters, string inverters do not have a single point of failure. Today, almost all the major inverter suppliers in the Indian market are focusing on central inverters and this is primarily because of the price advantage. Inverter suppliers such as ABB and Power-One plan to launch new central

7. UPSTREAM INDUSTRY ANALYSIS

Figure 7-1: Central inverter market share by commissioned projects of inverter companies as of February 2013 (A capacity of 1,185 MW has been considered)

----------------------19 BRIDGE TO INDIA tried to reach out to all the inverter companies operating in India but only Bonfiglioli, ABB, AEG, Delta, Ingeteam and Santerno have confirmed their sales numbers. All other numbers are based on our project database and market research.20 The market share has been calculated based commissioned projects as of January 2013. A total capacity of 1,185MW has been considered for the calculation.


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Just six companies, i.e., SMA, Bonfiglioli,

Schneider, ABB, AEG and Power-One make up for 87% of

the current inverter market share in India.

As of January 2013, central inverters

accounted for 95% of the installed capacity in

the country.

23.6%

21.9%

18.6%

8.4%

8.0%

7.8%

4.2%2.5%1.8% 4.0%

SMA

PowerOne

Schneider Electric

ABB

AEG

Refusol

Siemens

Electronica Santerno

Others


inverter models with the capacity of 1 MW and 1.4 MW respectively. These new models are to be released within the next few months, ready for sales to projects in Andhra Pradesh, Tamil Nadu and the upcoming batch one of phase two of the NSM.

Many of the larger suppliers by market share categorically state that they are not the cheapest and it is not their intention to be the cheapest suppliers in the market. Their key sales argument revolves around life time, reliability and Total Cost of Ownership (TCO). However, price is still important and suppliers are under pressure to offer lower prices. SMA has traditionally been able to charge a premium for its product differentiation, global brand perception and local track record, Other prominent suppliers such as Bonfiglioli, ABB, AEG and Schneider21 compete with each other on quality at a competitive price. Based on the available details on the current sales pipeline of these suppliers, Bonfiglioli and ABB are gaining market share aggressively and if SMA wants to maintain its market share, it will also have to start competing with them on price.

Central inverters being supplied in India can broadly be categorized into three types: monolithic-indoor inverters, modular-indoor inverters and outdoor inverters (IP65 without the requirement of additional casing). Modular and monolithic differ on product design. As the names suggest, modular inverters are made up of separate modules that help avoid a single point of failure and provide more flexibility in terms of number and type of DC inputs. For example, Bonfiglioli’s 1 MW inverter is made up of five modules of 200 kW each. Outdoor inverters, as compared to indoor inverters can be set up at plant location without an extra civil

structure and without air-conditioning. This helps reduce the cost incurred for auxiliary power. Many inverter companies that manufacture indoor inverters can also provide the enclosure for outdoor placement of these inverters but such inverters usually still require air-conditioning. SMA, which has the largest market share so far, offers robust, outdoor inverters and Bonfiglioli, which has the second largest market share so far, offers modular inverters. This goes to show that most developers and EPC companies understand the benefits of quality. Against popular belief, they are not driven primarily by the equipment cost. Currently, central inverter prices in India range between ` 4.2 (€ 0.06/$ 0.08)/kWp (output) and ` 7.8 (€ 0.11/$ 0.14)/kWp (output), depending on the type and brand of the inverter.

Given the high temperature conditions and issues related to grid stability, there might be a need for an India specific inverter design. All the inverters that are being used in the Indian market are global products. Till date, none of the inverter companies have announced any plans to launch India-specific product designs. This may in part be due to a concern that an India-specific inverter might be considered a low price, low quality product. Some companies like ABB, AEG and Bonfiglioli offer inverters that have high operating temperatures and are also open to making some software and hardware changes to ensure that the inverters are compatible with the dynamic reactive power requirements of the Indian grid. Some companies manufacturing in India also allow for the customization of their standard products in terms of cabinets, display panels, fuse ratings, DC side inputs, etc. This is mostly done as per the customer’s technical requirements but sometimes also for minor reduction in equipment cost.

----------------------21 Correction from January 2013 edition of the India Solar Compass – We mentioned that SunBorne has procured inverters from SMA and Lexicon Vanijya had procured inverters from AEG. However, we would like to make a correction as both these companies have procured inverters from Schneider Electric. We always strive to publish the correct information and if you observe any misrepresentation of facts in our reports, please bring it to our notice.

Many of the larger suppliers by market share categorically

state that they are not the cheapest and it is

not their intention to be the cheapest suppliers

in the market.

None of the inverter companies have

announced any plans to launch India-specific

product designs. This may in part be due

to a concern that an India-specific inverter might be considered a low price, low quality

product.



Almost all the inverter suppliers offer standard services such as negative/positive grounding of modules that helps prevent potential induced degradation (PID)22. As an additional value proposition, ABB also offers other services and solutions such as Electrical-EPC (E-EPC), BOS contracts, SCADA solutions and even full EPC. AEG is open to proving E-EPC. This might allow a developer to use the technical capabilities of the inverter

supplier and hire a civil EPC company instead of a specialist solar EPC company, thereby, cutting costs.

International companies have successfully supplied to India through local manufacturing. They are now looking to use their India manufacturing facilities to supply to international markets.

----------------------22 Utility Scale PV Power Plants operate at high system voltages ranging from 500 Vdc to 1000 Vdc. It has been observed that this high potential can lead to or accelerate module degradation. This may result in conditions such as potential induced degradation, polarization, electrolytic corrosion, and electrochemical corrosion. These factors are prevalent in wet or damp environments, such as morning dew or rain, as well as in those subject to module soiling with conductive, acidic, caustic, or ionic materials. When field installed, crystalline silicon modules may degrade in positive as well as negative polarity which is dependent on cell construction, module production processes and materials and overall design. – Source - Underwriters Laboratories (UL)

International companies have

successfully supplied to India through local

manufacturing and are now looking to use

their Indian facilities to supply to international

markets.


8.1 BACKGROUNDThe distributed generation market in India can broadly be categorized into four segments:

i) Commercial power consumers, i.e., consumers such as malls, office spaces and retail outlets paying a commercial tariff as high as ` 11 (€ 0.17/$ 0.22)/kWh in certain locations (the highest amongst all segments)

ii) Industrial power consumers, i.e., manufacturing facilities, that are charged the industrial tariff, which is usually the second highest and can be over to ` 8 (€ 0.12/$ 0.16)/kWh in certain locations

iii) Residential power consumers are usually charged less than industrial and commercial consumers and the tariffs can be as high as ` 7 (€ 0.11/$ 0.14)/kWh in certain locations

iv) Agricultural power consumers usually receive subsidized tariffs. These are amongst the lowest in all segments and in some locations power is even free.

BRIDGE TO INDIA’s market model projects a capacity addition of 2.3 GW until 2016 through just the commercial parity driven demand. From the point of view of solar, this is the most promising segment in the next few years. However, the capacity added in the commercial segment so far is insignificant. Most government policies today are still focusing on utility scale power projects. For example, the limit for project allocations per developer under the NSM has gone up from 5 MW in batch one to 50 MW in batch two. Gujarat has successfully developed a solar park which allows multiple utility scale projects to be set up in a single location and can accommodate a total capacity of 600 MW (214 MW already commissioned). Rajasthan and Karnataka have also planned to set up solar parks and phase two of the

NSM is looking at providing incentives for the development of solar parks in more states. In Madhya Pradesh and Maharashtra, we have seen single project plants exceeding 100 MW. Even the size for off-grid projects to be set up under the NSM’s capital subsidy scheme is proposed to be increased from 100 kW to 500 kW. All these developments show that the policy trend is still moving towards larger projects and leaving distributed generation by the wayside. The only expectations being the 10,000 rooftop programme (totaling 10 MW) in Kerala and Tamil Nadu’s plan for 350 MW rooftop capacity by 2015.

For the policy makers, large projects are easier to monitor and allow for achieving of the policy targets in time. This is the reason why most policies are in favor of larger projects. However, the demand creation through this route can be sporadic and based on policy announcements.

8.2 MARKET FUNDAMENTALSDemand creation through market fundamentals is more predictable and truly scalable. The irradiation in many parts of India is almost the double that of many parts in Germany. Apart from high irradiation, a combination of several market factors makes India one of the most attractive solar markets in the world. These factors are as follows:

Reduced costs of solarSolar power costs have seen a sharp decline in the past two years. At the beginning of 2011, the cost for setting up a ground based project in India was around ` 140m ($ 2.6m/€ 2.2m)23 and now is at almost half that price at around ` 70m ($ 1.3m/€ 1.1m). This has largely been fuelled by a drop in module prices that fell from $ 1.00 (€ 0.77)/Wp in 2011 to $ 0.65 (€ 0.50)/Wp today.

8. KEY QUESTION: IS DISTRIBUTED

SOLAR PV READY TO TAKE

OFF IN INDIA?

----------------------23The values are at today’s exchange rate. Indian currency has depreciated by up to 15% since 2011.

Commercial power consumers, i.e.,

consumers such as malls, office spaces

and retail outlets paying a commercial tariff as high as ` 11

(€ 0.17/$ 0.22)/kWh in certain locations.

At the beginning of 2011, the cost for

setting up a ground based project in India was around ` 140m ($ 2.6m/€ 2.2m) and now

is at almost half that price at around

` 70m ($ 1.3m/€ 1.1m).


Power deficitIndia had a peak power shortage of 9.3% during the five years ending in 2012 when over 50,000 MW new generation capacity was commissioned24. The capacity addition target during the 12th plan period (2012—17) is estimated at 88,537 MW comprising of 26,182 MW that is backed by the central government, 15,530 MW that is backed by thevarious state governments and 46,825 MW that is expected from the private sector. However, no previous plan period in India has seen a capacity addition equal to or greater than what was planned. Most experts therefore expect less to be actually achieved.

A key cause of India’s power deficit is a shortage of coal, which fuels 57% of the country’s power plants. The deficit is driven by in part by inefficiencies in India’s coal mining and transportation sector. Importing coal is also getting more difficult Indonesia, South Africa and Australia who are the key exporters to India, are becoming more protectionist about their resources. Taxes on exports from these countries have been increased, making import of coal more expensive.Increasing domestic mining of coal usually runs into environmental and land acquisition hurdles causing significant delays and financial losses. India’s power deficit continues to increase.

----------------------24Economic survey of India


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No previous plan period in India has seen

a capacity addition equal to or greater

than what was planned.

A key cause of India’s power deficit is a shortage of coal,

which fuels 57% of the country’s power plants.

Figure 8-1: Module prices have fallen by 58% in last three years

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Figure 8-2- India’s widening energy deficit

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Rising power pricesMost of the state power distribution companies are making large losses. The majority of the State Electricity Boards (SEBs) have negative net internal revenues and the situation is becoming worse as energy costs rise. The distribution utilities’ cumulative losses rose to ` 1.9 tr (€ 29bn/$ 38bn) in FY-2011 from ` 1.22 tr (€ 18bn/$ 24 bn) in F.Y-201025.

The current losses pose a huge risk for lenders exposed to these distribution companies through PPAs and on the Indian power sector in general. Taking note of this, the central government of India has come out with a debt restructuring plan for SEBs. This allows states to restructure their debt through central funds under thecondition to reform power distribution to improve their

financial health. The easiest way for SEBsto improve their financial health is to raise tariffs to a level that truly reflects their generation, transmission and distribution costs. States like Tamil Nadu, Odisha, Jharkhand, Kerala and Delhi have already raised tariffs by as much as 15-30% in the past year. With costs rising and the financial health of distribution companies deteriorating, further increases of tariffs across the country are expected.

Tariff increases are usually not equal for all consumer groups. Due to political preferences,the agricultural sector faces the lowest hikes in percentage terms, while industrial and commercial consumers end up paying more than the others. Since the year 2000, we have seen an average compounded tariff increase rate of 6% per annum.

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Source: Annual Report 2011-12 on The Working of State Power Utilities & Electricity Departments – Planning Commission of India

11,2609,180

8,0607,240

1,900730660

-10 -260 -330 -790

-1,060 -1,130 -1,160 -1,210 -1,320 -1,980

- 4,850-6,990

-8,340-11,400

-13,820- 17,170

-22,880-32,420-32,530

-80,900-112,090

Andhra PradeshWest Bengal GujaratMaharashtraGoaMeghalayaChhatishgarhTripuraPondicherryArunachal PradeshManipurAssamNagalandKeralaUttarakhandSikkimMizoramHimachal PradeshBiharUttar PradeshKarnatakaPunjabJharkhandJammu & KashmirHaryanaMadhya PradeshTamil NaduRajasthan

Net internal revenue (̀ million)

Figure 8-3: State-wise net internal revenues for 2009-10 (in ` Million)

Net internal revenue (` million) - Positive- Negative

----------------------25Article: State power boards seek extension of reform programme deadline - Mint

States like Tamil Nadu, Odisha, Jharkhand,

Kerala and Delhi have already raised tariffs

by as much as 15-30% in the past year.

http://www.livemint.com/Politics/9pEXrbXPSytfuQ7imP4ugN/State-power-boards-seek-extension-of-reform-programme-deadli.html


8.3 BOTTLENECKS TO ADOPTION OF DISTRIBUTED SOLAR POWER

Lack of access to liquiditySolar power requires large upfront investments. Though over the lifetime of the plant operating cost are very less as no fuel has to be purchased. Power consumers may not have liquidity to allow them to invest into a solar project.

In an operating expense (OPEX) model, a third party project developer raises investment to build the plant and thensells the power to the consumer. Companies like Solar City and Sun Run in the US are following this model for the residential market. The key concern in this model is the bankability of the power consumer.

Better investment opportunitiesAs an avenue for capital investment, solar power has to compete with other investment options as well. Solar power can be considered to be a safe investment and is recognized as such in most mature markets

such as Germany where the lenders are willing to provide 100% non-recourse debt. It can be compared to other safe investment avenues such as fixed deposits (with an expected return of 8.75%) and mutual funds (with an expected return of 11-12%). Therefore, the savings through solar should ideally be higher than the investor’s expectation of return on a safe investment. Only then it will make sense for them to invest in solar.

When considering the financial viability of investing in solar, savings in energy cost, i.e., the difference between grid power cost and the cost of solar power should be calculated after taking all the expenses for the maintenance and interest payment to the bankinto consideration. Also, the calculation to determine a levelized cost of energy (LCOE) for solar should include the return on investment expectation of at least 8.75% (returns on fixed deposit).

Underutilization of power generatedFor solar power that is installed on a consumer’s rooftop, there will be times when the power production will be more than the consumption. For example, on public holidays,

Figure 8-4: Cost of commercial power in India has been rising at a CAGR of 6% per annum


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2000 2003 2006 2009 2012 2015 2018

Year

In an operating expense (OPEX) model,

a third party project developer raises

investment to build the plant and then sells the power to the consumer.

The calculation to determine a levelized cost of energy (LCOE)

for solar should include the return on

investment expectation of at least 8.75%.

`/kW

h


consumption for commercial buildings will be significantly lower than other days. Similarly, a residential consumer might go on a vacation and the power consumption would drop significantly. This causes a wastage of power generated, decreasing the financial viability of such projects.

This issue can be solved by either using storage or allowing for excess power to be fed back into the grid using net-metering. However, storage technology is still very expensive and a battery backup can increase the system cost significantly. For an off-grid system, the increase in system costs due to the use of batteries can be as high as 80%. Net-metering is still not available in India but states like Tamil Nadu and Kerala are working to bring in net-metering. The most viable option as this stage is to install a solar capacity that is lower than or equal to the base-load, i.e., the minimum load that will continue to operate at the consumer’s end at any given time. Another alternative is to combine it with a normal inverter based battery backup. This will help utilize solar power even during a grid outage by off-setting LCOE of inverter, which can be up to 40% higher than grid tariff.

8.4 CASE FOR PARITY DRIVEN ADOPTION OF ROOFTOP SOLARThe power situation in most parts of India is unreliable and consumers use multiple backup solutions to have power during frequent grid outages. Captive diesel power generation, kerosene-based power generation and battery-based backup are some of the common options. These backup sources increase the LCOE for the consumers. However, the use of these sources is sporadic and can vary significantly from one consumer to another.

For the purpose of this analysis, we will compare solar power to just the grid power in terms of parity.

In parity terms, use of the backup options can only improve the case for solar power. By definition, grid parity occurs when LCOE for solar power generation is less than or equal to the price of purchasing power from the grid. However, there can be a lot of ambiguity in defining the price of purchasing power from the grid. In India, for example, the power tariffs vary by state and also the type of consumer. Hence, there is no single frame of reference for grid parity. For the purpose of this analysis, we will look at parity based on the customer segments.

The case for commercial consumersCommercial consumers in India will be the first to adopt solar power as parity for them will be reached the earliest. Based on BRIDGE TO INDIA’s analysis (refer to the graph below), solar power is already cheaper than grid power for commercial consumers in Maharashtra, Delhi and Kerala even without the subsidy. Consumers that are not investing in solar power or are not looking to buy solar power

through third-party PPAs are already losing out on an opportunity. For such consumers, solar power not only helps reduce their energy bills, it can also help in providing a hedge against rising cost of power while providing energy security if the power is being generated at the source of consumption. If a capital subsidy of 30% can be availed, the value proposition will increase in the same proportion.

Commercial consumers in other states like Andhra Pradesh, Odisha, Tamil Nadu, Gujarat, Karnataka, West Bengal, Uttar Pradesh, Rajasthan and Madhya Pradesh can also reduce their energy costs if they go through the subsidy route.

For this analysis, we have used the tariff data available from respective State Electricity Regulatory Commissions (SERCs) and compared

Storage technology is still very expensive and

a battery backup can increase the system

cost significantly. For an off-grid system,

the increase in system costs due to the use

of batteries can be as high as 80%.

Solar power is already cheaper than grid

power for commercial consumers in

Maharashtra, Delhi and Kerala even without the

subsidy.


it with the LCOE for solar power. We have assumed the capital cost of a 100 kWp rooftop project to be ` 8.5m ($ 170,000/€ 130,000), the project lifespan to be 20 years, equity participation to be 30%, interest rate for debt to be 12.5% and the internal rate of return (IRR) expectation on equity to be 13%. A key variable for LCOE across different states is the irradiation level. While the irradiation for many locations in Rajasthan and Gujarat is more than 2,000 kWh/m2/year, it can be as low as 1,200 kWh/m2/year for states like Sikkim and Arunachal Pradesh. Thereby, considerably increasing the LCOE for solar at these location.

For locations where power cuts are frequent, diesel-based generation is a common alternative. The diesel consumption for a diesel based gen-set decreases/increases almost proportionally to the operating power load. Therefore, the viability of using solar power increases with an increase

in power cuts as it would off-set the operating load of the diesel gen-set, which is a significantly more expensive source of power.

We have only considered the current energy cost of consumers and have put in the LCOE for diesel based generation separately for reference, based on the current diesel prices in various states.

Considering an annual tariff increase of 6% p.a. and solar LCOE drop at the rate of 5% p.a. we have calculated the shift in parity scenario in 2016. As per BRIDGE TO INDIA’s analysis, Andhra Pradesh, Odisha, Tamil Nadu, Gujarat, Karnataka, West Bengal, Uttar Pradesh, Rajasthan, Punjab and Madhya Pradesh will also reach commercial parity without subsidy. Uttaranchal, Bihar Goa and Tripura, Mizoram, Manipur and Jharkhand will become viable if capital subsidy is still available.

Figure 8-5: Case for commercial parity across different states in India


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By 2016, Andhra Pradesh, Odisha,

Tamil Nadu, Gujarat, Karnataka, West

Bengal, Uttar Pradesh, Rajasthan, Punjab and

Madhya Pradesh will also reach commercial parity without subsidy.

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that would yield a equity IRR of 13+%.

(`)


The case for industrial consumersIndustrial tariffs are typically 10-15% lower than commercial tariffs. Due to this reason, the industrial segment might scale up later than the commercial segment. However, as most mid-sized industries are located outside city limits and not necessarily in designated industrial areas, power failures are frequent; increasing the viability of using solar power. Also, industrial complexes often have a high

load requirement and ample rooftop space, making them good sites for solar power.

As per BRIDGE TO INDIA’s analysis (refer to the graph below), states like Delhi, Maharashtra, Odisha, Gujarat and West Bengal are fairly close to being viable destinations for the use of solar power by industrial consumers without the subsidies and it already makes sense to use solar power with subsidies in these locations.

Figure 8-6: The case for commercial tariff parity in 2016

Figure 8-7: Case for industrial parity across different states in India


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Industrial tariffs are typically 10-15% lower

than commercial tariffs. Due to this

reason, the industrial segment might scale

up later than the commercial segment.

States like Delhi, Maharashtra, Odisha,

Gujarat and West Bengal are fairly

close to being viable destinations for use

of solar power by industrial consumers without the subsidies

Solar LCOE without subsidySolar LCOE with subsidyLCOE for diesel gen-set

Parity with subsidy No parity

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The assumptions for the industrial parity analysis are the same as the analysis for commercial consumers. By 2016, industrial consumers in Maharashtra, Delhi, Kerala, Andhra Pradesh, Tamil Nadu, Gujarat and Karnataka will achieve unsubsidized grid parity. Apart from that, industrial consumers in states like West Bengal, Uttar Pradesh, Rajasthan, Madhya Pradesh, Haryana, Bihar and Goa will achieve a subsidy driven grid parity (if subsidy is available in 2016).

The case for residential consumersThe residential solar market in India is the largest segment and its take-off promises a change of the entire power

landscape in India. However, as the tariffs for residential consumers are up to 20% lower than the industrial tariffs, an unsubsidized residential solar market will become truly scalable only at a later stage. Even with subsidy, factors like access to uninterrupted power in locations where the grid is unreliable will remain the key growth drivers for this segment.

As per BRIDGE TO INDIA’s analysis, the LCOE of solar power is not yet comparable to the price for residential grid power. This means that, until now, demand for solar power in the residential segment is limited to cases where access to uninterrupted power in locations where the grid is unstable.

Figure 8-8: The case for industrial parity in 2016


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Parity without subsidy

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By 2016, industrial consumers in

Maharashtra, Delhi, Kerala, Andhra Pradesh, Tamil

Nadu, Gujarat and Karnataka will achieve

unsubsidized grid parity.

The tariffs for residential consumers

are up to 20% lower than the industrial

tariffs, an unsubsidized residential solar

market will become truly scalable only at a

later stage.


For the residential segment, we have assumed a smaller system size of 3 kWp as compared to the 100 kWp system assumed for the industrial and commercial segment. The cost for this 3 kWp system is assumed to be ` 300,000 ($ 6,000/€ 4,600). A large number of these residential consumers use a battery and inverter-based backup for power cuts. The LCOE calculation of battery-backed inverter assumes its efficiency to be 60%.

In 2016, the residential market will reach parity based on the capital subsidy mechanism in states such as Maharashtra, Delhi, Gujarat and West Bengal.

It is important to note that in the coming years, parity will not be the key driving factor for the residential market. Residential consumers face the highest hours of power cuts after agricultural consumers and supply security will be the key driver for solar in the residential market.

8.5 WAY FORWARDUnsubsidized solar power is already feasible in some parts of the country.

As prices for grid power are expected to increase and cost for solar power is expected to fall, solar will become competitive in more and more locations across India. This means that more and more states and customer segments will find investing in solar a lucrative option.

We expect that the parity-based demand for the commercial segment with enablers such as capital subsidy from the MNRE, REC mechanism26, accelerated depreciation and corporate social responsibility. Developers face difficulties with availing the subsidy benefits, encounter regulatory hurdles with the REC mechanism or might be unable to avail accelerated depreciation due to the financial structuring of the investment. They will increasingly begin to look beyond these enablers and start setting up projects on purely unsubsidized basis. We can expect up to 100 MW unsubsidized projects to come up this year and the trend is expected continue to increase thereafter. This will open up the market for companies that can arrange the upfront investment and have a business model that allows them to sell power to the consumers directly.

Figure 8-10: Case for residential parity in 2016

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In 2016, the residential market will reach

parity based on the capital subsidy

mechanism in states such as Maharashtra,

Delhi, Gujarat and West Bengal.

Unsubsidized solar power is already

feasible in some parts of the country. As prices

for grid power are expected to increase

and cost for solar power is expected to fall, solar will become competitive

in more and more locations across India.

----------------------26Refer to BRIDGE TO INDIA’s decision brief, ‘REC mechanism – viability of solar projects in India’


9. OUTLOOK

9.1 CURRENT QUARTERThe coming quarter is expected to see up to 190 MW of projects being commissioned. A majority of this capacity is expected to come from delayed projects under batch two of phase one of the NSM.

Close to 1.5 GW is currently under development in India. Projects that are now achieving financial closure and are finalizing vendors are mostly from states like Madhya Pradesh and Karnataka. New projects in Tamil Nadu, Rajasthan and Andhra Pradesh are starting the project development process and are looking for debt financing options.

NSMThe deadline for the commissioning of projects under batch two of phase one of the NSM was February/March 2013, based on the date of signing of the PPA. At this stage, it is expected that all projects that have signed a PPA (340 MW), will get commissioned. In the previous edition of the India Solar Compass, we predicted that a

capacity of 280 MW under the NSM will come online by the end of the last quarter. However, only 210 MW has been commissioned in this quarter. Another 70 MW is known to have been constructed and is ready for commissioning soon. Some of these projects may be fined, depending on their dates of commissioning. Close to 60 MW capacity is delayed and is expected to be fined for this delay.

9.1 LONG-TERM OUTLOOKMadhya Pradesh The deadline for the commissioning of three projects of 25 MW each and one project for 20 MW in Madhya Pradesh is June 2013. Of this, we expect 50 MW to be commissioned in time and another 25 MW is to be commissioned in the fourth quarter of the year. The remaining 20 MW is expected to be commissioned in the first quarter of 2014. Beyond this, a 105 MW project by Welspun has a commissioning deadline of June 2014 but we expect it to finish before time and in the first quarter of 2014.

Figure 9-1: Projected quarterly PV installations in India


© B

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The coming quarter is expected to see up

to 190 MW of projects being commissioned.

Close to 1.5 GW is currently under

development in India.

Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014

Andhra Pradesh

Tamil Nadu

Karnataka

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Madhya Pradesh

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(MW

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200

300

400

500

600

188 120 0 0 00 0 0 0 500 0 50 25 1250 0 0 40 200 0 0 150 500 0 0 250 300

2.5 70 110 10 15190.5 190 160 475 560


Other projectsIn the last quarter, we had predicted that a part of the capacity for the 125 MW Mahagenco project will be completed in the second quarter of 2013. We expect 50 MW of the capacity to be commissioned within the first week of April. The EPC for this part of the project is being done by Megha Engineering. The remaining 75 MW capacity being executed by Lanco is expected to be commissioned in the third quarter of 2013.

BRIDGE TO INDIA expects a capacity of over 1 GW to be installed in 2013. Going forward, there is a lot of momentum building up for capacity additions

in 2014. Projects under the second phase of the NSM and in states like in Tamil Nadu, Andhra Pradesh, Madhya Pradesh, Karnataka, Rajasthan, Punjab and Uttar Pradesh are all expected to be commissioned next year. By our estimates, 2014 will see a capacity addition exceeding 2 GW. Many international companies dropped India from their group of focus-countries in 2012, which was a slow year. They should now consider and take a look at India again. In addition to volumes, we see a convergence towards more sustainable prices in the market, allowing for better margins for all participants.

BRIDGE TO INDIA expects a capacity of over 1 GW to be installed in 2013.


10. GUEST ARTICLE 10.1 POWER-ONE’S

NEWLY LAUNCHED ULTRA SERIES COULD BE THE BEST INVERTER SOLUTION FOR THE INDIAN MARKETInverters are an integral part of a solar power plant and special attention needs to be paid for their selection. The key criteria of selection should be reliability with an aim to achieve the lowest LCOE. Innovation and a faster turn-around time from R&D to the field will be the key success factors for inverter suppliers in the market. Power-One understands this and has launched a steady stream of innovative products over the years, including the most recent ULTRA series of central inverters that deliver the lowest LCOE in the utility-scale segment.

Central inverters have dominated the Indian market, and Power-One has had a significant market share. Central inverters offer a range of benefits that add up to the lower LCOE. Projects in India are located in high temperature and dusty conditions that can have a negative impact on the performance of some inverters. IP65 rated inverter installations are the need of the hour for projects in India, which require environment-proof enclosures and optimized thermal management. Power-One has a global installed base of 10 GW and installations in multiple geographies with varying temperature conditions. Such products are designed to operate efficiently even in extreme temperature and environmental conditions such as India. The ULTRA series provides IP65 weatherproof construction and thermal management with extra cooling capacity to compensate for solar heat gain. The IP65 architecture allows outdoor placement and helps reduce the project cost as there is no requirement for civil structures for inverter placement. The new range of products have also adopted a new

liquid-cooled modular construction concept with multi MPPT with even grounded PV design thanks to innovative grounding control technology, specifically developed to respond to the most demanding needs of the Utility-Grade market segment.

To be able to get the optimum value for money, Indian clients require products that reduce system cost without impacting system efficiency. Power-One’s ULTRA series incorporates a design for maximum string length and minimum DC current, thus reducing DC cable and distribution cost while maintaining system efficiency.

Another key innovation in terms of reduction of the LCOE has been brought about by migrating from low AC voltage conversion (270-350Vac) to the industrial standard (690Vac). This helps in reducing the Low Voltage (LV) distribution cost, cost of AC switches with reduced breaking capacity, reduced size of LV cables and nominal and short-circuit current at the LV/MV transformer, and lower transformer cost by increasing the inverter cluster size which is connected to a larger, standard transformer. This is due to the low common noise introduced by the inverter. Direct conversion to 690Vac while keeping or extending the DC operating voltage window is a major achievement for Power-One’s new proposed power architecture.

Product construction related optimizations can go a long way in creating O&M-oriented power architecture. Power-One’s ULTRA series incorporates a R&D driven approach to create product architecture suitable to client’s requirements. For Power-One’s products, intimate control of power switches on the same cold plate has helped create a compact power module. Modular construction keeps the product light-weight as it reduces demand for large and bulky heat-sinks and weight of magnetic components. This is extremely beneficial in Indian conditions where the access to sites is obstructed by large and bulky equipment.

33© BRIDGE TO INDIA, 2013

ContactChanchal BhatnagarNational Manager -

Business Development+91-9004819358

[email protected]

www.Power-One.com

Power-One is a leading provider of renewable energy and energy-

efficient power conversion and power management solutions and is the

world’s second largest designer and manufacturer of photovoltaic

inverters. Its renewable energy products enable the industry’s highest

yielding conversion of power from solar arrays for use by utilities,

commercial enterprises and homes. Power-One has a 40 year history

as the leader in high efficiency and high density power supply products for a variety of industries including Renewable Energy, Data Storage &

Networking, Industrial and Network Power Systems. The company is headquartered in Camarillo,

CA and has global sales offices, manufacturing, and R&D operations

in Asia, Europe, and the Americas. Power-One is traded on NASDAQ

under the ticker symbol PWER. For more information, please visit

www.Power-One.com.

http://www.Power-One.com


10.2 SOCOMEC: WHY LARGE CENTRAL INVERTERS ARE NOT AN IDEAL SOLUTION FOR THE INDIAN SOLAR MARKETThe key benefit of a central inverter is cost. The bottom line is that large central inverters would cost less per watt than string or micro inverters. This is the reason why most utility projects in India and also across the world opt for larger central inverters. It can be argued that having a single conversion point simplifies grid management for such large applications. The main disadvantage of having a central inverter is that a system is “only as strong as its weakest link”. There can be a considerable production loss in the event of a breakdown (single point of failure).

Given the risk of a single point of failure for central inverters and a relatively high cost for string inverters, Socomec’s SUNSYS PARK inverters are the ideal solution for photovoltaic applications in solar parks. This product range is composed of three independent 33kW hot swap modules (allowing rapid extraction and replacement even in operation), connected in parallel on the output; three modules in one system of 100KW and several system in parallel to reach several MW as installed power. This modular architecture, along with high efficiency inverter topology (the three-level conversion bridge) and the DPC “Dynamic Power Control” function, optimize energy production at all levels of sunlight. This will allow for the price competitiveness of a central inverter and the redundancy related to a string

inverter. Given the average annual sunlight levels, photovoltaic installations mostly operate in conditions of variable brightness. It is therefore essential that the inverter is efficient, despite the unfavorable weather conditions. The modular architecture and Dynamic Power Control (DPC) function allows for the optimization of plant efficiency. Modular architecture provided by Socomec’s SUNSYS PARK inverters optimizes overall efficiency by only using the power modules it requires. Fewer modules are used in partial sunlight conditions which operate with a greater load and consequently, with greater efficiency.

DPC mode activation for these inverters share the power generated by the field between the various inverter modules. If one module is faulty, the remaining modules can sustain the energy production to their maximum capacity, reducing energy loss to a minimum. The system will automatically reconfigure in order to use the remaining modules as best as possible. The system optimizes the efficiency of the installation by turning off modules that are not required, in the event of low levels of sunlight, thereby making the remaining modules work at a higher load level and consequently, with greater efficiency.

Socomec supports the rapidly growing local PV market and an increase in energy demand through a wide range of grid tied and innovative solution (Hybrid and Storage) based on specialized support and organization. Socomec’s other business applications includes Critical Power, Power Control and Safety and Energy efficiency products.

34© BRIDGE TO INDIA, 2013

ContactP: +91 44 39215423F: +91 44 39215450

[email protected]

SOCOMEC started its operations in India in 1992. Spread across 16

locations and having regional offices in all metros. The SOCOMEC factory

is located near Gurgaon and produces a wide range of load break switches,

manual and motorized changeover switches adapted to Indian standards.

Our dedicated service specialists are available 24/7 to help to increase

the service life and availability of customer’s most critical electrical

installations.

Socomec is a specialist for Solar PV installations and has supplied

PV switches for almost 300 MW of Solar PV installations. Some of our

larger projects include Adani Power, Welspun and Mahagenco (Lanco).

Apart from Solar PV switches, other vital solar PV balance of plant

components that are manufactured by Socomec, include DC surge protection devices, PV fuses and disconnects and

motorized PV switches and PV duty source changeover switches.


11.1 GLOSSARY OF TERMSBOS - Balance of System

BREDA – Bihar Renewable Energy Development Agency

CSP - Concentrated Solar Power

CSR – Corporate Social Responsibility

CAGR – Compound Annual Growth Rate

CLU – Change of Land Use

DISCOM – State Distribution Company

DCR – Domestic Content Requirement

EPC - Engineering, Procurement and Construction

EHT – Extra High Tension

EMD – Earnest Money Deposit

E-EPC – Electrical EPC

FiT - Feed-in Tariff

GAIL – Gas Authority of India Limited

IRR - Internal Rate of Return

LCOE – Levelized Cost of Electricity

LT – Low Tension

LoC - Letter of Credit

LoI - Letter of Intent

MNRE - Ministry of New and Renewable Energy

MOU – Memorandum of Understanding

NSM - National Solar Mission

NTPC – National Thermal Power Corporation

NVVN - NTPC Vidyut Vyapar Nigam

NCEF – National Clean Energy Fund

OPEX – Operating Expense

PV – Photovoltaic

PID – Potential Induced Degradation

PPA - Power Purchasing agreement

REC - Renewable Energy Certificate

RPO - Renewable Purchase Obligation

RfP – Request for Proposal

RRECL – Rajasthan Renewable Energy Corporation Limited

11. ANNEXURE


SPO - Solar Purchase Obligation

DISCOMS - State Distribution companies

SEB - State Electricity boards

SERC - State Electricity Regulatory Commission

TANDEGCO - Tamil Nadu Generation and Distribution Corporation

TNERC – Tamil Nadu Electricity Regulatory Commission

TCO – Total Cost of Ownership

VGF - Viability Gap Funding

VAT – Value Added Tax

WTO – World Trade Organization


BRIDGE TO INDIA offers an exciting business proposition for commercial and industrial electricity consumers and rooftop owners in the field of rooftop solar energy. We offer ELECTRICITY CONSUMERS a reduction in your electricity bills and ROOFTOP

OWNERS an additional income from your rooftop – all at absolutely ZERO INVESTMENT. We will invest in a solar PV plant on your rooftop and provide you with competitively priced, secure power from it.

OUR PROPOSITION

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ContactMr. Akhilesh MagalHead of Project [email protected]+91 813 033 0011+ 91 (11) 46 08 15 79


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© BRIDGE TO INDIA, 2012Illustration by Kavya Bagga

INDIA SOLAR

COMPASSOctober 2012 Edition

Market DashboardA snapshot of the market’s

fundamentals

Latest Market In-sightsAn analysis of the policies,

projects, industry and ance

A Key Question AnsweredHow will viability gap funding

under phase two of the NSM impact the market?

OutlookQuarterly projections for the

Indian solar PV market

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BRIDGE TO INDIA is a consulting company with an entrepreneurial approach based in New Delhi, Munich and Hamburg. Founded in 2008, the company focuses on renewable energy technologies in the Indian market. BRIDGE TO INDIA offers market intelligence, strategic consulting and project development services to Indian and international investors, companies and institutions. Through customized solutions for its clients, BRIDGE TO INDIA contributes to a sustainable world by implementing the latest technological and systemic innovations where their impact is the highest.

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