2

PARTNERSHIP TO ADVANCE CLEAN ENERGY

DEPLOYMENT (PACE-D)

Technical Assistance Program

Case Study: APEPDCL

Vishakhapatnam Solar Rooftop Scheme

Submitted on May 29, 2018

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FACTSHEET

Parameter Remarks

Scheme APEPDCL – Financing Scheme for low consumption domestic consumers of Vishakhapatnam

DISCOM and Implementing Agency

APEPDCL

Scheme approved by APERC Yes

Target Consumer Domestic consumer with monthly electricity consumption of less than 200 units

Solar rooftop system size 1 kW

Bank tie up Andhra Bank (APEPDCL and Andhra Bank entered into an MoU to facilitate this scheme)

Project Funding

Capital Subsidy o 30% MNRE o 20% by Government of Andhra Pradesh

Loan – 50% from Andhra Bank at par with housing loans;

Consumer – Nil

Loan Recovery Loan is recovered as EMI through consumer bills by APEPDCL. APERC approved loan recovery as a part of bill.

Scheme Details

Interest Rate: 10.50% (revised to 9.15%)

Maximum loan amount: INR 50,000/ consumer

No of EMIs: 72

Consumer provides consent for electricity dis-connection in case of payment defaults.

Subsidy NREDCAP arranged pre-approved subsidy for 200 kW for this scheme to avoid subsidy delays.

Applications received 600 plus

Applications processed ~ 200

Systems commissioned ~150

Monthly EMI INR 930

EMI Default rate Nil

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Case Study - VIZAG

1 SOLAR ROOFTOP – CHALLENGES

India’s “National Solar Mission” (the Solar Mission) aims to achieve a target of 100

gigawatts (GW) of solar capacity installed by FY 2021-22, of which 40 GW is to be set up

through distributed generation route, i.e., grid interactive solar rooftop systems. In the early

years of the Solar Mission, capacity addition has been driven mainly by large, utility scale

installations, and focus on solar rooftop began gathering momentum only in late 2014. Out of

the 20 GW total solar capacity currently installed in India, rooftop installations only recently

surpassed the 1 GW threshold, or approximately 10% of total capacity. While rooftop

installations have gathered pace in recent months, they have not been on track to achieve

the 40 GW sub-target by 2022. A number of structural challenges have affected

development of this sector. Some persistent challenges are as listed below.

Figure 1: Challenges for slow growth of solar rooftop in India

DISCOMs are critical stakeholders who must play an enabling role for rooftop solar to be

successful in India. They provide approvals for interconnection, manage injection of solar

power into the distribution network, and also have a robust and functional billing interface

with consumers. Despite significant efforts by all stakeholders, DISCOMs have remained

reluctant to promote grid connected solar rooftop due to perceived negative financial impact.

This case study highlights work taken up by the APEPDCL, a distribution company operating

in the Vizag area of Andhra Pradesh, to develop a proactive rooftop solar program which

Challanges

Revenue Erosion

Fear of lossing high paying consumer

Issue of surplus power

Need of change in billing and

other IT tools

Need for capacity

building and training

Access to finance

Grid Integration

and generation monitoring

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serves as an example to be emulated by other distribution companies and play a more

proactive role in accelerated adoption of rooftop solar across the country.

Utilities enjoy a particular advantage due to their central role in the solar value chain. The

APEPDCL pilot shows that DISCOMs can leverage their inherent advantage of being

customer facing, and design innovative programs that are beneficial for consumers.

The program demonstrates the opportunity for DISCOMs to step in and address challenges

facing rooftop solar installations and help scale capacity. Utilities stand to benefit from

intrinsic benefits that solar rooftop brings to them, such as decentralized generation,

reduction in T&D losses, deferred network augmentation, and the ability to mobilize a large

number of retail investors to participate in power generation and the continuously falling

prices of solar rooftop. This observes the pattern followed by a large number of utilities

across the globe, that have seen the opportunity and have started actively participating in

development of rooftop solar in the areas they serve.

1.1 SOLAR ROOFTOP DEPLOYMENT MODELS AND CHALLENGES

Self-owned (Capex) and Renewable Energy Service Company (RESCO), also known as

third party investment models are used have been the primary models of rooftop deployment

in India. The capex model is the simplest, and is based on outright purchase of solar

photovoltaic equipment by end users. This model has its share of challenges such as:

High upfront cost must be borne up-front by the end consumer, and may be a

challenge where the consumer us unable to invest in the system;

Challenges in accessing finance, as the consumer may not be credit-worthy to avail

low cost finance, resulting in higher effective cost of solar energy, which may deter

investment. In some cases, a consumer may be unable to access finance;

Higher perceived financial risks of the consumer by lenders, resulting in poor

availability of finance; and

The Parliamentary Standing Committee on Energy in its 28th Report, tabled in the

Parliament in August 2017, highlighted multiple reasons that attribute to low

installation from solar rooftop in India. Key reasons listed were as follows.

Reluctance of DISCOMs to operationalize net-metering regulations as rooftop

solar systems may reduce their income from high paying customers

Tedious process for project commissioning and delays in subsidy disbursement,

including involvement of multiple approval processes (e.g. connectivity, met

metering, Chief electrical inspection (CEI), limitation in sanctioned load and

distribution transformer capacity etc.)

Non-uniformity of Power Purchase Agreement (PPA) and Engineering,

Procurement and Construction (EPC) agreements

Skill and knowledge gaps, and lack of consumer awareness

Non-uniform regulations across states and frequent changes in government

policies

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Technology and performance risks, which must be borne by the consumer in case

the equipment does not perform as expected, or generation fails to meet the

forecasted projections.

Several of these risks are addressed by the RESCO business model, where a solar rooftop

company makes the upfront investment in the systems, installs them on a customer site, and

sells generated electricity to consumers through a long-term contract. Companies operating

under this model bring several abilities that facilitate installations. A RESCO can make up-

front investment in rooftop projects. They can also manage technology and performance

risks through expert operations and maintenance. However, RESCO business models also

face challenges, and some examples are listed below.

High transaction costs, where the RESCO must often approach individual roof

owners one by one, and convince them of the technology’s benefits.

High cost of customer acquisition caused by low consumer awareness. RESCO’s

may spend several months educating and negotiating with the consumer, before

entering a long term agreement.

Contractual risks between the RESCO and consumers are a big area of concern.

RESCOs may have a general disinclination towards lower size rooftop customers

who may not be strong counterparties and have poor credit ratings, making contracts

expensive and unviable.

Together, the capex and RESCO models constitute consumer centric business models,

which are both driven primarily by a private sector party – the rooftop solar developers. An

alternative model of rooftop solar deployment, which is increasingly gaining traction across

the world, are business models driven by utilities. Utilities can play a range of roles, from

facilitation to direct development of rooftop for their existing customer base. The different

types of modes of engagement are summarized in section 2, and discussed in detail by the

PACE-D TA publication on utility based business models for rooftop solar.

Utility led business models become even more important in India, because capex and

RESCO models have not yet resulted in accelerated deployment of solar rooftop capacity.

Additional approaches to business models, and a push for rooftop solar driven by utilities

can provide the much-needed boost to rooftop solar, create a facilitative investment

environment. The Vizag case study presents an instructive case for how a leading utility can

initiate such a program which benefits their consumers, while at the same time, protecting

their revenue base, reducing their subsidy outflow, and boost rooftop solar.

1.2 UNIQUE POSITION OF DISCOMS

The DISCOMs, due to their current line of business can play beyond their current role

identified earlier. DISCOMs unique position which can be leveraged to promote and

implement solar rooftop. Figure 2 highlight the advantages and value addition to solar

rooftop due to higher participation of DISCOMs.

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Figure 2: Value addition of DISCOMs’ higher involvement in rooftop solar

1.3 UTILITY BASED BUSINESS MODELS

Solar rooftop sector’s growth may be accelerated through the introduction of newer, utility-

based business models (UBBMs). This require a shift in DISCOMs’ business approach. In

the wake of the changing business environment, and rise of disruptive technologies, such as

solar rooftop, DISCOMs can ill-afford to operate in a business in usual scenario and

constrain their focus to maintaining networks and supplying power. Progressive utilities

across the globe are exploring new business streams which are complementary to their work

and adopting new focus areas such as UBBMs for rooftop solar. This approach facilitates

clean energy deployment, while simultaneously opening up new revenue streams for

DISCOMs.

DISCOMs understanding and reach to the end consumer puts them in the driver’s seat as

they can develop a targeted approach of promoting solar rooftop in their service areas. They

can participate in deployment of rooftop solar through facilitation or direct investment. A

detailed discussion of the approaches is summarized below and shown in Figure 21.

Facilitation Approach, where the utility aggregates projects and facilitates procurement of

systems or solar power services, paid for by the end consumer or the RESCO. Under this

approach the utility can charge for facilitation services, creating an additional source of

revenue for itself. Some benefits of this approach include:

Aggregation of Projects: Utility aggregates demand from a large number of interested

consumers. This allows aggregation of capacity which in-turn allows procuring in

large quantities leading to economies of scale.

1 For more details, please refer to the PACE-D TA Program publication: Utility-Centric Business Models for

Rooftop Solar Projects

Advantages of DISCOM

•Access to every electricity consumer

•Access to and confidence of financial institutions (FIs)

•Better legal, contracting and implementing capabilities

Value addition of DISCOMs

•Advocate solar rooftop and aggreagte demand

•Intermeidary between users and FIs

•Intermeidary between users and developers

Result

•Low consumer and transaction costs leading to lower project costs

•Strenghten contracting, technical specifications and enforcement

•Reduction in risks leading to lower cost of finances

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Standardization of Components and Services: For large-scale procurement, utilities

can standardize components and services as part of bidding documents. These

standards can help create benchmarks for consumers and developers, irrespective of

their participation in utility procurement programs.

Timely Execution and Quality: Utilities have technical know-how and capability to

monitor the quality and timely execution of projects.

Figure 3: Range of Possible DISCOM Approaches to Utility Based Business Models

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Investment Approach, where the utility aggregates projects and invests in developing those

projects. Utilities can also play a key role in financing these systems through linkages with

financial institutions either as on-lender or as a collection agency. Some of the advantages

of the approach, in addition to all the advantages of the facilitation approach, are as

following:

Better Enforcement of Contracts: Utilities are capable of developing and enforcing

contracts, reducing risk for consumers, developers as well as financial institutions.

Further, the contracts developed and used by the utilities can become benchmarks

for other consumer and developers.

Improve Bankability: Utilities, especially government-owned utilities, being large

corporations with long track record enjoy confidence of the financial institutions. Their

participation in the rooftop solar projects improves the enforceability of the contracts

and off take. Improved risk profiles lead to improved bankability of the projects

enabling increased participation of the financial institutions in the projects and hence

the sector.

2 https://www.pace-d.com/wp-content/uploads/2018/02/Utility-Centric-Business-Models-for-Solar-Rooftop-

Projects.pdf

UB

BM

Facilitation Approach

Demand Aggregation

Standardize Components and Services

Help Timely Execution and Quality Assurance

Investment Approach

Enforce Contracts

Improve Bankability

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2 VISHAKHAPATNAM SOLAR ROOFTOP CONSUMER FINANCING SCHEME

Andhra Pradesh has been a pioneer in power sector reforms and infrastructure growth. The

state underwent bifurcation into two states, Telangana and new Andhra Pradesh. The

erstwhile Andhra Pradesh State Electricity Board (APSEB) was unbundled into six entities to

focus on the core operation of Power Generation (APGENCO), Power Transmission

(APTRANSCO) and Distribution (APDISCOMS). Post bifurcation four DISCOMs were

allocated to the new State of Telangana and the remaining to the new State of Andhra

Pradesh. The following flow diagram presents the institutional structure of the power sector

in the State. Andhra Pradesh now has various policies and regulations to cater to the needs

of the rooftop solar sector, referred to as implementation guidelines by NREDCAP3, the state

nodal agency for renewable energy implementation, which were published in 2015.

Figure 3: Key Institutional Stakeholders to facilitate RTSPV in Andhra Pradesh

2.1 STATE ENERGY MIX

Andhra Pradesh had 1.75 crores electricity consumers as on December 31, 2017, out of

which 15.8 lakh are agriculture consumers. The state achieved 100% electrification of

households in FY 2016-17. The approved transmission and distribution (T&D) losses are

10.60 percent for both the APDISCOMs put together for FY 2018-194. The State has total

installed capacity of 23 GW5. Conventional, fossil fuel based power plants constitute about

63 percent of installations and the installed capacity of renewable energy (including central

allocations for the state) is at 30 percent. asdfOut of the total installed renewable energy

projects, the share of solar energy is close to 33 percent6. Andhra Pradesh has been allotted

3 http://nredcap.in/PDFs/Pages/Solar_Rooftop_Net_metering_Policy_2015.pdf

4 APERC Order on Tariff for Retail Sale of Electricity during FY 2018-19 dated March 27, 2018

5 http://www.cea.nic.in/reports/monthly/installedcapacity/2018/installed_capacity-04.pdf

6 http://nredcap.in/PDFs/Tenders/RE_Status_31_01_2018.pdf

Government of Andhra Pradesh

Energy, Infrastructure

and Investment Department

Electricity Regulator

Andhra Pradesh Electricity Regulatory

Commission (APERC)

Distribution Licensee

Andhra Pradesh Eastern Power

Distribution Company Ltd. (APEPDCL)

Andhra Pradesh Southern

Power Distribution Comapany

Ltd. (APSPDCL)

State Nodal Agency

New and Renewable

Energy Development Corporation of

Andhra Pradesh

(NREDCAP)

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a target of 2,000 MW grid connected rooftop solar by the Ministry of New and Renewable

Energy (MNRE).

Figure 4: Break-up of RE Installations in Andhra Pradesh

2.2 INITIATIVES TO PROMOTE ROOFTOP SOLAR IN ANDHRA PRADESH

Andhra Pradesh took multiple steps, such as setting up policy framework and consumer

guidelines for solar rooftop deployment, allowing APEPDCL to run a pilot scheme for low

income, low consumption consumers in the Vishakhapatnam area. The scheme offered

upfront subsidy for 20 percent of the project capital expense, and ran mass awareness

drives through the State Nodal Agency and AP DISCOMs. Some of the key initiatives by

APEPDCL include the following,

1. Encouraging RTSPV installations via both net and gross metering options as guided

by the Andhra Pradesh Solar Policy, 2015.

2. Energy accounting and settlement of excess energy, in case of net metering, at the

applicable average cost to serve -- one of the highest rates offered in the country.

3. Conducting mass awareness and outreach programs with channel partners, general

public, bankers, NREDCAP officials, residential welfare associations, etc.

4. Conducting solar rooftop capacity building and training sessions for its staff and field

officials, and nominating officers at district and division levels for hassle free process.

5. Setting up time bound guidelines and processes for ease of application.

6. Promoting setting of solar rooftop systems on buildings owned by APEPDCL.

7. APEPDCL management approved loans to employees wishing to install rooftop solar

systems up to a capacity of 3 kWp.

2.3 COST OF SUPPLY VS. SOLAR ROOFTOP COST OF GENERATION

APEPDCL envisaged to play a proactive role in deployment of solar rooftop. Realizing the

potential savings in case low income, low electricity consumption consumers (highly cross

subsidized consumers), it developed a targeted scheme for rooftop solar. Like other

DISCOMs, APEPDCL meet majority of electricity demand by procuring power from

58% 21%

12%

1% 3% 1%

3%

0% 1% Wind

Solar (GoI)

Solar (State Policy)

Small Hydro

Biomass Based

Biomass Energy Co-generation (Non-BaggaseCaptive use)Co-generation with Baggase

Municipal Solid Waste

Industrial Waste

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centralized generating stations. Various line losses and charges are added to this power

procurement cost which is then recovered from the consumer through electricity bills (both

fixed and energy charges). Revenue recovery from a low consumption, low income domestic

consumers is not commensurate with actual costs incurred by the DISCOMs, and these

consumers are cross-subsidized by high paying consumers, such as commercial and

industrial consumers.

With cost of solar technology reaching grid parity, APEPDCL realized the potential to avoid

various line losses by utilizing the tail end generation aspect of rooftop solar. Figure 05

shows the average cost to serve, vs. solar rooftop cost of generation for multiple DISCOMs.

Figure 4: Cost of Supply

7 vs. Solar Rooftop Cost of Generation

APEPDCL serves about 50.24 Lakhs LT domestic consumers8. Majority of these consumers

are consumer 200 units or less per month.

Table 1: Profile of domestic consumer with electricity consumption less than 200 units

S.No. Consumer

Slab

No. of Consumers

(Lakhs)

Energy Sales (MUs)

Connected Load/ Contract Demand (MW)

1. 0-50 22.84 2,384 1,316

2. 51-100 15.83 1,304 1,207

3. 101-200 8.76 815 1,077

About 94% of the total domestic consumer served by APEPDCL consume less than 200

units of electricity and their Cost to Serve (both ACoS and VCoS) is significantly higher than

the approved retail energy charges.

Table 2: Energy Charges vis-a-vis ACoS and VCoS

S.No. Consumer

Slab

Energy Charges

(INR/kWh)

ACoS (INR/kWh)

Energy Charges Vs. ACoS

VCoS at LT Level

(INR/kWh)

Energy Charges Vs. VCoS

a b c d e=c/d*100 f g=c/f*100

1. 0-50 2.60 5.85 44% 6.07 43%

2. 51-100 2.60 5.85 44% 6.07 43%

3. 101-200 3.60 5.85 62% 6.07 59%

Total energy sales for domestic consumers constitute to about 5,513 MUs, that translates to

a revenue realization of INR 2,043 Crore to APEPDCL. Out of the total revenue recovery of

7 ACoS, VCoS charges from the latest available Retail Supply Tariff Orders various DISCOMs

8 As per the Tariff Petition FY 2018-19, filed by the APEPDCL

5.85 6.07

3

3.5

4

4.5

5

5.5

6

6.5

APEPDCL

Co

st

to S

erv

e

(IN

R/k

Wh

)

ACoS

VCoS

Solar Rooftop

CoG Band

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INR 2,043 Crore from domestic consumers, these 94% consumers contribute to about INR

1,342 Crore (i.e., about 66%) of the total domestic revenue recovery. Additionally, the

approved line losses of these consumers close to 13%, this further adds to the cost incurred

by APEPDCL. In order to compensate for this under recovery, the tariff schedule is prepared

so that other consumer categories, such as commercial and industry, high consumption

domestic consumers pay higher tariffs. Due to the high volume of low consumption, low

income consumers, the existing tariff regime results in a significant revenue gap in the

APEPDCL financials.

Table 3: Revenue Gap of APEPDCL (FY 2018-19)

Parameter Amount (INR Crore)

Annual Revenue Requirement

11,382.09

Revenue from Tariff including Non-Tariff Income

10,140.76

Revenue from CSS and Additional Surcharge

148.15

Revenue Gap of APEPDCL 1,093.17

2.4 DESIGN OF THE APEPDCL SOLAR ROOFTOP PILOT SCHEME

APEPDCL realized the potential to curtail revenue losses by promoting solar rooftop for

serving low consumption, low income consumers. Promoting use of rooftop solar for such

consumers could also result in lowering cross-subsidy surcharge on high paying consumers,

while reducing delivery cost for the discom. This led to the APEPDCL initiating plans to

developing the Vishakhapatnam Solar Rooftop Pilot scheme targeting domestic consumers

with less than 200 units consumption per month. To make implementation possible, a

number of challenges had to be addressed first.

1. Limited access to finance for low income consumers;

2. Lack of knowledge about technology, vendor, administrative procedures;

3. Limited capacity of putting up up-front capital to set up system; and

4. Higher perceived technology and financial risks.

Key Objectives of the Vishakhapatnam Pilot Scheme

1. Promote clean energy, meet solar rooftop target, and no cost solar RPO

compliance.

2. Reducing low tariff paying consumer’s (highly cross subsidized consumer’s)

dependability on APEPDCL.

3. Help target consumers in access to easy and low cost finance.

4. Demand aggregation and quality assurance.

5. To proactively promote solar rooftop by creating a win-win situation for all the

key stakeholders, primarily the APEPDCL.

6. Lower cross subsidy burden on high tariff paying consumers.

7. Lower Government of Andhra Pradesh tariff subsidy burden.

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APEPDCL decided to move forward with the pilot, as it was in a key position, where it could

drive the scheme to success and leverage several advantages that worked in its favor.

1. Access to consumers: APEPDCL, being the DICSOM of the target set of consumers,

enjoyed ease of access to the consumer.

2. Trust on DISCOM: The reach of the APEPDCL and the trust factor due to long term

service being provided to these consumers.

3. Ability to undertake a multi-stakeholder transaction: Due to a dedicated solar energy

department within the APEPDCL, the DISCOM was the right choice to run this pilot.

2.4.1 Scheme Design

The scheme was jointly developed by the Government of Andhra Pradesh, APEPDCL, and

NREDCAP with Andhra Bank acting as the financial partner. The roles of various actors

involved are as follows.

1. Government of Andhra Pradesh, continuing its efforts to promote renewable energy

installations, will facilitate use of rooftop solar by low consumption, low income urban

domestic consumers. The state government will provide 20% capital subsidy over

and above the available MNRE subsidy.

2. APEPDCL, the implementing utility conceived the idea based on possible revenue

savings. APEPDCL wanted to test underlying advantages of lowering dependency of

low consumption, low income consumers on the utility by facilitating their switch to

rooftop solar.

3. Andhra Bank, being a public-sector bank with significant customer outreach is a

lending partner for the scheme. Other public and private sector banks were

approached, and may join onboard in the future.

4. NREDCAP, is the state nodal agency, which helps consumer outreach, vendor

empanelment and other activities related to solar rooftop.

Under the scheme, APEPDCL is facilitating setting up of 1 kW solar rooftop systems at the

premises of domestic consumers using less than 200 units a month, financed with help of

Andhra Bank. Consumers do not incur any up-front cost. Capital expenditure required for the

system is split into three tranches: 50% of total is paid in the form of subsidy by MNRE

(30%) and the Government of Andhra Pradesh (20%), and remaining 50% is provided as a

long term loan from Andhra Bank. The consumer repays the loan as equated monthly

installments (EMI) to APEPDCL.

2.4.2 Development of the Business Model

Given the multi-stakeholder nature of the scheme, it required buy-in from all stakeholders

involved, and the state electricity regulator: Andhra Pradesh Electricity Regulatory

Commission (APERC). Once APERC had approved the scheme’s concept and modalities

and permitted collection of equated monthly installments from participating consumers

through electricity bills, APEPDL entered into memorandum of understanding with the

Andhra Bank in February 2017, and developed standardized scheme documents.

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Figure 5: APERC Conditions for Approval

Driving factors for Andhra Bank supporting this pilot include Priority Sector Lending status of

renewable energy lending, possibility of new business opportunity, onus of loan recovery

with APEPDCL, cross selling opportunities, increase in customer base and first mover

advantage. The Bank developed a new product by the name of “AB Solar Roof Top” and

formally launched the product for the pilot scheme on February 02, 2017.

The product was approved by the Micro, Small and Medium Enterprise (MSME) Department

of Andhra Bank. A key decision taken by the Andhra Bank was not to process loans at either

the head office or just at the Vishakhapatnam zonal office, but at the local brank. This saved

time for consumers as well as the bank, and helped in efficient application handling and loan

processing. The bank appraised the product to all branches in Vishakhapatnam. Upon

clearance for loan by APEPDCL, consumers may approach their nearest bank branch for

loan processing.

•APEPDCL and AB to enter into MoU

•Tripartite Agreement between APEPDCL, AB and consumer for Collecting EMI alongwith Bill

APERC Approval

Provisions of the MoU between APEPDCL and Andhra Bank

1. Both the parties have not entered into a joint venture.

2. EMI against loan provided by Andhra Bank to be collected from the consumer by

APEPDCL as part of the electricity bill on the behalf of the Andhra Bank.

3. APEPDCL will share detail of the consumers, monitor subsidy disbursement by

the MNRE/NREDCAP.

4. APEPDCL to undertake consent from consumers to incorporate EMI as part of

the electricity bill.

5. Andhra Bank will only undertake the mandatory KYC compliance, any technical

clearance by APEPDCL does not impose compulsion on Andhra Bank to lend.

6. In case of delay in remitting EMIs by APEPDCL, Andhra Bank will have full right

to claim the amount against APEPDCL.

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Figure 6: Typical Transaction in the Scheme

2.4.2.1 Consumer Outreach

APEPDCL and NREDCAP are publicizing the pilot scheme using print media. Additionally,

consumers may get in touch with the Vishakhapatnam district office of NREDCAP and

offices of APEPDCL to understand more details of the scheme. In addition to outreach and

consumer awareness, NREDCAP also ensures vendor empanelment and subsidy

processing. As the state nodal agencies are already mandated to undertake these activities

related to renewable energy, NREDCAP plays the same role under this scheme.

2.4.2.2 Vendor Empanelment and Customer Acquisition:

A quality system is assured by a quality vendor. In order to avail subsidy and get a quality

system a consumer is free to choose from the empaneled vendors of NREDCAP. Moreover,

Key provisions of the Andhra Bank scheme document

1. Launched a new product “AB Solar rooftop”, exclusively for this pilot scheme,

with a limit of INR 50,000/- per consumer.

2. 10% borrower’s margin.

3. Primary security: Hypothecation of the solar rooftop system. No collateral

security provisions.

4. Inspection charges waived off by the Bank for this scheme.

5. Asset insurance charges, if any, to be borne by the consumer.

6. Loan is processed at the branch level.

7. Loan amount is directly disbursed to APEPDCL.

8. Subsidy and borrowers margin to be received upfront before disbursement of

loan component by the Bank.

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empaneled vendors may avail the list of eligible consumers for this pilot scheme from

APEPEDCL and approach them for setting up of solar rooftop system. This allows a multi-

pronged customer acquisition strategy for the execution of the scheme.

2.4.3 Typical application process

Any consumer residing in Vishakhapatnam with a monthly electricity consumption of 200

units or less is eligible to participate in the scheme. Consumer can approach their nearest

mee-seva centers set up by Government of Andhra Pradesh to avail state government

services. Upon receipt of an application, APEPDCL reviews its technical feasibility and

confirms the same to the consumer and enters an agreement . The applicant approaches its

nearest Andhra Bank branch for availing a loan for the system. At this stage, the applicant

also approaches NREDCAP for subsidy related matters. Andhra Bank undertakes

mandatory KYC and processes the loan based upon its standardized loan processing

protocols. In parallel NREDCAP processes the subsidy. The loan component is directly

disbursed to APEPDCL and is received by the consumer post subsidy and borrowers

margin. The consumer is then free to get the system set-up from an empaneled vendor of

NREDCAP. Once system is installed, APEPDCL undertakes necessary system checks

verifies all documents, releases service connection and installs a net electricity meter in

place of the existing meter.

2.4.4 Risk Minimization for Andhra Bank

During the initial stages of the pilot development, there were multiple discussions between

the Andhra Bank officials and the APEPDCL senior management covering a range of issues

including processing loans, scheme implementation, technical and billing issues, and dispute

resolution. The presence of APEPDCL in the business model – APEDPCL undertaking all

the technical scrutiny, bill recovery – provided confidence to the bank officials to consider

this scheme as an opportunity to fund the sector.

The scheme targets consumers who are highly cross subsidized, with low electricity

consumption and low incomes. These consumers wish to adopt clean energy, but lack

adequate capital, likely have poor creditworthiness, and require financial support. The pilot

was designed to help such consumers avail low cost debt for rooftop solar systems. Given

the consumers’ profile, APEPDCL’s involvement provided comfort to Andhra Bank that the

EMI payments will be recovered in a timely fashion. The bank was also assured of system

quality, system uptime and performance. Thus, the biggest risk of payment defaults was

mitigated for Andhra Bank. Under the pilot, Andhra Bank only undertakes the mandatory

know your customer (KYC) as per the banking norms while processing the application that

has been technically cleared by APEPDCL.

2.5 FURTHER LEARNINGS AND WAY FORWARD

One of the interesting feature of this scheme is that prior owning a rooftop system, the

monthly bill of participating consumers was in the range of INR 400-500 per month.

Consumers subscribing to the scheme will incur an additional EMI burden of about INR 900

per month. However, the possibility of asset ownership, significant reduction in electricity bill

in future, easy access to finance, timely disbursement of subsidy clubbed with the aspiration

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to reduce one’s carbon footprint has resulted in 600 applicants registering for this scheme,

this is equivalent to 600 kW of solar rooftop systems of 1 kW each in Vishakhapatnam itself.

There are three key learnings from the pilot – replicability, scalability and the lessons

gathered by all the stakeholders involved. They are summarized below.

2.5.1 Replicability

The approach developed to execute this pilot at Vishakhapatnam may be replicated and

scaled up by moving towards an OPEX model. This shift in the model will allow third-party

investment along with experienced project installers and developers to enter in the sector

and set up systems. This way, the pilot can be developed without the need of direct

association with a bank. However, the DISCOM will still have to play key role in the OPEX

model. As it is the DISCOMs presence that will provide the RESCO the comfort for minimal

contractual risks with the consumer. This is because DISCOMs presence can help

significantly reduce consumer default rate. As was the case with Andhra Bank in this pilot,

RESCOs too will be assured of timely returns on investment, if the DISCOM functions as a

payment collector of the EMI on the behalf of RESCO. In return, DISCOMs may charge

RESCOs a service fee for helping with customer acquisition and revenue collection.

2.5.2 Scalability

It is learnt from the three key stakeholders, the APEPDCL, Andhra Bank, and NREDCAP

that this pilot is being considered to be scaled up to cover consumer with up to 400 units a

month electricity consumption. The envisaged project size would be 3 kW. Further, the pilot

may be scaled to cover entire service area of APEPDCL. It is envisioned that the increase in

participation criteria will capture the interest of relatively higher earning group consumers

with the possibilities of more rooftop availability. During discussion with Andhra Bank it was

learnt that the bank considers this move to be beneficial as there may be a possibility to

undertake cross-selling of its other financial products and services to those consumers. This

will help the Andhra Bank widen its business prospects as well.

2.5.3 Key Learnings from stakeholders:

1. Government of Andhra Pradesh: The provision of 20% subsidy by the state

government over and above the MNRE subsidy helped in lowering the debt amount

thereby lowering the EMI for the eligible consumers.

States looking to replicate/ build on the APEPDCL model may need to undertake

cost-benefit analysis for this upfront subsidy provisions vis-à-vis recurring subsidy on

electricity tariff of these consumers.

2. APERC: The Andhra Pradesh’s electricity regulator approved this first of its kind pilot

scheme where the utility is facilitating setting up of solar rooftop in Vishakhapatnam.

Additionally, it ordered that all the necessary documentation (such as standardized

agreements, MOUs, terms and conditions, etc.) need to be in place by the APEPDCL

and other stakeholders. The regulator also allowed collection of EMI as a part of the

electricity bill.

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Standardized agreements, MOUs, etc. to be in place. Scheme approval may be

required from the State Electricity Regulatory Commissions. Any other approval,

such as EMI collections, etc. may also be required from the Commission.

3. Andhra Bank: Undertakes minimal and only mandatory KYC checks for loan

processing. Decentralized application handling, consumers are routed towards

nearest branch office

4. APEPDCL: The scheme targeted only urban, disciplined, low paying consumers. The

involvement of APEPDCL brings in contract sanctity between multiple stakeholders.

Additionally, the involvement of APEPDCL provided risk cushioning to the Andhra

Bank, as the APEPDCL resolved the issues faced by the bank at regular intervals.

Involvement of senior management of DISCOM for inter-organizational issues

handling. APEPDCL brought in standardized process and forms for the pilot scheme.

One of the key success factor of the scheme is an active solar cell of APEPDCL

which undertakes consumer consent for disconnection of electricity connection in

case of payment defaults.

5. NREDACP

a. Upfront availability of subsidy

b. Timely subsidy disbursement

c. Empanelment of quality vendors, including local entrepreneurs

d. Active outreach activity