PV Solar India Economic AnalysisOne of the ideas behind studying economics of solar PV manufacturing in India is to make it competitive to be able to sustain local deployment of solar based grid connected projects.

With an objective to improve the economics of solar power and reach closer to grid parity, we will look at the current cost of generation and its sensitivity to future module costs and cost of finance.

The purpose here is also to understand at what cost a project developer would be interested in setting up a solar PV power project.

PV Solar India Economic AnalysisThe key assumptions for a typical grid connected solar PV power plant based on poly-crystalline and thin film technologies are given in the Table next slide.

A thin film module typically requires almost double the area for panel mounting as polycrystalline module for the same energy output.

We assume that there would not be significant impact of additional land requirement on project cost since the state government may be able to offer unutilized/waste land at low prices for such projects.

PV Solar India Economic Analysis

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

PV Solar India Economic AnalysisA power developer would typically look at the benchmark equity IRR of 11%to 13%. This is equivalent of 14% post-tax return on equity under existing regulatory environment in conventional generation projects.

Based on current tariff incentives offered by MNRE (which is limited to a total national capacity of 50 MW), viz. Rs. 12 per kWh (total tariff of Rs. 15 per kWh),

The equity IRR falls well short of the expected levels for power developers, as is indicated in the table above. Further, there is uncertainty over tariffs available after 10 years. (The GBI is only available for 10 years)

PV Solar India Economic Analysis

PV Solar India Economic Analysis

PV Solar India Economic Analysis

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

The following assumptions have been considered for various analyses:

Solar PV, on the other hand, is a technology that offers a solutionfor a number of problems associated with fossil fuels. It is clean, decentralised,indigenous and does not need continuous import of a resource. On top of that,India has among the highest solar irradiance in the world which makes solar PVall the more attractive for India. India (Orissa and Andhra Pradesh) also housessome of the best quality reserves of silica (basic feedstock for metal grade Si)and has globally proven metallurgical capacities and capabilities. India isalready an established low cost producer and assembler of solar PV cells andmodules

The major issue with solar is its high upfront costs. Companies and countriesaround the world are investing in scale to bring down costs and in R&D toimprove efficiencies. India, on the other hand, faces the danger of missing thesolar PV opportunity. Solar industry in India has been till now a low costproducer of solar PV cells and modules. Its cumulative processing capacity isless than 400 MW for both cells and modules. On the other hand, companiesaround the world are now planning and developing production facilities thatrun into giga-watts. India has neither invested in scale nor has it invested in afocused manner in R&D. China, Japan, USA, Germany, Malaysia and Taiwanare doing just this.

India is one of the fastest growing economies globally and energy is one of thebasic requirements to maintain this rate of growth and to serve itsdevelopmental objectives. To maintain this rate of growth (of around 7-9% perannum), access to cheap, clean and reliable sources of energy has becomecrucial.1.51 India has projected its demand for electricity to go up to 210 GW by 2012 andto 800 GW by 2032. To meet this demand, it has laid down a comprehensiveplan for adding capacity, in which renewable energy technologies play a crucialrole. By 2012, India has targeted 24 GW of capacity through renewable sourcesof which 0.5 GW would be through solar. By 2017, MNRE expects Indiassolar capacity to touch 4 GW.1.52 The Government of India has kept a target of electrification of all villages by2009 and Power for all by 2012 with a minimum energy consumption of 1unit per day per family. Solar PV based decentralized distributed generationcan contribute to this target.

The Government of India in 2007 released a draft model of RE law bymandating electricity utilities to purchase power from renewable sources.The target for electricity generation via this route is fixed at 10% by 2010and 20% by 2020. Thus far, 13 SERCs have notified RPO targets for theirrespective states and the remaining states are lined up to fix their purchaseobligation. These measures will boost the RE market in the country.3.10 In view of the introduction of state-level RPOs, increasing demand (due toeconomic growth and rural electrification) and increase in short-term tradingprices, SERCs have called for the use of indigenous energy sources, such asRE, especially wind and solar.3.11 Currently, as of March 2007, India has RE capacity of 11,275 MW, which isaround 7% of the total installed capacity. It has been growing at a CAGR(2003-07) of 18%. The figure below presents the break-up of installed energycapacity of different segments as on January 2008. By and large, the REsector is dominated by wind, with a share of around 71% or 7,845 MW of thetotal renewable capacity.

Presently, solar PV is not a vibrant technology, primarily due to its cost economics but it has the potential of becoming the future source of energy.

This is possible due to technological advancement, incentives for investment,supportive legislative framework of various SERCs, private sectorinvestment and rising prices of fossil fuels.

All of the above factors can playa crucial role in scaling up the solar PV as a leading RE source.

India has, in the past three decades, been implementing a large RE programme and solar, including solar PV, is a focus area. As a part of the RE programme in India, the Ministry of New and Renewable Energy (MNRE) launched a country-wide Solar Photovoltaic Programme two decades ago. Under this programme, almost 11 lakh solar PV based systems have been installed, including 5.85 lakh solar lanterns, 3.64 lakh solar home lighting systems, 69,500 street lighting systems, 7,068 solar water pumps and 4.75 MWp of stand alone and grid interactive solar PV power plants.

The MNREs country-wide solar programme has two major focus areas:(i) Remote village electrification through DDG using RETs, especially solar based applications, and(ii) Promotion of solar technologies in urban, industrial and commercial applicationsOn the demand side, solar energy (thermal and PV) has found application in four main market segments, which have been highlighted in Figure 29.

Solar PV market in IndiaTill 2007-08, India has been seen primarily as a hub for low costmanufacturing and production of solar PV cells and modules. As a result, a large part of the 45 MW aggregate capacity of solar cells and 80 MWaggregate capacity of SPV modules produced in the country during FY07was exported (a cumulative 60 MW of solar PV modules have been exported till 2007).During the past five years (2002-2007), India produced 335 MWp and exported 225 MWp capacity of PV products.Figure 30 highlights the category wise use of solar PV capacity in India in he past 5 years.

End Use PV Modules

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

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

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

Individual company news

Along with government-backed developments a number of individual companies are also making efforts to develop PV capacities in India.

Reliance Industries leads the field with the highest volume of investment, although a company spokesman explained its plans are still being finalized.

Reliance has, however, submitted an application for a 5 MW grid-connected solar PV project in West Bengal.

Individual company newsIndias Moser Baer Photovoltaic Ltd (MBPVL) currently has an annual manufacturing capacity of 80 MW for crystalline cells, 50 MW of thin-film modules and 10 MW of concentrator modules.

It is aiming for more than 600 MW of thin-film single and tandem junction and 500 MW of crystalline and concentrator modules by 2010.

MBPVL will invest Rs 200 billion ($5 million) in a PV and nanotechnology factory in Tamil Nadu. When operational, it is expected to generate annual sales approaching $100 million largely through exports

Individual company newsMeanwhile, US-based Signet Solar has signed a memorandum of understanding with the government of Tamil Nadu to manufacture 300 MW of thin-film PV modules in a project worth an estimated $500 million.

The plant will be located in the Sriperumbudur SEZ. It will initially export most of its production, but will serve the Indian market as domestic demand picks up. The first shipments from the plant are expected in 2010. Signet Solar plans to build three plants (1 GW) in India over the next 10 years at multiple locations.

Solar Semiconductor has an order book of $1.52 billion to be delivered in the next 23 years. It has orders to supply PV modules to leading players in the global solar market including Q Cells AG, IBC Solar and ersol Solar Energy of Germany and Motech Industries of Taiwan.

Individual company newsSolar Semiconductors supply contract with Q-Cells is worth $170 million, for example. The company already has two operating facilities with an installed capacity of 6070 MW on the outskirts of Hyderabad.

According to its director, S. Prasad, it will have the lead in FabCity as the first company to commence manufacturing by the third quarter of 2008. This will be its third unit. By end of 2008, we will have a capacity of 210220 MW, said Prasad.

Individual company newsMola Solaire Produktions GmbH, a manufacturer of multi-crystalline and mono-crystalline solar wafers, has signed a five-year contract to supply 125 MW of multi-crystalline solar wafers to XL Telecom & Energy Ltd between 2008 and 2013.

Sharp, the global leader in solar PV technology, recently made a foray into solar energy in India with its Sharp Business Systems India Ltd subsidiary. According to a company spokesman, it will focus its activities on supplying large-scale grid-connected systems and targets 8 MW installed by 2010.

Individual company newsCentrotherm Photovoltaics AG of Germany plans to set up a 5000 tonne capacity (expandable to 10,000 tonnes) polysilicon processing factory at Haldia in the state of West Bengal in eastern India at an investment of Rs.400 billion ($3.18 billion).

This is a joint venture with SREI Infrastructure Finance Ltd, Environ Energy Deck Services and US-based Perseus.

The factory is likely to be the first such plant in India and the state government has already allotted a quarter of the land needed for the 790 acres (320 ha) project.

The factory will produce both electronic and solar grade silicon and will be equipped with a 100 MW captive power plant. SREI and Environ Energy together will have a 50% stake in the project, while Centrotherm is likely to pick up a 15% stake in the venture.

In addition, the IBM Thomas J Watson Research Centre (the headquarters for IBM Research in the country) has also expressed a desire to participate in solar energy and silicon research in West Bengal.

Individual company newsIt is not just foreign interests that are exploring the possibility of expanding solar PV capacities in India. Tata BP Solar, a joint venture between the giant Tata Group of India and BP Solar of the UK (and one of the oldest semiconductor manufacturers in India) is in the advanced stages of a $100 million investment in a 128 MW solar cell manufacturing plant close to its existing facility near Bangalore, which will eventually be scaled up to 180 MW.

Tata BP Solar recently announced that it has signed an agreement with Calyon Bank (Credit Agricole CIB) and BNP Paribas to raise $78 million to fund further development. Tata BP Solar currently has a module manufacturing capacity of 85 MW.

Other national initiatives

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

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

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

ThoughtsThe government of India should consider feed-in-tariff schemes in excess of 1000 MW per year against the present 50 MW, since the need of the hour is to support PV programmes which are cost-prohibitive in comparison to other renewable technologies.

This would further encourage local companies to consider investing in solar PV projects and can help in their economics. India currently has to depend largely on imports of raw materials and the rising currency rates make manufacturing a burden.With government support for PV growing, ample solar resources and both the labour and the market potential to exploit these resources India is set to become a major force in the future PV world.

India's Solar PV Space Attracts Investment

There has been a spate of investments in the solar/photovoltaics (PV) space in India recently.

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

Lanco Solar (Rs12,938 crore), PV Technologies India (Rs6,000 crore), Phoenix Solar India (Rs1,200 crore), Reliance Industries (Rs11,631 crore), Signet Solar (Rs9,672 crore), SolarSemiconductor (Rs11,821 crore), TF Solar Power (Rs2,348 crore), Tata BP Solar India (Rs1,692.80 crore), and Titan Energy System (Rs5,880.58 crore).

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

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

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

Conventional v/s solar PV for roof top applications

ConclusionRural electrification3.87 The Government of India has kept a target of providing electricity for all by2012 with a minimum consumption of 1 kW per day per household. As a partof this programme, the government has targeted electrification of 18,000remote villages through non-conventional power sources.3.88 Power deficiency in India and the need to enhance access of power to all atthe lowest lifecycle cost provide an ideal situation for the large-scaleintroduction of DDG technologies, like solar, wind, biomass and small hydro.

3.89 Solar PV installations for rural electrification provide policy-makers thefollowing advantages:(i) located within short distances of the load centres(ii) avoid the development of long transmission and distributionnetworks and also save large AT&C losses(iii) savings in carbon emissions(iv) allow local communities to meet their own energy needs locally(v) highest solar irradiance in the world makes solar based DDG anattractive alternative

3.90 Although the relative economics of solar PV might not provide an idealmatch for all villages just as yet, solar PV is ideal for villages separated fromthe grid by physical barriers.3.91 Taking a conservative estimate of 25% or 4,500 villages out of the 18,000villages classified as remote being electrified by solar means a demand ofabout 300 MW in the coming next 4-5 years.Telecom3.92 Most BTSs in India use DG sets for backup power that suffers fromdisadvantages, like high cost of fuel (diesel), fuel transportation and storage,fuel pilferage, pollution and fuel adulteration. This use is more frequent insemi-urban and rural areas with long and frequent power outages and old andunreliable distribution networks.________________________________________________________________________

Study on Solar Photovoltaic Industry: ISA-NMCC 2008 953.93 The use of solar PV for backup power applications in telecom providesoperators the advantage of a lower lifecycle cost compared to a DG set.Based on estimates, the total potential of this market would be around 500MW in the next 7-8 years (i.e. till 2015).3.94 The telecom sector has the potential to provide a large and viable market forsolar PV in the future with retail prices of diesel likely to move up and pricesof solar PV panels likely to come down.Roof based Building Integrated Solar PV3.95 This segment provides an alternative for reducing the cost of power procuredby commercial buildings and at the same time reducing the burden on localcity grid.3.96 Based on the analysis undertaken, solar PV can assist commercial buildingoperators in saving as much as 22% per unit cost. This segment has thepotential of adding upto 1,000 MW of capacity in the coming 5-6 years.

Broadly, there are two performance (input) measures which would be used tofurther distinguish the factors responsible for the state of the solar PVindustry in the 3 countries being highlighted above. These are:(i) Regulatory measures: legislation/regulatory and standards(ii) Support schemes: subsidies and incentives

Largely, these two performance (input) measures represent key input factorsthat are responsible for shaping the national PV promotion strategy. Based onthese two performance (input) measures, which directly or indirectly promotethe solar PV sector, the performance of any country can be measured withfour output factors, which are:(i) Market development(ii) Industry development(iii) Cost reduction of solar PV system(iv) Country wide acceptance of PV

Special Incentive Package Scheme (SIPS)5.4 SIPS is formulated to encourage investments for setting up of semiconductorfabrication and other micro and nano technology manufacturing units,including solar PV manufacturing. SIPS is applicable for a fab unit as well asan ecosystem unit.5.5 A threshold limit is set as the minimum investment of Rs. 2,500 crore (approxUS$ 625 million) in case of a fab unit and Rs. 1,000 crore (US$ 250 million) incase of an ecosystem unit. The amount is calculated as net present value andshould be made during the period of first 10 years from the financial year inwhich the application is made.5.6 Under this scheme, the Central Government or its pertinent agencies willprovide capital subsidy against the total capital cost in the form of investmentgrant or interest subsidy. A capital subsidy of 20% is set for manufacturingunits set up in SEZ and 25% for units set up in non-SEZ areas.

Alternatively, the unit can ask for governments equity participation in theproject, not exceeding 26%. The entire equity contribution will be takentowards the value of incentive package. There shall be an exit option, to beexercised by the government, at a suitable time in the future after the projectgoes on stream.5.8 This scheme shall be available till March 2010. There shall be a ceiling onnumber of units - 2 to 3 fab units and 10 eco-system units.

SEZ policy5.9 The manufacturing of solar PV components is a permissible economic activityin SEZs, which covers trading, servicing and manufacturing of solar PVcomponents exported or imported or procured from the Domestic Tariff Area(DTA) by a solar PV unit in SEZ. These units are entitled for all applicablefiscal and non-fiscal benefits highlighted under the SEZ policy.5.10 Manufacturing of solar PV in SEZs shall be exempt from payment of taxes,duties or cess including excise duty, CST, service tax, security transaction taxand import duty.

Incentives for Manufacturers(i) SEZ units will be given certain exemptions from income tax for 15years. These exemptions are structured in a way that a SEZ unit canavail 100% income tax exemption for the first 5 years, 50% for thenext 5 years and rest 50% of the reinvested profits ploughed back intothe business for the next 5 years. But no income tax is exempted if 10years IT benefit is already availed by the beneficiary firm.(ii) The SEZ policy allows 100% foreign direct investment in themanufacturing sector and gives flexibility to make overseasinvestment out of export earnings in foreign currency.(iii) The units in the SEZ have to be net foreign exchange earners but theyneed not be subject to any pre-determined value addition or minimumexport performance requirements.

Incentives for Developers: Generation Based IncentivesGeneration Based Incentives (GBI)

Grid interactive solar power generation under the GBI scheme

The high cost of solar PV equipment results in a higher cost ofgeneration, which restricts the growth of power generation throughsolar PV.

MNRE has decided to support large-sized grid interactive solar powergeneration projects as demonstration projects. The Ministry recentlyannounced a Generation Based Incentive (GBI) scheme to support atotal capacity of 50 MWp from 2007 to 2012.

Incentives for Developers: Generation Based IncentivesGeneration Based Incentives (GBI):The key attributes of the GBI scheme are:

Solar PV power generation plants of a minimum installed capacity of 1 MWp per plant; either a single unit or modular units at a single location will be eligible for generation based incentive.

However, 1 MWp capacity may be setup through modular units at a single location.

Incentives for Developers: Generation Based IncentivesGBI Scheme: The key attributes of the GBI scheme are:

The GBI scheme guarantees an overall tariff of Rs. 15per kWh for solar PV,

Which consists of GBI (GBI is a much higher componentthan the tariff offered by the state government) and thepreferential tariff offered by the state utility.

Incentives for Developers: Generation Based IncentivesUnder the scheme: The key attributes of the GBI scheme are:

(i) Utilities would offer rates as per tariff order or equal to highest rateoffered by any other source for which guidelines are issued by theSERC.

Wherever the SERC has fixed a separate tariff for solar poweror tariff for the period for which the Ministry is providing incentive,the utilities will offer a minimum of that tariff to the solar PV gridinteractive power projects in their respective states.

In the absence of such tariff orders, the utilities will offer the highesttariff for purchase of power to the solar PV power project developers.

(ii) In addition to the preferential tariffs offered by the state, theMinistry/MNRE may provide GBI of a maximum incentive of Rs. 12per kWh to SPV and Rs. 10 per kWh to STP. (GBI = Rs 15 per unit state utility tariff)

Incentives for Developers: Generation Based IncentivesGBI Scheme: The key attributes of the GBI scheme are:

Eligibility: Any project that is commissioned after 31st December, 2009

A maximum incentive with a 5% reduction and ceiling of Rs. 11.40 per kWh.

The generation-based incentive will continue to decrease as and when the utility signs a PPA for power purchase at a higher rate.

State Wise Incentives For Developers; West BengalWest Bengal

WBERC came out with a tariff order for solar energy on March 25, 2008.As per the WBERC tariff order, the eligible grid connected solar PVpower plant should be of capacity ranging from 1.0 MWp to 5.0 MWp.

The highest tariff in West Bengal currently is Rs 4/unit. Hence, adeveloper who avails the GBI scheme for setting up a plant in WestBengal in FY09 can enter into a PPA of Rs. 4/unit with the distributionlicensee.

To support This tariff, the developer will additionally be givenincentive of Rs. 11/unit of power generated under the GBI scheme fromMNRE.

State Wise Incentives For Developers; West BengalWest Bengal On withdrawal of the incentive by MNRE, the commission will review the saleprice. The capped price of energy for grid connected solar PV plants(including those plants which are availing accelerated depreciation benefit and are not eligible for GBI declared by MNRE, shall be Rs.11.00/kWh forsale to the distribution licensees.

This tariff will be applicable for the grid connected solar PV projectscommissioned up to 2009-10 and shall remain valid for 10 years from thedate of coming into force of these regulations.

Similarly, the sale price for the units for the electricity generated from the plants commissioned after 2009-10 but on or before March, 2012 will beRs.10/kWh which shall remain valid for 10 years

State Wise Incentives For Developers; West BengalWest Bengal

At any stage in the future, if any solar PV plant, which was ineligible for thegeneration based incentive, becomes eligible for the incentive declared byMNRE or by the State or Central Government, the SERC may review the rateof Rs.11.00/Kwh or Rs.10.00/kWh, as the case may be, for sale to theLicensees and fix a new rate by taking into consideration the allowableincentive to such solar PV plants.

Any incentive received by the licensee fromMNRE on this account shall be passed on to their purchasers of electricity.

The SERC will take a fresh view on the price cap for grid connected solar PVProjects commissioned from 2012-13 onwards.

Typical Indian solar PV manufacturers are partially integrated, viz. theyprocure wafers and produce cells and modules. While there are technicalreasons to this partial integration, viz. unavailability of technology, rawmaterials etc, an important factor could be high capital requirements for settingup such manufacturing capacities comparable with the larger players in theindustry. Capital subsidy could give a push towards vertical integration andreduce the cost of production of the module. The subsidy would encouragemanufacturers to increase capital content in their manufacturing process ratherthan rely purely on labour arbitrage.

Thin film technology6.8 The investment required in setting up a 100 MW integrated thin film plant(based on A-Si/Micro-Si) from glass to module is around Rs.1,500 crore withper MW cost of about Rs.15 crore (in SEZ). If the unit is outside an SEZ, thecapital investment would be roughly Rs. 1,950 crore with per MW cost ofabout Rs.19.5 crore. This excludes cost for making float glass, which has manypotential suppliers in existing glass manufacturers in India. It is assumed thatglass would be purchased locally and the cost of the same has been included inthe cost structure.

It is worth noting that close to 60% of value addition (Rs. 50 per watt) in thechain occurs in the polysilicon and wafer manufacturing. The bulk of the valueaddition in the solar PV value chain is, therefore, not taking place in India. Apush towards vertical integration hence makes strong logic for the developmentof this sector in India.

Profitability of solar PV sectorCrystalline silicon technology

An analysis of a vertically integrated (Greenfield) 100 MW polyCrystalline module manufacturing company is considered here on asample basis.

Assuming an investment of around Rs. 1,265 crore, the EquityInternal Rate Of Return (IRR) for the investor has been worked outover a 10-year Investment horizon.

The debt-equity ratio has been assumed as 50:50.

Production is expected to commence in the FY 2010-11.

The cost of production is expected to drop due to the improvement inManufacturing technologies as well as a reduction in raw material prices whichare currently high.

The selling price too is projected to drop with increasing international competition and thinning of margins for manufacturers.

In the analysis, it is projected that with maturing of the market, margins made bymanufacturers would decrease over time.

An upper band and lower band of cost of production and selling price (reflecting a highlyaggressive and a milder cost and price trajectories respectively) have been used for theanalysis.

The analysis consisting of 2 cases is presented in

Table 34:(i) Case I: A manufacturing unit located in an SEZ and gets capitalsubsidy(ii) Case II: A manufacturing unit located in an SEZ but does not getcapital subsidy

To analyze a non-SEZ case, an investor would need to take into account tax andduties structures on capital goods, raw materials, services, electricity, etc. of theconcerned state.

For case I, it is assumed that the capital subsidy will be used to repay the debt.

As the analysis indicates, without capital subsidy, the sector is not attractiveenough for international investors, especially in a scenario where globalcompetition exists among nations to take the lead in establishing a solar PVmanufacturing base.

Encouraging thin film technology is relevant to Indian conditions because itoffers better economics of power generation for ground based systems and islikely to be the cheaper alternative for utility scale power generation. Hencefiscal incentives would be critical to the growth of thin film basedmanufacturing capacities in India.

below, we present two cases for a manufacturer partiallyintegrated (wafer to module as is the case for incumbent Indian manufacturers)and completely vertically integrated. In the partially integrated case, wafer istypically procured at Rs. 86 per watt. With value addition of about Rs. 35 perwatt, the cost of production of a partially integrated manufacturer would beabout Rs. 120 per watt. A vertically integrated manufacturer, in comparison,may be able to produce the same at Rs. 89 per watt. (Table 32). It is assumedthat both the partially integrated manufacturer and the vertically integratedmanufacturer would be able to sell the module at around Rs.145 (internationalpricing of c-Si module). This gives the vertically integrated manufacturer amargin gain of 42 percentage points (63% - 21%) over the partially integratedone. With a lower cost of production, a vertically integrated manufacturerwould be internationally competitive with healthy margins.

Power generation from grid connected solar PV system6.28 One of the ideas behind studying economics of solar PV manufacturing in Indiais to make it competitive to be able sustain local deployment of solar based gridconnected projects.6.29 With an objective to improve the economics of solar power and reach closer togrid parity, we will look at the current cost of generation and its sensitivity tofuture module costs and cost of finance. The purpose here is also to understandat what cost a project developer would be interested in setting up a solar PVpower project. The key assumptions for a typical grid connected solar PVpower plant based on poly-crystalline and thin film technologies are given inthe Table 37. A thin film module typically requires almost double the area forpanel mounting as polycrystalline module for the same energy output. Weassume that there would not be significant impact of additional landrequirement on project cost since the state government may be able to offerunutilised/waste land at low prices for such projects.