Solar incentives in India

Solar PV in India Regulation, setup and simplified project returns

Bhaskar Deol

[email protected]

+44 (0) 753 667 0734

mailto:[email protected]

Mission background

• The Jawaharlal Nehru National Solar Mission is a major initiative by the Indian central government

• Mission anticipates achieving

o Grid parity by 2022

o Parity with coal based power by 2030

o Significant number of off-grid applications for meeting rural needs which are cost-effective

• The solar natural resource in India is bountiful

o 5000 trillion kWh energy potential over India’s land area

o Average 4-7 kWh/m2.d

April 29, 2010 Bhaskar Deol 2

Overview of the national solar mission

Solar Mission

Utility connected applications

Solar collectors Off-grid applications Manufacturing Solar R&D

• Renewable

purchase obligation

for power utilities

• Applicable to solar

thermal and solar

PV

• Will be phased to

increase as solar

tariff declines

• Focus on

applications below

80 ºC

• First two phases will

promote proven and

commercially viable

solar heating

technologies

• Mandate solar

heaters through

building laws

• Create certification

mechanisms for

manufacturers

• Provide soft loans

• Remote village

electrification for

10,000 villages

• 90% subsidy for off-

grid villages

• Promotion of solar

lighting for grid-

connected areas via

low-cost bank credit

• Setup rural power

plants in remote

areas

• 30% capital subsidy

for “innovative”

applications

• Re-financing facility

for financial

institutions

• Soft loans for SMEs

in manufacturing

• Could incentivize

for promotion of PV,

solar PV as well as

balance of system

component

manufacture

• Focus on efficiency

and application

engineering

• Focus on storage

• Focus on human

resource

development

• Pilot

demonstrations

plants for various

technologies and

applications, e.g. a

solar thermal plant

with storage, a

hybrid plant with

coal, etc.


National solar mission

• Mission Goal

o Create framework for deployment of 20GW capacity by 2022

o Ramp up capacity of grid-connected solar power generation

o Promote programs for off-grid applications reaching 2GW by 2022

o Create favorable conditions for local solar manufacturing capability

• End of each phase there will be

o Evaluation of progress

o Review capacity

o Targets for subsequent phase

Phase Timeframe Capacity Target Details

Phase 1 Up to 2012-13 1 GW

Phase 2 2013-2017 4 GW • Additional 3GW capacity

• Mandatory use of renewable purchase obligation by utilities back with preferential tariff

• Capacity could increase to 10GW, based on enhanced international finance and technology transfer

Phase 3 2017-2022 20 GW • Dependent on “learning” of first two phases

Phases of the solar mission


Roadmap for the Solar mission

Application Segment Phase 1 Target

Phase 2 Target

Phase 3 Target

Planned Measures

Solar collectors 7 million m2 15 million m2 20 million m2 • Ambitious target to ensure applications below 80 ºC are solarised

Off-grid solarapplications

200 MW 1 GW 2 GW

Utility grid power, including rooftop

1 – 2 GW 4 – 10 GW 20 GW • Stipulated purchase of electricity from renewable sources to be fixed by the State Electricity Regulatory Commissions

• Phase 1 – 0.25% solar by 2013• Phase 3 – upto 3% solar by 2022

• Creation of NVVN (NTPC Vidyut Vyapar Nigama), a body to enter PPAs with solar power developers for 25 years

• Small and rooftop PV installations will be paid by utilities for solar power generated

• Creation of a renewable energy certificate mechanism

• Creation of a mechanism for utilities to be reimbursed for payouts to small and residential installations. Payout to utility = Rs. 5.5/kWh with 3% escalation

Technical and manufacturing capability

- - - • Custom and excise duty concessions for capital equipment, critical materials and components

• Target 4-5 GW of installed capacity by 2020, including dedicated poly silicon capacity of 2 GW annually

• Special economic zones / manufacturing parks which may include

• Zero import duty on capital equipment, raw materials• Low interest rate loans and priority lending• Special incentives for poly and thin film module manufacture


• Land Requirement

• 50% land arrangements at pre-registration

• Land required 2 Ha / MW

• Agreement of sale with owner or lease > 30 years

• Contracts

• Letter of comfort from equity/debt provider s

• Power evacuation agreement with distribution co.

• PPA with purchasing authority

• Miscellaneous

• Rs. 1 mill/MW, 24 month guarantee with application

• No change in equity holding between MOU till PPA

execution

Feed in tariff schedule (2009-10)

• Phase 1 cap of 1 GW• Projects must be commissioned before 2013

Technology Tariff / kWh Equivalent Tariff / kWh(Mar 22, ‘10)

Solar PV Rs. 18.44 € 0.30

Solar Thermal Rs. 13.45 € 0.22

National Solar Schedule Guideline• Developer criteria

• Net worth over past 3 years

• Turnover

• Technical criteria

• Technical criteria

• IEC Standards

• Central Electricity Authority Standards

• Made in India modules and cells (proposed)

• Financial Criteria

• Equity investment on basis of Rs. 10 mill / MW

• Leverage 70:30

• Infrastructure criteria

• Grid connectivity criteria

• Less than 1 MW: LT Single /Three Phase

• 1MW – 3MW: HT Level (Below 33kv)

• Grid injection at nearest distribution station

(No charges for connectivity)

• Permissions

• State authority approval for project

• Land clearance by revenue department

• Water approval

• Environmental and pollution clearance


National and state level incentives

• Flurry of activity in the area of solar incentives in India• National and state level incentives have been announced or in process

• Tariffs outlined for rooftop, small and large scale projects

• National level guidelines for process, but states set the actual tariff

• Calls for projects have been largely oversubscribed

• General classification of systems is as follows --

Small / Rooftop Installation

Medium Installations

1-3MW

Utility Scale

>5 MW

• National level guidelines for this

category have not yet been defined

• Some states (e.g. Rajasthan) treat

rooftop systems to be similar to

medium installations and offer a flat

tariff

• FIT given for all solar power

generated

• Metering and billing regulation

currently in process of being defined

• Guideline tariffs for this category

have been defined and under

consultation (refer next slide for

details)

• The national mission puts a cap of

80MW on projects in this category

• For larger projects, some states

have independently defined tariffs

ahead of the National Solar Plan.

• Tariffs awarded to these projects

follow similar guidelines but have

greater variety of options provided to

developers (e.g. accelerated

depreciation, tax incentives, etc.)


Small / Rooftop / Medium projects (proposed)

• Sub 33kv connected Rooftop systems

o Completed before march 2013

o Small PV and Rooftop administered by the IREDA and under PPA with local distribution utility

o Tariff determined by state electricity regulatory commission (SERC)

o Only in states with tariff tenure of 25 years on levellised basis

o GBI payable to distribution utility = CERC rate – Rs. 5.5 (3% escalation annual) (project payout remains constant)

o Proposed for modules and cells made in India

LT Voltage HT Voltage

Voltage 400-volts (3Phase) or 230-volts (1Phase) Below 33KV

Size Less than 1MW 1 – 3 MW

Specification - Need to follow technical connectivity standards

Target Capacity 20 MW 80 MW

Net metering To be announced Yes, tariff only for power exported to grid.

Contract To be announced PPA with local distribution utility

Rate To be announced Rs. 18.44 (OR as announced by the State electricity regulator)


MOU with Utility

Registration

PPA Contract

Financial Closure

Project

commissioning

Pre Registration

Project registration process

•Registration with state level authority (to be announced by individual states)

•Submit supporting document to fulfill eligibility criteria

•Pre-registration is carried out first-come-first-served, after end of the consultation (April 30, 2010)

•Certificate of pre registration issued to these projects, up till total capacity of 150 MW

•Fee of Rs. 25,000 to be paid to the state level authority

•Developer signs an MOU with the local distribution utility

•Utility agrees to a deemed sale of power from the proposed project

•Application to be submitted to the Program Administrator: IREDA

•Developer submits a board resolution station intention of the company to develop a project

•Developer provides a commitment guarantee (Rs. 1 million/MW) for 24 months

•All applications meeting these criteria enter an initial shortlist

•Upon signing of a PPA with distribution utility, IREDA issues letter stating eligibility for GBI (Generation based incentive) in 1 month

•Additional guarantees of Rs. 4 million/MW required before eligibility letter is issued.

•Registration certificates issued only upto cumulative capacity of 80 MW is reached.

•Normally, an additional limit of 20MW per state will be applied

•To be completed within 6-months of the date of issuance of registration certificate

•To be completed within 6-months of the date of Financial Closure


State policy for solar projects

• Gujarat

o Solar power policy announced in January 2009

o Operative period upto 2014

o Target 500MW capacity of solar projects > 5 MW

o Wheeling charges 2% for captive use (*)

o Exempt from electricity duty

o Established 1.5% renewable power purchase obligation for electricity consumed in 2009-12


Solar PV Year 1-12: Rs. 15.00

Year 13-25:Rs. 5.00

Y1-Y12: € 0.25

Y13-Y25: € 0.08

Solar Thermal Year 1-12: Rs. 11.00

Year 13-25:Rs. 4.00

Y1-Y12: € 0.18

Y13-Y25: € 0.06

Rajasthan

– Solar power policy under consultation

– Proposed tariff for plants installed in 2010-11

– Proposed tariff for 20 years

– CDM benefits to be split 75:25 with distribution utility

– Same tariff also applicable for rooftop systems for all

solar electricity generated


Solar PV Year 1-20Rs. 15.27

€ 0.25

Solar Thermal Year 1-20: Rs. 11.97

€ 0.20


GBI = FIT – 5.5 / kWh

3% Annual escalation

Feed in tariff (FIT), metering and billing regulated

by State electricity regulator

Payment mechanism for solar projects

Distribution Utility

• Local distribution

company

Indian Renewable

Energy Development

Authority (IREDA)

• Public limited company

Project Developer

• Rooftop

• Small project (1-3MW)

• Large (>5MW)

$

Generation Based

Incentive (GBI)

$ FIT

determined

by SERC

Projects under state level incentive Projects under national level incentive

kWh

NVVN

• National renewable

energy buyer

• Public sector utility

Indian Renewable

Energy Development

Authority (IREDA)

• Public limited company

Project Developer

• Rooftop

• Small project (1-3MW)

• Large (>5MW)

GBI = FIT – 5.5 / kWh

3% Annual escalation

$

Generation Based

Incentive (GBI)

$ FIT

determined

by NSM

kWh

Feed in tariff (FIT) determined by National Mission.

Metering and billing regulated by State electricity

regulator

State Electricity

Distribution Co

kWh

$

PPA PPAPower Sale

Agreement


Solar farm installation process comparison

Germany Spain Italy China US Japan India

Tariff visibility Single agency collection ?Long term debt market Project finance availability Approval and permitting ?Land acquisition Supply chain Grid connectivity ?

• Germany: Easy system. Fast Approvals. Ready funding via KfW. Efficient supply chain. Steady and consistent growth

• China: Still not sure about incentives. Complex incentives at provincial level. Tariff based on “what the market can bear” – Open tendering

• Spain: Launched a very attractive incentive in 2007. Had to abandon it in 2008 after very strong installations

• US: Tax based incentives, which makes it difficult to finance

Source: Morgan Stanley research, presentation


Project economics

Mar '10 - 9.89%

14.2%

14.4%

14.6%

14.8%

15.0%

15.2%

15.4%

15.6%

0% 2% 4% 6% 8% 10% 12% 14%

Un

leve

red

IRR

Average Annual Inflation

Sensitivity of IRR to Inflation

Assumptions

5MW solar plant Installed price / Wp = $3 = Rs. 144 Total Capex = $15 m = Rs. 720 m Operating costs = 0.5% pa FIT = Rs. 18.44 for 25 years 10 year tax holiday, then 33% Average insolation ~ 5.4kWh/m2 (Rajasthan)

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60%

Un

leve

red

IRR

Annual Operating Cost

Sensitivity of IRR to Opex

Assumptions

5MW solar plant Installed price / Wp = $3 = Rs. 144 Total Capex = $15 m = Rs. 720 m Inflation = 7% pa FIT = Rs. 18.44 for 25 years 10 year tax holiday, then 33% Average insolation ~ 5.4kWh/m2 (Rajasthan)

Source: Simplified model


Solar incentives in India

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