Table of Contents

1. Executive Summary ................................................................................................... 4

2. Introduction .............................................................................................................. 5

3. Technology ................................................................................................................ 7

3.1. Solar PV ................................................................................................................................... 7

3.1.1. Modules ................................................................................................................................... 7

3.1.2. Inverters ................................................................................................................................... 9

3.1.3. BOS – Mounting Structures, Cabling, Tracking Systems, and other costs.............................. 10

3.2. Wind ...................................................................................................................................... 11

3.3. Monitoring and Scheduling Solutions ................................................................................... 12

4. Business Model ....................................................................................................... 14

4.1. Sale to Utility ......................................................................................................................... 14

4.1.1. APPC + REC (Average Pooled Power Cost + Renewable Energy Certificates) ............................. 14

4.1.2. 4.2.2 PPA/FIT+GBI (Feed In Tariffs + Generation Based Incentives) ........................................... 14

4.2. Sale to Private Consumers ..................................................................................................... 14

4.2.1. PPA + REC (Power Purchase Agreement + Renewable Energy Certificates) for non SPO

consumers 15

4.2.2. PPA for SPO consumers .............................................................................................................. 15

4.3. A note on RECs (Renewable Energy Certificates) .................................................................. 15

5. Geographical Factors ............................................................................................... 17

5.1. Regional Environmental Considerations ............................................................................... 17

5.1.1. Solar Irradiation .......................................................................................................................... 17

5.1.2. Wind Power Potential ................................................................................................................. 18

5.2. State Based Considerations ................................................................................................... 19

5.2.1.1. Policy Landscape – Solar ........................................................................................................ 19

5.2.1.2. Policy Landscape – Wind ........................................................................................................ 19

5.2.2. Demand Profile of the State ....................................................................................................... 20

6. Customer Off-take ................................................................................................... 22

7. Time ........................................................................................................................ 24

8. Conclusion ............................................................................................................... 25

9. About EAI ................................................................................................................ 27

10. Replacing Diesel with Solar Report ............................................................................ 27

Appendix – Links to State wise Solar policies .................................................................................... 28

List of Figures

Figure 1: Cost breakup for solar ............................................................................................................ 10

Figure 2: Top 10 Wind turbine Manufacturers 2012 ............................................................................ 12

Figure 3: Business Models for Renewable Power Projects ................................................................... 14

Figure 4: Solar Irradiation Map of India ................................................................................................ 17

Figure 5: Customer offtake over time ................................................................................................... 22

List of Tables

Table 1: Comparison – Crystalline Vs. Thin Film ..................................................................................... 8

Table 2: India's Wind Power Potential - State wise .............................................................................. 18

Table 3: JNNSM Targets ........................................................................................................................ 19

Table 4: Time Risk Matrix ...................................................................................................................... 24

1. Executive Summary

The Renewable Energy IPP market is emerging as the bridge to close the power deficit the country

has been facing. Private investors today contribute a significant portion of the investment happening

in the power sector, from no private participation in 1990 to nearly 30% of the installed generation

capacity as of 2013. IPPs form a large portion of this private sector investment that the country is

witnessing in the power sector. The majority of these IPPs are in the Renewable space and their

presence is increasing.

This trend is likely to continue because

a. Vast renewable energy potential – potential for wind energy in India is estimated at

100GW

b. Policy support – Shift from accelerated depreciation to generation based incentive

system

c. Not many huge players in the IPP market – Currently major wind IPPs include Renew

Power, China Light and Power and Mytrah Energy

These factors indicate that the share of IPPs in installed capacity will rise in the coming years.

However, for companies keen on entering the IPP sector, there are many risks associated with such

long-term investments. Thus a thorough knowledge of the various factors that lead to a good

investment with high returns is required. Lack of understanding of these factors can turn a

profitable and high-return proposal into a moderate or loss generating investment.

In this whitepaper we will try to answer some of the questions that are crucial to forming a lucrative

IPP business proposition.

Which technology to invest in

Which business model would offer the best returns

Which geographies are best suited for a particular technology and business case

This whitepaper focuses on Wind and Solar based systems, as we judge these to be the favoured

destination for IPP investment in the future.

2. Introduction

India’s total installed power generation capacity is 214,059 MW, of which 28,149 MW is from

renewable sources. The following chart presents a detailed look at India’s energy mix.

Renewable sources contribute 13.5% of India’s power generation capacity. Wind has the highest

installed capacity among renewables with a cumulative capacity of close to 19,050 MW, followed by

Small Hydro, Biomass, and Solar PV. Waste to Energy systems form a very small component of the

overall energy mix.

The total potential for renewable power has been estimated as

Wind – 49 GW at 50 m and 103 GW at 80 m

Solar – EAI estimates the potential for solar in India to be in the thousands to tens of

thousands GW range. The Thar Desert alone has the potential for several thousand GWs.

Biomass – 23 GW1

Wind

Wind Energy has been the fastest growing renewable energy sector in the country. With a

cumulative installed capacity of 19,050 MW (as on 31st March 2013), the sector currently accounts

for 66% of the total installed capacity in the renewable energy sector.

The Indian government has proposed ambitious reforms in the power sector in its 12th Five Year

Plan (2012-2017) which, if implemented, will present tremendous opportunities for companies in 1 http://www.mnre.gov.in/schemes/grid-connected/biomass-powercogen/

installation, generation, and evacuation – the entire value chain. The proposals envisage around

15,000 MW of grid-interactive renewable power capacity addition from wind energy alone.

The wind industry expects capacity to grow to 31,500 MW by 2016 on the back of the generation-

based incentive being reintroduced in the union budget and other market drivers.

As the wind sector evolved in India (driven originally by investors benefitting from Accelerated

Depreciation benefits), new policies were announced, giving impetus to investments from

Independent Power Producers (IPPs). A few key drivers are believed to trigger this rush towards the

IPP model:

Improving regulatory clarity in the sector with the introduction of Renewable Purchase

Obligation (RPO) and Renewable Energy Certificate (REC) regulations

Reinstating GBI

Changes in tax incentives for wind power generation

Wind power becoming cost-competitive and attaining parity, if not becoming cheaper than

conventional power in some parts of the country

Many IPPs have announced large-sized projects, with the trend towards higher average size per

project (ranging above 50 MW) at a single location.

Thus wind is garnering a lot of attention from the IPPs of the country and is geared to be one of the

most favoured investment destinations for IPPs in the foreseeable future.

Solar

India currently has an installed grid-connected solar PV capacity of 1.7 GW as on April 2013. While a

part of this capacity is the result of Gujarat and Rajasthan state policies, the rest are from the JNNSM

scheme. Today, Gujarat alone has an installed capacity of 824 MW which is nearly 50% of the total

installed solar capacity in the country. Following in the footsteps of Gujarat and Rajasthan, 7 other

states have also come out with their own solar policies and have envisaged significant additions in

the next few years.

Solar RECs (Renewable Energy Certificates), introduced in 2012 provided an alternative business

model for aspiring solar power plant developers. Thus far there have been 114 projects registered

under the REC scheme adding capacity of 717 MW. The REC market, however, has not developed as

planned. Many reasons have been cited for this, such as imbalance in demand-supply owing to

improper enforcement, lack of proper monitoring, etc. But the biggest challenge is the lack of

stringent penalties in case of non-fulfilment of Renewable Purchase Obligations (RPO). The

government has taken this into consideration and is discussing multiple avenues to help increase the

appeal of RECs in the market and, to impose strict penalties in case of non-fulfilment.

All these factors lead us to believe that the solar PV market in the country will witness tremendous

growth in the coming years.

3. Technology

Technology selection is one of the key factors for the success or failure of any project. In this section

we will be discussing the various technologies used, their advantages, and the features that make

them better suited for investment. As previously mentioned, we will be focusing only on solar PV

and wind based technologies.

3.1. Solar PV Solar PV systems directly convert the energy from the sun into electricity. There are different types

of technologies available with varying degrees of efficiency. A typical solar PV system has the

following 3 components –

a. Modules

b. Inverters

c. Balance of System

3.1.1. Modules

There are two broad classifications of modules –

Crystalline solar

Crystalline silicon (c-Si) solar modules are currently the most commonly used, primarily due to c-Si

being stable and delivering efficiencies in the range of 13-19%.

Thin film

Thin film modules are less efficient than c-Si based systems but enjoy a lower thermal coefficient

making them more suitable for warmer areas.

While they enjoyed a significant cost advantage a few years ago, thin film modules are now at

Wind enjoys 66% of India’s installed capacity in renewable energy, and will continue to flourish with reinstatement of Generation Based Incentives making wind investments attractive again

o Wind power has also achieved, or is near, grid parity in several regions of the country making it an attractive option for commercial energy consumers

Solar has seen tremendous growth through JNNSM and state solar policies. Solar RECs have increased the appeal of this sector but uncertainties exist on enforceability of Renewable Purchase Obligations and future price of RECs

Take

away

s

par or in some cases even more expensive than crystalline modules. Their thermal coefficient of conversion, however, is lower than crystalline modules making them very suitable for more arid regions like Rajasthan.

Table 1: Comparison – Crystalline Vs. Thin Film2

Cell Technology Crystalline Silicon Thin Film

Types of Technology

Mono-crystalline silicon (c-Si) Poly-crystalline silicon (pc-Si/ mc-Si)

String Ribbon

Amorphous silicon (a-Si) Cadmium Telluride (CdTe)

Copper Indium Gallium Selenide (CIG/ CIGS) Organic photovoltaic (OPV/

DSC/ DYSC)

Temperature Coefficients

Higher Lower (Lower is beneficial at high

ambient temperatures)

Module

construction

With Anodized Aluminium Frameless, sandwiched

between glass; lower cost, lower weight

Module

efficiency

13%-19% 4%- 12%

Inverter Compatibility

and Sizing

Industry Standard System designer has to consider factors such as

temperature coefficients, Voc-Vmp difference, isolation

resistance due to temperature variances, humidity levels, etc.

Mounting systems

Industry standard Special clips and structures may be needed. Significant

savings in labour cost is witnessed in some cases

DC wiring Industry standard May require greater number of circuit combiners and fuses

Required Area Industry standard – 8 sq.m/kw May require up to 50% more

space for a given project size

Parameters to be considered when selecting Solar Modules

1. Cost

2. Solar panel quality

3. Tolerance

4. Temperature Co-efficient

5. Conversion Efficiency

6. Durability/Warranty

2 http://www.civicsolar.com/resource/thin-film-vs-crystalline-silicon-pv-modules

7. System Sizing

8. Certifications3

a. Off Grid – Crystalline Silicon Solar Panels: IEC 61215/IS14286; Thin Film Terrestrial Solar

Panels: IEC 61646

b. Grid Connected – Crystalline Silicon solar panels: IEC 61215 Edition II; Thin Film solar

panels: IEC 61646

3.1.2. Inverters

The purpose of solar inverters is to convert direct current into alternating current which can be

transferred to the power grid. Inverters are a very important component of a solar system and are

the only major components in a solar plant that get replaced during the lifetime of the plant. The

Inverters are broadly classified as below4

a. Micro inverters - Can also be called “module” inverters. These inverters are typically

attached directly to individual photovoltaic modules in order to extract the maximum power

from each module.

b. String Inverters - Are designed to be wired to a single series string of 8-15 solar modules.

c. Central Inverters - A type of string inverter used in large scale applications. They offer easier

installation and higher efficiency than smaller string inverters.

Inverters can further be classified as

a. Off Grid

b. Grid Tied

c. Hybrid

Hybrid and grid tied inverters are of greater interest to IPPs as off grid inverters are primarily used in

small scale and remote installations where the grid is not present. Hybrid inverters can automatically

manage between 2 or more different sources of power and are thus highly recommended for on-

premises plants (for IPPs using the BOO model).

Factors to be considered during inverter selection5

Safety

Utility grid-tied inverters shut off if they do not detect the presence of the utility grid. This safety

feature, known as anti-islanding protection, is governed by UL 1741 and IEEE 1547 standards since

1999 and is meant to stop electricity generated by the solar array from being fed into electrical lines

in the event of a power outage when the grid is being repaired.

Maximum Power Point Tracking (MPPT)

Maximum Power Point Tracking is an electronic system that manages the power output from the

3 http://www.sustainabilityoutlook.in/content/want-buy-solar-panel-%E2%80%93-key-things-be-

considered#sthash.KNjaujKX.dpuf

4 http://blog.syndicatedsolar.com/bid/52963/Different-Types-Of-Solar-Inverters

5 http://blog.syndicatedsolar.com/bid/52963/Different-Types-Of-Solar-Inverters

photovoltaic (PV) modules to the optimum intersection of voltage and current. This feature makes

the inverter the “brains” of any solar electric system.

Service/reliability

Redundancy is one of the key reasons string inverters and micro inverters are chosen over central

inverters. String inverters have the benefit of being standardized and are a readily available

commercial component. Additionally, spare inverters can also be kept in stock for quick

replacement.

There are many variables that can affect the efficiency of a solar energy inverter. With every

manufacturer developing inverters with different MPPT (Maximum Power Point Tracker) ranges,

enclosures, temperature variances, monitoring abilities, etc., it becomes critical to choose the right

kind of inverter for your plant to maximize your returns.

3.1.3. BOS – Mounting Structures, Cabling, Tracking Systems, and other costs

BOS primarily comprises of the cabling, labour costs, mounting structures, circuit breaker

assemblies, and tracking systems if they are being used. Use of tracking systems can further add to

the cost of the plant.

Figure 1: Cost breakup for solar6

As can be seen from the chart, the share of BOS as a part of the overall cost has increased over the

years. Thus reductions in BOS costs can hugely influence the overall economics of the plant.

Developers and EPCs can work towards reducing the BOS cost by optimising the design to reduce the

steel used in mounting structures, etc. More information on the BOS and how it can help reduce

costs can be found in the report by the Rocky Mountain Institute - http://www.rmi.org/SolarPVBOS.

6 http://www.re-solve.in/perspectives-and-insights/cerc-revises-capital-cost-of-solar-pv-projects-to-rs-8-

croresmw-for-fy-2013-14/

The use of trackers is dependent on the area where the plant is situated. Plants located nearer to the Equator, such as in Tamil Nadu, may benefit from single-axis but not dual-axis trackers while states further away from the equator, such as Rajasthan, may benefit from dual-axis trackers.

3.2. Wind Wind based systems convert wind energy into electricity. The wind rotates a turbine that is

connected to a generator shaft through a gear assembly. The generator produces electricity which is

then fed into the grid. Wind based systems can be classified as

a. Horizontal Axis Systems

b. Vertical Axis Systems

c. Gearless Wind Systems

Horizontal axis wind turbines dominate the wind industry. Horizontal axis means the rotating axis of

the wind turbine is horizontal, or parallel, to the ground. Large wind applications almost always

depend on horizontal axis based wind systems.

Horizontal axis systems can produce more electricity from a given amount of wind, and are preferred where energy from wind is to be maximised at all times. The disadvantage is that they are generally

heavier and do not generate energy effectively in turbulent wind.

In Vertical axis wind turbines the rotational axis of the turbine stands vertical, or perpendicular, to the ground. Vertical axis turbines are primarily used in small wind projects and residential applications. They are not widely used in the market today.

Another type of wind generation system available is the gearless wind turbine (often also called

direct drive) which eliminates the gear assembly. The rotor shaft is coupled directly to the generator shaft, which spins at the same speed as the blades.

Gearless wind turbines may require greater initial investment but pay for themselves through savings from reduction in operating expenses and maximisation of revenue from reduced

turbine downtime for maintenance due to fewer moving parts. They are especially suited for Off-shore wind applications, as the maintenance cost of geared turbines in offshore conditions is much higher.

There are also many technological innovations happening in wind energy. In a recent development,

GE Wind7 has developed systems8 with built in batteries that can store the equivalent of less than one minute of the energy generated by the turbine operating at full power. By pairing the battery

with advanced wind-forecasting algorithms, wind farm operators could guarantee a certain amount

7 http://www.madisoncty.com/Windfall%20Farms/WWF_Madison_SEP_Tab_06.pdf

8 http://www.technologyreview.com/news/514331/wind-turbines-battery-included-can-keep-power-supplies-

stable/

of power output for up to an hour by utilising the battery to cover variances from the expected output. Such systems can help accommodate and assist in fulfilling the forecasting and scheduling norms that have been introduced by the government9.

Parameters for selection of Wind Technology10

Listed below are the key parameters to be considered when selecting a technology and

manufacturer

1. Size

2. Availability

3. Reliability

4. Warranty

5. Service contracts

6. Proximity of Maintenance Teams

Figure 2: Top 10 Wind turbine Manufacturers 2012

3.3. Monitoring and Scheduling Solutions11 RE power plant owners are under constant pressure to ensure a predictable level of output from

their plants. In countries like India energy is abundant but without historical data it is difficult to

predict energy output of solar and wind power plants accurately. Additionally, the maintenance

issues associated with installations in remote locations make a compelling case for investing in good

monitoring and scheduling systems.

RE power plant owners and managers need a complete and comprehensive SCADA monitoring

solution to be able to

9 http://www.lexology.com/library/detail.aspx?g=60302cd4-40a4-44e5-9981-43c160128f06

10 http://www.windustry.org/community-wind/toolbox/chapter-15-turbine-selection-and-purchase

11 http://www.neosilica.com/solarplantmonitoring.php

Vestas 14%

GE Wind 16%

Siemens 9%

Enercon 8%

Suzlon 7%

Gamesha 6%

Goldwind 6%

United power 5%

Sinovel 3%

Mingyang 3%

Others 23%

Top 10 Wind Turbine Manufacturers - 2012 Source - Navigant Research

a. Know what is produced in real time

b. Have detailed analytics to understand if the power generated is as expected/designed

c. Know of any issues with field equipment and rectify through effective O&M

d. Predict the power generated with increased certainty

Additionally, a recent order released by CERC mandates forecasting wind power generation for 15 min intervals for the next day. This makes the role of SCADA based monitoring and forecasting systems even more important to the plant operation.

Some of the major suppliers of monitoring and forecasting systems are: ABB, AE Solar Energy, Also

Energy, Common-Link, DECK Monitoring, Draker, Enphase, ESA Renewables, Fronius, and GE Energy.

Solar energy systems need careful choice of technology in o Modules – Thin film or Crystalline technologies are chosen based on

site conditions and cost/financing constraints o Inverters – Hybrid and grid-tied inverters are preferred by IPPs.

String, micro, or central inverters are chosen based on design considerations

o Balance of Systems – Savings are achieved on individual components through design optimisation

Wind energy systems predominantly use horizontal axis turbines. Other technologies are yet to make significant impact in utility scale projects

o Monitoring and scheduling systems have gained importance with the recent CERC requirement of forecasting generation at 15-minute intervals

Take

away

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4. Business Model

There are many business models available for IPP investors who wish to invest in the Renewable

energy space. The business models differ based on the risks associated and the returns they

generate for the IPPs. In this chapter we will discuss some of the most commonly used business

models for IPPs.

Figure 3: Business Models for Renewable Power Projects

4.1. Sale to Utility In this model the IPP sells power to the utility through either of two mechanisms

4.1.1. APPC + REC (Average Pooled Power Cost + Renewable Energy

Certificates)

The power producer sells power to the DISCOM at the APPC price and in addition avails RECs. The

financial viability of the project is dependent on the APPC existent with the DISCOMs.

4.1.2. 4.2.2 PPA/FIT+GBI (Feed In Tariffs + Generation Based Incentives) This is a type of PPA (Power Purchase Agreement) model where the RE power generated by the

producer is directly supplied to the distribution utility at a preferential or feed in tariff over a

predefined period. The risk associated with this kind of a model is very low as the agreement is

typically signed for the entire lifetime of the plant and the tariffs are determined by the state.

However in recent times we have had instances of FITs being withdrawn in some countries like

Spain, Germany, etc., but FITs continue to be a widely accepted and low risk business model.

4.2. Sale to Private Consumers In this model the IPP sells RE power to private consumers. The IPP’s risk depends on the consumer’s

financial position. The sale is achieved through

4.2.1. PPA + REC (Power Purchase Agreement + Renewable Energy

Certificates) for non SPO consumers

Where the consumer is not under an SPO obligation the power producer signs a PPA with a third

party at an agreed tariff and in addition avails RECs. The third parties can be industries, commercial

premises, etc. The project can either be setup at the consumers’ premises or at any other location.

Open access needs to be availed if the plant is not on-premises and power needs to be transported

through the grid. The open access regime and details on 3rd party sale have been discussed in our

whitepaper “Green Power Procurement”.

4.2.2. PPA for SPO consumers

Where the consumer is under an SPO obligation the IPP can supply solar power under a PPA but

cannot avail RECs to the extent of power used to satisfy the obligation. However RECs are available

for any solar power supplied in excess of the SPO.

There are many variations within the above and there is room for innovating on the business

models.

4.3. A note on RECs (Renewable Energy Certificates) The REC mechanism depends on the Renewal Purchase Obligations (RPOs) of obligated entities, such

as utilities, to create a demand side “pull” to complement the supply side “push”.

Obligated entities that have to fulfil RPO quotas have four options

1. Avoid fulfilling their obligations, in which case they could be penalized.

2. Purchase renewable power from the market

3. Generate their own renewable power

4. Buy Renewable Energy Certificates (RECs) to meet their quota.

Renewable power plant owners who sell their power outside of preferential FITs to the grid or in

satisfaction of SPOs generate RECs. They can find an off-taker for their power under market

conditions and simultaneously generate RECs.

The REC mechanism comes with the risk of uncertainty of REC pricing. While there is a fixed REC

floor price of Rs. 9,300 per Solar REC (equivalent to 1 MWh), there is some uncertainty on the pricing

beyond 2017. EAI estimates that Solar REC prices will be similar to current prices of non Solar RECs –

a band of Rs. 1,500 to Rs. 3,900 per REC – between 2017 and 2022. The primary risk is the lack of

enforcement of RPOs.

An IPP can monetise their renewable power plant generation through sale of power either to utilities or private consumers

Sale to utilities can be through two models o APPC + REC o FIT + GBI

Sale to private consumers is through PPA + RECs except where solar power is supplied to satisfy SPOs where RECs are not granted

REC prices and demand are dependent on the enforcement of RPOs, whose risk should be evaluated by the IPP

Take

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5. Geographical Factors

We can classify the geographical factors of importance to IPPs into two categories

5.1. Regional Environmental Considerations The regional environmental considerations will include the solar irradiation levels and wind

landscape of the region.

5.1.1. Solar Irradiation Solar Irradiation is a measure of solar power and is defined as the rate at which solar energy falls onto a surface. Thus it is the amount of solar energy that is incident on a specific area at a specific time. Solar irradiation is expressed as "hourly irradiation" if recorded during an hour or "daily irradiation" if recorded during a day. It is generally expressed in watts per square meter (W/m2).

Figure 4 shows the solar irradiation map of India. Regions of Gujarat, Rajasthan, Tamil Nadu, Karnataka and Andhra Pradesh have very high irradiation levels. These places are naturally well suited for the installation of solar power systems.

Similarly, the north eastern region of the country is the least suited for generation of electricity from

solar Power systems.

Figure 4: Solar Irradiation Map of India12

Ladakh is a unique region where one can find the best parameters for efficiently exploiting solar energy. The region receives sunshine over an area of 86,900 sq. kms for about 320 days a year. The radiation level in Ladakh is 6-7 kWh/m2/day, which is the best in the country and one of the highest

12

http://www.ces.iisc.ernet.in/energy/paper/hotspots_solar_potential/results.htm

found in the entire world. The colder climate ideally suits PV modules as the problem of heat dissipation, which is a common problem that reduces efficiency, is avoided.

5.1.2. Wind Power Potential Wind Map of the country or the wind flow patterns form an important factor to be considered when

setting up wind farms. Regions with high wind speeds would be preferred for wind farm

installations.

In order to estimate the installable potential of the country, the KAMM (Karlsruhe Atmospheric

Mesoscale Model) generated meso scale wind power density map of 50 m level is integrated with

the wind power density map generated with actual measurements (where data is available) and re-

plotted on the final wind power density maps using GIS tool. Weightage is given for the

topographical features of the area. The potential could change based on the land availability in the

windy area of each state.

Table 2: India's Wind Power Potential - State wise

States/Union Territories Estimated potential (MW)

@ 50 m @ 80 m

Andaman & Nicobar 2 365

Andhra Pradesh 5,394 14,497

Arunachal Pradesh 201 236

Assam 53 112

Bihar - 144

Chhattisgarh 23 314

Daman and Diu - 4

Gujarat 10,609 35,071

Haryana - 93

Himachal Pradesh 20 64

Jharkhand - 91

Jammu & Kashmir 5,311 5,685

Karnataka 8,591 13,593

Kerala 790 837

Lakshadweep 16 16

Madhya Pradesh 920 2,931

Maharashtra 5,439 5,961

Manipur 7 56

Meghalaya 44 82

Nagaland 3 16

Orissa 910 1,384

Pondicherry - 120

Rajasthan 5,005 5,050

Sikkim 98 98

Tamil Nadu 5,374 14,152

Uttarakhand 161 534

Uttar Pradesh 137 1,260

West Bengal 22 22

Total 49,130 102,788

5.2. State Based Considerations The state based considerations mainly encompass the policy landscape and the demand profiles of

the state.

5.2.1.1. Policy Landscape – Solar

The Government of India launched the Jawaharlal Nehru National Solar Mission in 2009 with the

ambitious target of 20,000 MW of solar power by 2022, staggered over three phases.

Table 3: JNNSM Targets

Segment Target for Phase I

(2010-2013) Cumulative Target for Phase II (2013-2017)

Cumulative Target for Phase III (2017-2022)

Utility Grid Power Including Rooftop

1,100 MW 10,000 MW 20, 000 MW

Off Grid Solar Application

200 MW 1,000 MW 2, 000 MW

Solar (Thermal) Collectors

7 million m2 15 million m2 20 million m2

The JNNSM also targets 2,000 MW of off grid solar applications and 20 million m2 of solar thermal

capacity. The first phase of allotment was completed in time, and most solar PV installations have followed the implementation schedule.

However CSP projects under JNNSM have not seen much progress. Of the 470 MW allocated only 55 MW has been commissioned thus far due to many delays in implementation requiring extension of

project deadlines.

In addition to JNNSM, 9 states have also released their own solar policies. The details of the various

state level policies can be ascertained from the links given in the Appendix.

Another policy supporting the growth of solar is Renewable Purchase Obligations (RPOs). Solar RECs (Renewable Energy Certificates) were introduced in 2012 as a part of the RPO scheme. These provided an alternative business model for aspiring solar power plant developers. Thus far there have been 114 projects registered under the REC scheme adding a capacity of 717 MW. Issues with

the REC market have been covered in Chapter 4. These policies and initiatives make solar one of the most attractive segments for IPPs in India.

5.2.1.2. Policy Landscape – Wind

Today, wind is one of the largest suppliers of energy from renewables. Installed capacity stands at

19,050 MW as of July 2013. Wind industry has grown on the GBI (Generation Based Incentives) and

AD (Accelerated Depreciation) regime that has supported the additions. 3,000 MW of wind was

installed on the back of these incentives in 2011.

However in 2012 the government withdrew GBI and AD which reduced the investment in the sector.

2012 saw the addition of only around 1,700 MW. The government has reinstated the GBI regime in

2013 to support further additions.

Other policies or support initiatives that have supported the growth of the industry include13

1. Regulatory support in terms of feed in tariffs (FITs)

2. Tax holidays

3. Wheeling and Banking

4. No sales tax

5. No electricity tax

6. No excise duty on equipment

7. Renewable Purchase Obligations

The benefits available to wind vary considerably with states and not all states have all the above

mentioned support measures. For example, Rajasthan, Maharashtra, Andhra Pradesh, and Tamil

Nadu have no electricity duty and electricity tax for energy from wind to industries and commercial

units, whereas Gujarat has an electricity duty for supply to commercial segment whereas Karnataka

has electricity tax for both the industrial and commercial segment.

Table 4: Installed Capacity of Wind - State wise

States Installed Capacity (March 2012)

Tamil Nadu 7,134.0

Gujarat 3,114.0

Maharashtra 2,976.0

Rajasthan 2,355.0

Karnataka 2,216.0

Andhra Pradesh 470.0

Madhya Pradesh 386.0

Kerala 35.0

Others 3.2

From the above table we can infer that Tamil Nadu and Gujarat have been the foremost supporters

of wind in the country as these states have seen maximum additions in wind over the years. Tamil

Nadu alone contributes to nearly 35% of the total wind installed capacity in India.

5.2.2. Demand Profile of the State The demand profile of the state is another important factor that should be considered by IPPs before

deciding their investment destination. This is an important consideration because of the following

factors

States with greater domestic load will not be a good investment destination as there would

be fewer off takers for generated power

13

http://www.npti.in/Download/Renewable/POWERGEN%20PRSTN_Renewable%20April2012/Wind%20Powered%20India.pdf

Industrialized states are a better investment location as they would have a lot of industrial

load and thus also power deficit. Examples of industrial states would be Maharashtra and

Tamil Nadu

States with surplus power would also not be preferred for investment as local demand for

generated power would be low and interstate open access regulations and charges might

lower the returns from interstate sale

Solar irradiation levels determine which parts of the country are most suitable for solar power plants

o Gujarat, Rajasthan, Tamil Nadu, Karnataka and Andhra Pradesh are best suited for solar plants while the North Eastern region is least suited

A Wind Density map is a good indicator of regional potential for wind generation o States like Gujarat, Andhra Pradesh, Tamil Nadu, Rajasthan, and

Karnataka have good wind power potential o Wind potential is limited by the availability of sites in the windy areas of

each state Other factors to be considered include the policy landscape within the state (such

as state specific solar policies) and demand profile of the state (less industrialised states are less favourable for sale of power

Take

away

s

6. Customer Off-take

This chapter elaborates on the various customer categories that IPPs can focus on.

Figure 5: Customer offtake over time

Mandate Driven:

A corporate/business entity could be mandated to buy green power. For example, Open access and Captive consumers (of conventional power) are mandated to purchase a specified portion of their electricity from renewable energy sources (Renewable Purchase Obligations). This would mean that, at any cost, this business entity would have to procure green power. The enforcement of such obligations is crucial to driving customer offtake.

EAI research suggests that, if RPO obligations are enforced strictly, mandate driven projects might flourish over the next 2-3 years but fall after 2017 as there is no clarity on the REC prices beyond that period. Moreover the increasing grid power tariffs might reduce or even remove the need for such RPOs as renewable power will become cheaper than grid power and will not require such support mechanisms.

Operational Cost Reduction Driven:

The massive shortage of power in India has forced businesses to resort to the easiest backup available: diesel generators. With the costs of diesel continuously increasing, businesses would reap the twin benefits of energy security and cost reduction by adopting renewable energy sources.

Additionally, commercial consumers today pay some of the highest grid power tariffs followed by industrial consumers. The tariffs are high because of cross subsidizing of domestic and agricultural consumers. Thus, commercial consumer tariffs in some states are already on par with cost of generation from solar and wind. Therefore commercial consumers form a very attractive segment as the tariff of power generated from solar or wind might be much lower than what they have been paying to the utility.

Recent reports suggest wind has already attained grid parity in some states and solar will attain parity by 2015-16. The market will automatically adopt these technologies once they attain grid parity and even become cheaper than grid. Therefore market driven or operational cost reduction driven offtake would become significant by end of 2014.

Green Branding/CSR Driven:

A large number of consumers are demanding that the product they buy be produced sustainably. Consequently, some organizations have decided to make the switch to green power. This is true of many big corporates such as Nike and Nestle. Others adopt green power to fulfil their corporate social responsibilities.

Off-take driven by Green branding has existed for a while and will continue to exist in the short term driven by increasing awareness of the benefits of renewable power. EAI research suggests that this green branding driven demand will reduce as renewable energy achieves widespread adoption from grid parity reducing its contribution as a differentiator.

The focus group or the customers that are targeted would also play a role in deciding on the kind of power system to invest in. For example, Wind power is cheaper than the commercial tariff in Tamil Nadu, but solar power continues to be more expensive.

IPPs can choose from 3 kinds of consumers to focus on o Mandate driven o Cost reduction driven o Green branding/CSR

The demand from mandate driven customers depends on the enforcement of mandated obligations

IPPs who wish to target cost reduction driven customers should consider the customer’s current tariff with the cost of generating power from different renewable sources before deciding to invest in a power source

Both mandate driven and green branding driven demand will reduce once grid parity is achieved leaving operation cost reduction to drive demand in the long term

Take

away

s

7. Time

Time is a very important dimension when it comes to the decision making process. It can significantly

alter project risk with respect to the other major dimensions discussed earlier in this whitepaper.

In terms of technology, with time better technologies may develop or destructive innovation can

completely wipe out an industry.

In terms of policies, with time we have seen many countries scale down their policy support.

Long-term PPAs may mitigate some risks from the passage of time but PPAs can and are broken,

depending on the terms that have been signed.

Table 4: Time Risk Matrix

Dimension Short Term Medium Term Long Term

Technology 1. Advancements in

Solar inverter and

module

technology might

give rise to higher

efficiencies

2. Gearless wind

turbines might

gain widespread

acceptance

because of their

lower costs

Disruptive

innovation might

give rise to new

technologies that

completely eliminate

the market for solar

and wind

Business Models Enforcement of RPOs can

make REC based business

models more profitable

Grid parity could

make renewable

energy revenue

models similar to the

models for

conventional power,

without preferential

FITs or GBIs

Mandate based

business models like

the RPO linked

mechanisms might

cease to exist

Geographical Factors Existing regional policies

may be withdrawn and

newer, more attractive

policies may be

Development or

decline in the

industrial base might

alter the demand

Improvements in

technology could

make more regions

attractive for

introduced in other

regions

profile of the region renewable power

generation

8. Conclusion

An IPP’s investment in a renewable energy power plant is dependent on the following critical factors

a. Finding the right technology

b. Identifying the right business model

c. Geography to invest in

d. Time based risk

Today solar and wind seem to be the most lucrative technologies to invest in. Different business

models suit different categories of customers; similarly, some geographies favour certain business

models. All the factors that have been discussed in this whitepaper are inter-related to varying

levels.

An IPP wishing to invest in renewable energy in Tamil Nadu should

Assess demand by considering the level of industrialisation of the state and its power deficit

Ascertain the potential for different sources of renewable energy

Examine favourable policies for the different sources of renewable power, and assess risk of

change in policies

Compile the utility tariffs and renewable obligations, if any, for different consumers

Evaluate the revenue potential from different business models by comparing APPC, FITs GBI,

etc. including innovations within these models

Identify location specific technology requirements such as corrosion resistance for plants

near the coast

The favourable intersection of all the above factors would indicate the optimum solution to be

pursued by the IPP.

Policies and technologies both change with time and present a risk to the IPP Renewable energy achieving grid parity could require reworking of business

models as the consumer’s motivation changes Long term PPAs help mitigate some of the risk depending on the penal

provisions for breaking of PPAs

Take

away

s

A critical understanding of each factor and an in-depth understanding of the market is vital to

framing IPP strategy. EAI assists RE power producers maximise the returns from their investment by

providing critical business intelligence and exert market analysis to identify the optimal intersection

of these factors.

9. About EAI

EAI is a boutique research and consulting firm in renewable energy technologies. Our expertise

ranges from Solar PV and Wind Energy to Algae fuels and Jatropha biodiesel. Our work has been

sought after by some of the largest corporate and multilateral organizations in the world such as The

Bill and Melinda Gates Foundation, Reliance Industries, World Bank, PepsiCo, iPLON, Vedanta Group,

Accenture, Boston Consulting Group, and more.

Our range of services include –

Developer/IPP Assistance

Assisting Industrial consumers go green

Diversification into/within renewable energy

Market entry for international firms

Research and Publications

Renewable energy catalysis

To hear more on how we can help your organization procure power, write to us at consult@eai.in.

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Appendix – Links to State wise Solar policies

States Link for details

Gujarat http://geda.gujarat.gov.in/policy_files/Solar%20Power%20policy%202009.pdf

Rajasthan http://mnre.gov.in/file-

manager/UserFiles/guidelines_sbd_tariff_gridconnected_res/Rajasthan%20Solar%20Po

licy%202011.pdf

Maharashtra http://www.mercindia.org.in/pdf/Order%2058%2042/Final_MERC_RE_Tariff_Regulati

on_2010.pdf

Madhya Pradesh

http://mprenewable.nic.in/mp_solr_drft_poli.pdf

Andhra Pradesh

http://mnre.gov.in/file-

manager/UserFiles/guidelines_sbd_tariff_gridconnected_res/Andhra%20Pradesh%20So

lar%20Policy%202012.pdf

Karnataka http://mnre.gov.in/file-

manager/UserFiles/guidelines_sbd_tariff_gridconnected_res/Karnataka%20Solar%20Po

licy%202011-16.pdf

Haryana http://www.hareda.gov.in/?model=pages&nid=90

Tamil Nadu http://www.teda.in/pdf/tamilnadu_solar_energy_policy_2012.pdf

Uttar

Pradesh http://udyogbandhu.com/DataFiles/CMS/file/Solar_Power_Policy_UP_2013.pdf