BRIDGE To INDIA - The REC Mechanism - Viability of Solar Projects in India

The REC Viability of Mechanism
solar projects in India

Viability of solar projects in India
The REC Mechanism
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Enerparc is an internationally successful specialist in the whole value chain of large-scale photovoltaic power plants in the megawatt segment. The company was founded beginning 2009 and has offices in Germany, United States and India. As pioneers of this industry, the Enerparc team is specialized in project development, installation as well as in the investment and operation of solar power plants. The service ranges from the technical planning (EPCm) to the turn-key delivery (EPC) and finally to the operation (O&M) of the power plant. In the last 24 months the Enerparc Group successfully connected more than 700 MW to the grid and it operates 300MW of own PV power plants. Telephone: +91 011 4060 1442 Fax: +91 011 4060 1235 Email: info@enerparc.com www.enerparc.com
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Canadian Solar, one of the largest solar module manufacturers in the world, was founded in Canada in 2001 and successfully listed on NASDAQ Exchange (symbol: CSIQ) in 2006. To date, Canadian Solar has successfully established seven wholly-owned manufacturing subsidiaries in China, with a module capacity of 2.05 GW in 2011. In the last 10 years, Canadian Solar has deployed over 3.5 GW of solar modules in over 50 countries. Canadian Solar is headquartered in Ontario, Canada, with subsidiaries in USA, Germany, Spain, Italy, Japan, Korea, Australia, Singapore, HongKong and China. Telephone: +1 519 837 1881 Email: inquire@canadiansolar.com vinay.shetty@canadiansolar.com www.canadiansolar.com
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BRIDGE TO INDIA, 2012
Established in 1982 in Bad Staffelstein, Germany, IBC SOLAR is one of the worlds leading photovoltaic systems integrator. Globally, IBC SOLAR has already implemented more than 120,000 ready-to-use photovoltaic installations with a total power of more than 2GWp. Its scope of services ranges from large scale power plants solutions upto to smaller on- and off-grid systems. Complete engineering services, delivery of all key components and following construction (EPC) of turnkey power plants is regarded as its core competencies. Furthermore, IBC SOLAR is developing and constructing own large scale installations in selected markets. Key components used are manufactured under an OEM regime with IBC branding and quality commitment. In addition, comprehensive consultancy services as well as operation and maintenance of the installations are key services. Since 2008, IBC SOLAR has constructed several multi megawatt power plants under the NSM Policies for leading Indian multinational enterprises such as the Videocon and Aditya Birla Group. Telephone: +49 95 73 92 24 0 Fax: +49 95 73 92 24 111 Email: jan-marc.raitz@ibc-solar.com www.ibc-solar.com
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CONTENTS
1. Overview 2. The Renewable Energy Certicate (REC) Mechanism

2.1. Background 2.2. Solar RECs 2.3. Lessons from the non-solar REC market 2.4. Procedures and timelines
01
02
02 02 03 06 09
3. Is the solar RECs market viable? 4. Solar REC business models

4.1. Business Model 1: APPC + REC 4.2. Business Model 2: RESCO + REC 4.3. Business Model 3: Captive + REC
12 12 13 15 17
5. Regulations under discussion 6. Conclusions and recommendations 7. Annexure

7.1. State-wise RPO Quotas (2012-2013) 7.2. Status of non-solar RPO compliance across different states (2012-2013) 7.3. Glossary of terms
18
19 19 19 20 21
8. Guest Article
Setting up large scale PV: Lessons from new markets by Mr. Santosh KM, Managing Director, ENERPARC India
9. Interviews
Mr. Stefan Mueller, COO, Enerparc Mr. Vinay Shetty, Country Manager Indian Subcontinent, Canadian Solar
24 24 26
Mr. Jens Burgtorf, CSO, Director, Indo-German Energy Program, 28 GIZ Mr. Jan Marc-Raitz, Director, Commercial Department, PV Projects, IBC Solar 30
List of Figures
Figure 2-1
RPO requirements of selected states in India
02 02 03 03 04 04 05 06 06 08 08 08 09 10 11 11 11 12 12 13 14 14 16 16
Figure 2-2-1 Floor and forbearance prices Figure 2-2-2 Projects registered under the REC mechanism Figure 2-3-1 Registered REC projects by renewable energy resource Figure 2-3-2 Historical non-solar REC demand by consumer category Figure 2-3-3 History of demand-supply of non-solar RECs Figure 2-3-4 Historical price discovery of non-solar REC prices Figure 2-4-1 Process for the issuance of solar RECs Figure 2-4-2 Solar REC eligibility Figure 2-4-3 Details of the accreditation fees payable to the SLDC Figure 2-4-4 Details of the registration fees payable to the NLDC Figure 2-4-5 Details of the issuance fees payable to the NLDC Figure 3-1 Figure 3-2 Figure 3-3 Figure 3-4 Figure 3-5 Expected solar PV capacity based on the REC mechanism Derivation of expected solar PV capacity based on the REC mechanism (year-on-year) India solar and grid price projections Assumptions for the projection of solar and grid prices Solar REC price projections
Figure 4-1-1 State-wise APPC prices (2012) Figure 4-1-2 Assumptions for determining EIRR APPC + REC Figure 4-1-3 Financial viability of APPC+REC projects Figure 4-2-1 Assumptions for determining EIRR RESCO + REC Figure 4-2-2 Financial viability of RESCO+REC projects Figure 4-3-1 Assumptions for determining EIRR Captive + REC Figure 4-3-2 Financial viability of Captive + REC projects
1. Overview
Indian solar policies initially focussed on supply side measures.
The Indian government has decided to incentivize the installation of solar PV in order to increase the energy supply of India, provide more energy security, offer de-central power solutions and create a future industry. The policy initially focused on supply side measures. It started with capital subsidies. Then, with the National Solar Mission (NSM) and the Gujarat solar policy, solar PV was supported through preferential feed-in-tariffs (FiTs). Now, solar Renewable Purchase Obligations (RPOs) for utilities as well as direct power customers (through Open Access) and large captive power consumers are supposed to create a demand side pull to complement the supply side push. So-called obligated entities, who have to fulfill RPO quotas have four options. They can avoid fulfilling their obligations, in which case they could be penalized. Alternatively, they can purchase solar power from the market or generate their own solar power. The fourth option is to buy Renewable Energy Certificates (RECs) to meet the quota. Solar plant owners, who sell their power outside of preferential FiTs
to the grid, generate these certificates. This offers a new type of project to solar project developers. They can find an off-take 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 `9,300 (143)* per REC (equivalent to 1MWh), there is some uncertainty on the pricing post 2017. BRIDGE TO INDIA estimates that REC prices will be in the band of `2,200 (34) per REC to `4,000 (62) per REC between 2017 and 2022. The most significant risk, is of the lack of enforcement of RPOs. This is allayed to a certain extent from the market data for non-solar RECs. Judging by the performance of the non-solar REC market and indications from the regulatory bodies, BRIDGE TO INDIA predicts that there will be a strong move by states to fulfill their RPOs.
Now, solar RPOs are supposed to create a demand side pull.
* All values are at 1 = `65 (long-term average rate)
01 1
2. The Renewable 2.1 Background 2.2 Solar RECs Energy RECs are a market mechanism to In line with RPOs, there are two categories of RECs solar and nonCertificate facilitate the compliance of RPOs. RPOs are enforced on three categories solar. Solar RECs include both PV and Mechanism of power consumers distribution CSP technologies. Non-solar RECs
Every MWh of solar energy produced generates one REC.
licensees, Open Access consumers and captive consumers. The obligations are driven by the National Action Plan on Climate Change (NAPCC) that aims at 15% renewable energy in the overall energy mix of India by 20201. There are two categories of RPOs solar and non-solar. States in India are free to set their own RPOs in line with the recommendations from their State Electricity Regulatory Commissions (SERCs). The table below lists the major states with solar-RPO quotas2. include a basket of renewable energy technologies such as wind, biomass, biofuel cogeneration and smallhydro. RECs are traded on the Indian Energy Exchange (IEX) and the Power Exchange of India Ltd. (PXIL). The IEX currently has a leading market share of 91%. 1 REC = 1MWh Every MWh of solar energy produced generates one REC. Solar RECs are traded once, on the last Wednesday of every month. The trade price is discovered based on their demand and supply. In addition, and in order to provide a minimum of certainty on REC prices, the Central Electricity Regulatory Commission (CERC) has fixed a floor and forbearance price for the period 2012 to 2017 between which the RECs can be traded.
Figure 2-1: RPO requirements of selected states in India

State Andhra Pradesh Gujarat Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Punjab Tamil Nadu Uttar Pradesh Uttarakhand Solar RPO (2012-2013) 0.25% 1.00% 0.50% 0.25% 0.25% 0.25% 0.60% 0.25% 0.07% 0.05% 1.00% 0.25%
RECs are traded on the Indian Energy Exchange (IEX) and the Power Exchange of India Ltd. (PXIL).
Figure 2-2-1: Floor and forbearance prices3

Floor Price Forbearance Price `9,300 (155) `13,400 (223)
Source: BRIDGE TO INDIA
Renewable energy resources are distributed differently across each state in India. The RECs are aimed at addressing this mismatch between the availability of renewable energy resources in states and their RPO requirements. Obligated entities have the option of purchasing RECs to fulfil their RPOs.
Although the REC market was established on February 2011, the solar REC market has been largely inactive. The first trading of solar RECs was in the session of May 2012. The demand for solar RECs was 1,637, far greater than a total of 149 available on the supply side.
Government of India, The Prime Ministers Council on Climate Change, National Action Plan on Climate Change State Electricity Regulatory Commission Orders. For a complete list, see Annexure 1 3 REC Registry
1 2
02 2
The lack of activity on the solar REC market can be attributed to the lack of solar REC projects supplying the certificates.
None the less, there were only five RECs traded at a price of `13,000 (200), indicating that the selling price bid was far too high. The lack of activity on the solar REC market can be attributed to the lack of solar REC projects supplying the certificates. Indias first solar REC project to start trading is a 2MW project in Madhya Pradesh developed by M&B Switchgears Limited. Going ahead, the supply of solar RECs is likely to be bolstered by six additional projects that are currently registered.
2.3 Lessons from the non-solar REC market

While the solar REC market has just taken off, the non-solar REC market has been active since May 2011. On the supply side, the non-solar REC market is primarily driven by wind energy projects (50% at 1,332MW), followed by bio-fuel cogeneration (23% at 622.5MW) and biomass (20% at 542MW)7 .
Figure 2-2-2: Projects registered under the REC Mechanism (August 2012)4
Project Jaibalaji Business Corporation Pvt.Ltd. Omega Renk Bearings Pvt.Ltd. M/S Gupta Sons Jain Irrigation Systems Ltd. Kanoria Chemical & Industries Ltd. Numeric Power Systems Ltd. M&B Switchgears Ltd.
State Maharashtra Madhya Pradesh Madhya Pradesh Maharashtra Rajasthan Tamil Nadu Madhya Pradesh
Capacity (MW) 1.0 0.15 0.5 8.5 5.0 1.16 2.0

BRIDGE TO INDIA, 2012 03 3
While the solar REC market has just taken off, the non-solar REC market has been active since May 2011.
Figure 2-3-1: Registered REC projects by renewable energy resource8

1% 23% Wind Small Hydro 50% Biomass Bio-fuel Cogeneration Solar PV 20% 6%
REC Registry 105 KW 6 The REC Registry lists this project as 1.055MW 7 REC Registry 8 REC Registry
4 5
The months of June and July saw demand falling below supply for the first time.
On the demand side, distribution companies (DISCOMs) contributed to nearly 76% of the demand for the financial year 2011-2012 followed by captive power producers at 13% and open access consumers at 11%9. The maximum demand for non-solar RECs occurred towards the end of the financial year between the months of January and March 2012. This suggests that there would be a rush to fulfill the RPOs at the year-end to prevent being penalized. The penalty equals the forbearance price for
solar or non-solar RECs. DISCOMs, driving the demand for RECs currently, are uncertain with regards to the enforcement of the RPOs by their SERCs. Compliance is mandated annually and DISCOMs prefer to weigh their options until the very end of the year. As a result, there is a yearend spike in the demand for RECs by DISCOMs looking to make a rush to fulfill their RPOs. The months of June and July saw demand falling below supply for the first time with relatively lower demand from the DISCOMs early in the financial year.
Figure 2-3-2: Historical non-solar REC demand by consumer category10

250,000
200,000 TOTAL DEMAND
150,000 Mar-12 BRIDGE TO INDIA, 2012 Captive Power Prod ucer Open Access DISCOM
The maximum demand for non-solar RECs occurred towards the end of the financial year between the months of January and March 2012.
100,000
50,000
0 Nov-11 May-11 Dec-11 Sep-11 Jun-11 Jul-11 Aug-11 Feb-12 Oct-11 Jan-12 Apr-11 600,000 NUMBER OF RECs 500,000 400,000 300,000 200,000 100,000 Nov-11 Oct-11 Aug-11 Dec-11 Sep-11 May-11 Jun-11 Mar-11 Jan-12 Jul-11 Apr-11 Feb-11
Figure 2-3-3: History of demand-supply of non-solar RECs11
Demand Supp ly
May-12
Mar-12
Indian Energy Exchange Indian Energy Exchange 11 Indian Energy Exchange

9 10
Jul-12 Aug-12
Feb-12
Apr-12
Jun-12
A negligible portion of the obligated entities are currently fulfilling their RPOs.
While strong demand in the initial stages of the market is encouraging, some concerns remain. An analysis of the RPO compliance through the purchase of RECs indicates that only 2.49% of the required non-solar RPO is being met (See Annexure 7.2)12 . This indicates that a negligible portion of the obligated entities are currently fulfilling their RPOs. It remains to be seen if this trend continues into the future. Moreover, the urgency to fulfill their RPOs is least at the beginning of the financial year. Non-solar RECs demand fell sharply by 24% by the beginning of the current financial year leading to a consequent fall in prices. For project developers, this leads to a significant cash-flow problem. The CERC is looking to amend the RPO regulations to make the RPO fulfillment mandatory on a quarterly basis rather than annual.
the financial attractiveness of REC projects, one can expect the solar REC market to gain momentum in the next six to nine months. There is a likelihood that DISCOMs will purchase solar power or rely on their corresponding generation arms to meet their solar RPOs. Purchasing solar power will ensure that RPOs are met and more importantly that the DISCOMs receive much needed power. Tata Power and MAHAGENCO in Maharashtra have already shown an indication to put up their own power plants to help meet their corresponding DISCOMs RPOs. However, most states might not have adequate solar resource to incentivize power producers to set up solar projects. Further, setting up solar capacity requires considerable policy support from state governments that is
Figure 2-3-4: Historical price discovery of non-solar REC prices13

4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Feb-11 May-11A ug-11 Nov-11F
The lack of supply in the REC market is likely to correct itself with the registration of Indias first solar REC project.
Price Floor Price Forbearance Price
eb-12 May-12 Aug-12
Judging by the performance of the non-solar REC market, one can draw parallels to the solar REC market. On the demand side, there is an indication of a possible push to fulfill the RPOs from all the three categories of obligated entities. The supply, which has hitherto been the bottleneck, is likely to correct itself with the registration of Indias first solar REC project. Six other projects are registered and are likely to start active trading in the next 6-9 months. In addition to these factors and
currently lacking in many states. Many DISCOMs would have to rely on the RECs to meet their RPOs. Captive and open access consumers are relatively smaller players with little or no experience in solar power generation. They would have liquidity concerns since investing in solar plants would mean directing liquidity away from their core businesses. They too would prefer buying RECs.
12 There is insufficient data from the solar REC market to draw conclusion on solar RPO compliance. However parallels can be drawn 13 Indian Energy Exchange
05 5
2.4 Procedures and timelines

The process of registering a project under the REC scheme is divided into two distinct phases accreditation and registration. The entire process consists of four steps which can (almost completely) be undertaken online. The process of accreditation and registration takes a minimum of 45 days. The issuance of RECs is a recurring activity which takes a maximum of 15 days from the date of application.
Step 1: Fulfill Prerequisites

There are three categories of projects that are eligible for RECs: 1. Projects for captive consumption (self-use) 2. Projects for third party sale (RESCO) 3. Projects with a Power Purchase Agreement (PPA) with a DISCOM
Figure 2-4-1: Process of issuance of solar RECs

FULFILL PREREQUISITES ACCREDITATION (SLDC) REGISTRATION (NLDC)
day
30 days
45 days
Figure 2-4-2: Solar REC eligibility

06 6
to commissioning. The accreditation is valid for five years after which the project must reapply. The process typically takes 30 days from the date 1. The project does NOT have any power purchase agreement to sell of application provided all documents the electricity at a preferential tariff are in the correct order. The project or FiT. For example, projects under receives a certificate of accreditation. solar policies, such as the National Solar Mission (NSM) or the Gujarat Step 3: Registration Solar Policy. In order for any of the three categories of projects to be eligible, the following pre-requisites must be fulfilled:
The NLDC has not fixed the minimum size for REC projects. It has allowed the state nodal agencies to decide on this.
2. The project sells the electricity generated to either: a. The distribution licensee of that area at a price NOT greater than the average pooled cost of power (APPC) of such a distribution license. b. To any other licensee, an open access consumer or any other consumer at a mutually agreed price or through a power exchange
with the National Load Dispatch Centre
After successful accreditation, the project must be registered under the National Load Dispatch Center (NLDC). Projects cannot apply for registration prior to three months from the date of commissioning. The certificate of registration is valid for five years from the date of registration.
The NLDC is responsible for the issuance of RECs.
3. The project must be grid connected (in order to facilitate independent The NLDC is responsible for the metering) issuance of RECs. Projects must apply The NLDC has not fixed the for the issuance within three months of minimum size for REC projects. generation of the power. Applications It has allowed the state nodal for issuance can be made fortnightly agencies to decide on this. Only i.e. the 1st and 15th of every month. The Maharashtra, Orissa and Jammu RECs must be sold within one year and Kashmir have set the minimum from the date of issuance, failing which size as 250kW. All other states do the RECs will lapse. not specify a minimum size for REC projects (for a full list please visit the BRIDGE TO INDIA blog).
Step 3: Issuance of RECs
Step 2: Accreditation with a State Load Dispatch Center

Application for accreditation must be submitted to the State Load Dispatch Center (SLDC). Every state has a designated SLDC which is responsible for scheduling the demand and supply of power in that state. Projects cannot apply earlier than six months prior
07 7
FEES AND CHARGES

Figure 2-4-3: Details of the accreditation fees payable to the SLDC
One-time accreditation charge (paid to state agency) Annual charge (to be paid by April 10 )
th
`30,000 (462) `10,000 (154) `15,000 (231) 12.36%
Revalidation/Extension (end of 5 years) Taxes and duties

Figure 2-4-4: Details of the registration fees payable to the NLDC

One time registration fees One time application processing fee Annual charge (to be paid by 1st April) Revalidation/Extension fees (End of 5 years) Taxes and duties
`5,000 (77) `1,000 (15) `1,000 (15) `5,000 (77) 12.36%
Figure 2-4-5: Details of the issuance fees payable to the NLDC

Application for issuance Taxes and duties extra
`10 per REC (0.15) 12.36%

BRIDGE TO INDIA, 2012 08 8
One-time application processing fee (paid to state agency) `5,000 (77)
3. Is the solar REC market viable?
The viability of the REC market is linked to three crucial factors: demand, supply and the price visibility for solar RECs. The demand for solar RECs is driven by the enforcement of RPOs on the obligated entities. Although official data on RPO compliance is yet to be released, the performance of the nonsolar REC market shows that demand is robust but limited. A few DISCOMs, for example those in the state of Punjab, have not met their RPOs for the financial year 2011-12. The Punjab Electricity Regulatory Commission (PERC) allowed the Punjab State Power Corporation Ltd to carry over the obligations to the Financial Year 2012-13 (April to March)14 . The enforcement of RPOs remains the weak link in the REC mechanism. The
CERC has allayed concerns to suggest that RPOs will be enforced strictly. The RPOs stem from the NAPCCs target of generating 15% renewables in the overall energy mix by 2020. There is an ongoing effort by the CERC through the Forum of Regulators (FoR) to convince SERCs to comply with the regulation. BRIDGE TO INDIAs analysis indicates that the total capacity of REC projects would be 868MW by 2016. It is assumed that only 25% of the RPO requirements will be fulfilled through the REC mechanism. The remaining 75% is assumed to be fulfilled by obligated entities through the direct purchase of solar power. This projection is based on the total solar RPO requirement of each state and a probability factor that obligated entities will achieve their RPO.
The enforcement of RPOs remains the weak link in the REC mechanism.
Figure 3-1: Expected solar PV capacity based on the REC mechanism (year-on-year)15
350 337
EXPECTED DEMAND (MW)
150 100 50 0 27
110
2012 Source: BRIDGE TO INDIA
2013
2014
2015
2016
The Hindu - Punjab ERC allows state DISCOM to carry forward renewable purchase obligations. Dated 17th May 2012. 15 Source: BRIDGE TO INDIA analysis
14
BRIDGE TO INDIA's analysis indicates that the total capacity of REC projects would be 868MW by 2016.
300 250 200 173 220
09 9
Figure 3-2: Derivation of expected solar PV capacity based on the REC Mechanism (year-on-year)16
Year I. Total solar RPO requirement II. Solar RPO fulfilled through policies17 III. Remaining solar RPO requirement (I-II) IV. Solar RPO fulfilled through the direct purchase of solar power V. Remaining solar RPO requirement (III-IV) Probability Factor 18 Expected/required solar REC projects
2012 2,027 928 1,099 824
2013 2,985 1,728 1,257 943
2014 3,944 2,558 1,386 1,040
2015 4,788 3,533 1,255 941
2016 5,964 4,543 1,421 1,066

BRIDGE TO INDIA, 2012 10
275 10% 27
314 35% 110
346 50% 173
314 70% 220
355 95% 337
BRIDGE TO INDIA expects that the total number of RECs traded is likely to touch 480m by the year 2016.
BRIDGE TO INDIA expects that the total number of solar RECs traded is likely to touch 480m by the year 2016 based on the aforesaid assumptions. On the supply side, the solar REC market has recently commenced trading and not enough data is available to draw conjecture. With seven solar REC projects already being registered, the supply issue should correct itself in the next six to nine months. The financial viability of REC projects strongly hinges on the REC prices over the lifetime of the project. The CERC has provided some visibility on the REC prices by fixing the floor and forbearance price between 2012 and 2017. While this instils some confidence, investors and banks are still cautious.
REC prices post 2017 until the current control period (2012-2017) comes to an end. In such a case, projecting REC prices becomes very important in order to estimate the financial viability of solar REC projects. The REC price band is determined by CERC through the following formula: Floor price = LCOE of solar energy (at 0% ROE) minimum APPC Forbearance price = LCOE of solar energy (at 16% ROE) minimum APPC The floor price is calculated based on the difference between the cost of generating solar energy at 0% Return on Equity (RoE) and the state with the least APPC. The forbearance price is calculated based on the difference between the cost of generating solar energy at 16% ROE and the state with the lowest APPC. In order to project REC prices post 2017, APPC and solar LCOE prices have been projected. BRIDGE TO INDIAs analysis shows that grid parity is likely to be achieved by 2022 across all the states in India.
The CERC is unlikely to announce solar REC prices post 2017 until the current control period (2012-2017) comes to an end.
REC prices (2017-2022)

Although the REC price range has been fixed until 2017 by the CERC, there is considerable concern over REC price visibility post 2017. The CERC is unlikely to announce solar
16 17
Source: BRIDGE TO INDIA analysis Through the state policies and the National Solar Mission. 18 It is assumed that only 10% of the obligated entities will fulfill their RPO in 2012 which will slowly ramp up to 95% by 2016. BRIDGE TO INDIA, 2012
Figure 3-3: India solar and grid price projections15

10.00 9.00 8.00 7.00 INR/kWh 6.00 5.00 4.00 3.00 2.00 1.00
Source: BRIDGE TO INDIA 0.00 2010 2012 2014 2016
APPC Tariff LCOE of solar
2018
2020
2022
2024
The state of Kerala will be the last state to achieve grid parity in 2022 based on the current APPC price of `1.9 (0.02)/kWh.
States like Tamil Nadu will see grid parity being achieved much earlier, around 2017 due to higher APPC prices of `3.38 (0.05)/kWh20. The state of Kerala will be the last state to achieve grid parity in 2022 based on the current APPC price of `1.9 (0.02)/ kWh. Since the floor and forbearance price is based on the state with the lowest APPC, the REC prices are likely to be defined by the CERC until 2022. BRIDGE TO INDIAs REC pricing model shows that projected REC floor and forbearance prices for the control period 2017-2022 are:
Figure 3-4: Assumptions for the projection of solar and grid prices
Assumptions Annual APPC escalation CERC solar tariff (`/kWh)22 CERC CAPEX consideration (2012) (`m per MW) 5.00%21 15.39 100
CAPEX falls by 40% (2012 2015) CAPEX falls further by 30% (20152020)23
Figure 3-5: Solar REC price projections24

(2012-2017) Floor `9,300 ( 155) Forbearance Floor `13,400 (223) `2,200 (34) (2017-2022) Forbearance `4,000 (62) Floor 0 (2022- ) Forbearance 0
Given the projection for solar REC prices, the financial viability of REC projects can be modelled over the lifetime of the project. The financial viability for different business models under the REC mechanism is explored in the next section.
Source: BRIDGE TO INDIA analysis CERC. Petition number 142/2011. Determination of forbearance and floor price for REC framework. 21 Average annual increase in APPC prices across India between the years 2001 2011. 22 Terms and Conditions for CERC, Tariff determination from Renewable Energy Sources Regulations, 2012. Published 06.02.2012. 23 McKinsey: Solar Power - Darkest Before Dawn; 2012 24 Source: BRIDGE TO INDIA analysis
19 20
11
4. REC business 4.1 Business models Model 1: APPC+REC

In this model, the project sells power to the DISCOM at the APPC and in addition avails RECs. The viability of such projects is strongly linked to the APPC in the state in which such a project is being considered. The APPC (2012) across major states is listed below.
Figure 4-1-2: Assumptions for determining EIRR APPC + REC

Assumptions Annual APPC escalation REC prices 2012-2017 2017-2022 2022-2027 CAPEX (per MW)26 CUF `9,300 (155) `2,200 (223) `0 (grid parity achieved by 2022) `88m (1.3m) 5.00%
This model is viable for the state of Tamil Nadu for a financial investor looking for a minimum of 15% EIRR.
Figure 4-1-1: State-wise APPC prices (2012)25

State Kerala Madhya Pradesh Himachal Pradesh Uttarakhand West Bengal Andhra Pradesh Rajasthan Maharashtra Uttar Pradesh Karnataka Punjab Haryana Gujarat Tamil Nadu APPC (`/kWh) 1.99 2.09 2.23 2.34 2.43 2.50 2.60 2.62 2.62 2.66 2.71 2.77 2.98
Debt interest rate 6.00%27 18.00%

The APPC escalation is in line with the average escalation of APPC prices across different states in India. The CAPEX is based on current price trends in the market and is conservative, leaving much room for discount. Debt interest rates are indicative of the financing options that can be availed from international banks that provide export finance. An average Capacity Utilization Factor (CUF) of 18% is considered, which is again conservative and lower than the national average CUF considered by CERC (19%)28 .
BRIDGE TO INDIAs analysis shows that this model is viable for the state of Tamil Nadu for a financial investor In order to arrive at the Equity IRR (EIRR), the following assumptions have looking for a minimum of 15% EIRR. Other states such as Gujarat, Haryana, been considered. Punjab, Karnataka, Uttar Pradesh, Rajasthan, Maharashtra and Andhra Pradesh are all attractive to investors who are looking at solar energy strategically (EIRR expectation of 8 to 15%). This model proves unattractive in the states of Kerala, Madhya Pradesh, Himachal Pradesh, Uttarakhand and West Bengal (EIRR of less than 8%). For a detailed viability analysis and project report contact BRIDGE TO INDIA.
CERC. Order on floor and forbearance price. 2012 CAPEX prices as of July 2012 27 Considering un-hedged loan from a foreign bank. 28 CERC. Tariff Order for Renewable Energy. 2011
25 26
3.38
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Figure 4-1-3: Financial viability of APPC+REC projects29

3.50 3.00 APPC (INR/KWh) 2.50 2.00 1.50 1.00 0.50
Source: BRIDGE TO INDIA 0.00 2.0% 4.0% 6.0%
KL HP UK WB AP KA PB MH UP HR GJ TN
MP
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Equity IRR (%)
One of the key advantages of this business model is the scale of projects.
Upsides - From a regulatory point-ofview, this business model is relatively easier when compared to the other business models. In general, most DISCOMs are faced with a genuine shortage of power and would be willing to purchase solar power at APPC. This is much lower than the price of solar power under the NSM and various state policies. One of the key advantages of this business model is the scale of projects. Individual project sizes can be very large (5MW and above), which can bring significant cost advantages. BRIDGE TO INDIA believes that this business model will be popular with developers who have considerable leverage with the DISCOMs. This is critical in order to secure a long-term PPA with the DISCOM. Risks - The major drawback in this model is the poor financial state of most DISCOMs in the country. This seriously jeopardizes the ability of the DISCOMs to adhere to the PPA and ensure timely payments.
RECs are availed. The third party can typically be an industrial, commercial or residential consumer of electricity. The project can either be set up on the customers premises (land or rooftop) or at another location. In both cases, the project must go through the open access route for a third party sale of power. The viability of such projects is strongly linked to two factors: 1. PPA price The negotiated price of power hinges on the current price being paid by the third party. Commercial consumers pay the highest prices for electricity followed by industrial consumers and then residential consumers. The project developer must offer the third party a tariff that is lower than what the consumer pays currently in order for this solution to be attractive. 2. Strength of the third party to adhere to a long term PPA from a financing perspective, this is a key question. To obtain the Equity IRR, the following assumptions and PPA prices have been considered. It must be underlined that the assumptions are fairly conservative. The REC prices considered post 2017 are from BRIDGE TO INDIAs REC price forecast (see previous section).
The major drawback in this model is the poor financial state of most DISCOMs in the country.
4.2 Business Model 2: RESCO+REC

In this model, the project enters into an independent PPA with a third party (excluding DISCOMs) and, in addition,
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Source: BRIDGE TO INDIA analysis 13
Figure 4-2-1 Assumptions for determining EIRR RESCO + REC

Assumptions30 Tariff escalation REC prices
5.00% `9,300 (155) `2,200 (223) `0 (grid parity achieved by 2022) `88m (1.3m) 12.00%31 18.00%
2012-2017 2017-2022 2022-2027 CAPEX (per MW) Debt interest rate CUF
GRID PRICE (INR/kWh)
4.00 3.00 2.00 1.00 0.00
In cases where supply exceeds demand, there must be an option of injecting the excess electricity onto the grid during times of peak demand.
Figure 5-5: Financial viability of RESCO+REC projects32

9.00 8.00 7.00 6.00 5.00 EIRR
0%
5%
10
15%
20%
25%
Equity IRR (%)
The current regulations do not allow the connection of such REC projects at the consumer side of the bus.
Risks - From a regulatory standpoint, there are several bottlenecks in implementing this model currently.
under discussion with the CERC and will not be implemented before mid-2013.
1. Absence of a net metering policy 2. Interconnection and open access Since this model involves signing The current regulations do not an independent PPA, it must allow the connection of such REC be assured that the third party projects at the consumer side (LT consumes 100% of the power side) of the bus. Projects must generated. In practice, this is not be connected at the high voltage feasible since demand varies with level at the DISCOM side. For time and season and does not projects that are connected at high match the generation profile of a voltage under current regulations, solar power plant. In such cases any third party sale of power where supply exceeds demand, must be registered under open there must be an option of injecting access. However, open access is the excess electricity onto the grid not an efficient solution when the during times of peak demand. The point of generation and the point regulations for net-metering are of consumption are the same
Source: BRIDGE TO INDIA analysis Considering debt from an Indian bank. 32 Source: BRIDGE TO INDIA analysis
30 31
For the CSS to be completely discarded, the DISCOMs expect an even pricing of power across all consumer categories.
(example: rooftop power projects). Open access involves wheeling charges, banking charges and grid losses for using the distribution network of the DISCOM. These additional costs reduce the viability of such models. The CERC is currently discussing the option of implementing such third party PPA models as off-grid or semi off-grid models, thereby circumventing the need to go through open access. But at the moment there is no clarity on when such regulation will be framed or implemented. 3. Cross Subsidy Surcharge (CSS) Electricity prices in India are not uniform. Commercial and Industrial consumers subsidize the residential and agricultural consumers by paying higher tariffs. When such high value consumers are lost to other electricity providers, the DISCOMs face disproportionate losses. In order to compensate for this, a CSS is levied. The CSS varies across DISCOMs and is typically in the range of `0.30 to `1.5 per unit. Although there is a strict mandate to reduce the CSS over time, in practice this has not happened and is unlikely to happen in the near future. For the CSS to be completely discarded, the DISCOMs expect an even pricing of power across all consumer categories. This is a politically sensitive matter and is unlikely to be implemented in the near future. In some cases, to promote the development of renewable energy technologies, the CSS can be waived. However, the regulations clearly state that all concessions must be waived off in order to be eligible for REC projects. 4. Wary DISCOMs Most DISCOMs are wary of losing their high value consumers. Since DISCOMs are authorized to approve such projects, most projects are delayed unnecessarily. This is one of the major barriers to the successful execution of this business model.
Upsides - One of the key advantages of this business model is the independence from the DISCOMs. The PPA risk now lies with the power consumer, which can be managed through strong financial diligence. Although the maximum project sizes will not likely be greater than 2MW, the model is scalable across the country. BRIDGE TO INDIA develops its own RESCO+REC based projects for industrial and commercial consumers of power. Investors looking to invest in such projects are invited to contact BRIDGE TO INDIA. Risks - One of the key challenges for small to medium companies is to manage a geographically distributed portfolio of projects.
4.3 Business Model 3: Captive + REC

In this model, commercial or industrial consumers of grid electricity set up a solar REC project for the selfconsumption of solar power. The amended regulations allow RECs for self-consumption projects. The following criteria must be satisfied as per the Electricity Act 2003, in order to be considered as a captive user: 1. Minimum of 26% stake in the project from the power consumer 2. Minimum of 51% of the electricity should be self-consumed The financial viability of such projects is linked to the current grid tariff which the consumer pays to the DISCOM. The return on investment for such projects is based on the difference between the cost of generation of solar power and the grid price. In addition, RECs are the crucial trigger for the financial viability of such projects. The following assumptions have been considered to estimate the financial viability of such models.
In the captive + REC model, commercial or industrial consumers of grid electricity set up a solar project for the self-consumption of solar power.
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Figure 4-3-1: Assumptions for determining EIRR Captive + REC33

Assumptions Tariff escalation REC prices (`) 2017-2022 2022-2027 CAPEX (`m) Debt interest rate
5.00% `9,300 `2,200 `0 (grid parity achieved by 2022) 88 12.00% 18.00%
CUF
Figure 4-3-2: Financial viability of Captive + REC projects

10.0 9.0 GRID PRICE (INR/kWh) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Investor Expectation
Equity IRR (%)
Upsides - The key advantage of this model is that it significantly reduces the PPA risk since the power consumer is invested in the project. Tax incentives such as accelerated depreciation can be availed by such captive consumers which will drive this segment. Innovative business models with a group of investors (group captive) would also become feasible. Risks - From a regulatory standpoint, this model is easier to implement compared to the RESCO+REC model. None the less, the following
challenges exist: 1. Absence of a net metering policy (as discussed in the previous section) 2. Inability to connect the plant at the consumer side of the low voltage (415V) means that the output from the solar plant will have to be stepped up to at least 11kV. This creates additional costs of transformers and switch-gears which would significantly reduce the viability of such models
33 34
Source: BRIDGE TO INDIA analysis Source: BRIDGE TO INDIA analysis 16
2012-2017
5. Regulations under discussion

One of the major concerns is that REC prices over the lifetime of the project must reflect the current capital cost.
The REC mechanism is relatively new in India and several regulatory loopholes remain. The CERC is considering several changes to the regulations which would be implemented in the coming months. Some of these are: 1. Vintage based multiplier: One of the major concerns is that REC prices over the lifetime of the project must reflect the current capital cost. REC prices would depreciate over time, reflecting the falling cost of capital of a solar plant. This would unfairly disadvantage REC projects since the capital costs are made upfront.
b. Accounting and billing c. Safety standards and technical requirements d. Taxes and duties (or waivers) for self-generated electricity e. An overarching policy framework for distributed energy generation These regulations would ensure that there is a well-defined policy framework for connecting small scale solar power projects onto the grid. This will reduce the likelihood of unnecessarily delays and complications in such projects. Secondly, one of the major concerns for such REC projects is over-generation. Instances when the supply exceeds the demand (building is empty, holidays, exceptionally sunny days, etc.), the excess power can be fed into the grid and consumed at a later stage. Such banking regulations are also under discussion and would come as a boon to solar project developers under the REC mechanism.
Currently off-grid projects are excluded from the REC mechanism.
To circumvent this problem, the CERC is mulling a vintage based multiplier. In this mechanism the solar REC projects commissioned in the period 2012-2017 will be issued a multiplicative factor. This factor would be equal to the fall in CAPEX from 2012 to 2017. This factor would be used to issue additional RECs. Assuming that the capital cost falls by 50% in 2017, every REC issued in 2012 would be worth two RECs in 2017. 4. REC for off-grid: Currently offgrid projects are excluded from 2. Quarterly fulfilment of RPO: In the REC mechanism. However, order to ensure a smoother cashwith a comprehensive metering flow, the CERC is considering a policy, the CERC intends to quarterly implementation of the include off-grid projects under RPOs. This would distribute more the REC mechanism. The main evenly throughout the year and issue with off-grid projects is that prevent year-end spikes in the responsibility cannot be assigned to REC prices. Such a regulation the DISCOM for a periodic reading would be beneficial to both project of the solar meter, accounting and developers (cash-flow) and the reporting the power generated to obligated entities (year-end high the SLDC. The DISCOM is currently prices). incentivized to carry out these 3. Net Metering: The net-metering functions only if the project is grid scheme being considered by the connected. CERC includes the following topics: a. Connection of renewable energy source to the grid at lower voltages
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6. Conclusions and RECOMMENDATIONs

Enforcement of RPOs remains the weak link in the entire REC mechanism and must be addressed immediately by the CERC.
The financing of REC projects is another weak link as Indian banks remain wary of the REC mechanism.
the window period (2012-2017) for the REC floor and forbearance prices is running out. This period of REC prices is guaranteed only until March 2017. Every months delay in announcing these regulations will seriously jeopardize the financial viability of REC projects. First movers in this space have a significant advantage since REC prices are surely going to reduce post 2017. For a detailed, Enforcement of RPOs remains the time-bound and customized financial weak link in the entire REC mechanism analysis of the three business models, and must be addressed immediately by contact BRIDGE TO INDIA for project the CERC. There is definite resistance development consulting services. from the DISCOMs in meeting their RPOs due to the additional burden The financing of REC projects is placed on them. A recent report another weak link as Indian banks released by the FoR concludes that remain wary of the REC mechanism. the additional burden caused by the The market will start with smaller implementation of RPOs is less than kilo-watt scale projects being fully `1.0 per unit35 which indicates that the leveraged (100% equity). Once resistance is purely notional. sufficient data is available from the REC market and a proof of concept is REC based models will define the established through working models, distributed solar landscape in India in this situation is likely to change. Banks the coming years. BRIDGE TO INDIA currently prefer a wait-and-watch endorses the RESCO+REC model and approach to take a call on the REC is currently developing a pipeline of mechanism. such projects across India. Investors, who are looking to engage with the Despite these challenges and risks, the REC model, are invited to contact REC mechanism remains an attractive BRIDGE TO INDIA. off-take option for project developers in the medium term (2012 to 2022). The weakest link in executing this The REC market remains a key off model currently is the absence of take-option as the market moves away clear regulations on connectivity from subsidies to commercially viable and metering. The CERC is actively models. tabling these regulations. However,
Going ahead, it remains to be seen if obligated entities will fulfill their RPOs through the REC mechanism or by directly purchasing solar power. Since DISCOMs have contributed to nearly 76% of the demand, there are questions raised if the demand for solar RECs will continue to remain. There is no clarity on this issue at the moment.
Forum of Regulators. Assessment of achievable potential of new and renewable energy resources in different states during 12th plan period and determination of RPO trajectory and its impact on tariff. 2012.
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7. Annexure
7.1 State-wise RPO Quotas (2012-2013)36

State Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Delhi Gujarat Haryana Himachal Pradesh Jammu and Kashmir Jharkhand Karnataka37 Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Nagaland Odisha Punjab Rajasthan Tamil Nadu Tripura Uttar Pradesh Uttarakhand
Non-Solar RPO 4.75% 4.10% 4.05% 3.25% 5.25% 3.25% 6.00% 1.50% 10.00% 4.75% 3.00% 10.00% 3.35% 3.40% 7.75% 4.75% 0.60% 6.75% 7.75% 5.35% 2.83% 7.10% 8.95% 0.90% 5.00% 4.50% 4.00%
Solar RPO 0.25% 0.10% 0.15% 0.75% 0.50% 0.15% 0.40% 1.00% 0.50% 0.25% 0.25% 1.00% 0.25% 0.25% 0.60% 0.25% 0.25% 0.40% 0.25% 0.25% 0.15% 0.07% 0.05% 0.10% 1.00% 0.025% NA39
Goa and Union Territories 2.60%
NA38
West Bengal
7.2 Status of non-solar RPO compliance across different states (2012-2013)40

State Andhra Pradesh Assam Bihar Chhattisgarh Gujarat Non-solar RPO (million kWh) 3,44041 137 172 276 3,435
36 Source: National Load Dispatch Center. Renewable Purchase Obligations and its compliance (RPO Regulations) by SERC. 37 For BESOM, MESCOM and CHESCO. For other DISCOMs Non-solar: 7% and solar: 0.25% 38 Satisfied through 100MW of PPA under the NSM 39 West Bengal does not recognize RECs 40 Source: National Load Dispatch Center. Renewable Purchase Obligations and its compliance (RPO Regulations) by SERC. 41 Based on the RPO quotas given in Annexure 7.1 and the total electricity demand of each state (CEA).
Haryana Himanchal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal Orissa Delhi Total non-solar RPO (MWh) Total non-solar REC traded on exchange Percentage non-solar Achieved/ Fullfilled through purchase of REC
929 741 5,180 576 888 7,477 2,089 2,433 3,016 404 1,279 311 432 33,534,056 834,103 2.49%
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7.3 Glossary of Terms

APPC Average Pooled Purchase Cost CAPEX Capital Expenditure CEA Central Electricity Authority CERC Central Electricity Regulatory Commission CSP Concentrated Solar Power CSS Cross Subsidy Surcharge CUF Capacity Utilization Factor DISCOM Distribution Company EIRR Equity Internal Rate of Return FiT Feed-in-Tariff FoR Forum of Regulators IEX Indian Energy Exchange LCOE Levelized Cost of Electricity LT Low Tension NAPCC National Action Plan on Climate Change NLDC National Load Dispatch Center PERC Punjab Electricity Regulatory Commission PPA Power Purchase Agreement PXIL Power Exchange India Ltd. REC Renewable Energy Certificate RESCO Renewable Energy Service Company RoE Return on Equity RPO Renewable Purchase Obligation SERC State Electricity Regulatory Commission SLDC State Load Dispatch Center
8. Guest ARTICLE Setting up large

Mr. Santosh KM, Managing Director, ENERPAC India
scale PV: Lessons from new markets
There has been a significant and dramatic transition in the PV industry with the capital cost of PV power plants falling drastically in the last two years.
One of the most exciting phases for any business is when it enters a new country or market. Arguably, it is also the most challenging. When new business models are introduced in a new market or country, their success depends on a combination of factors unique to a businesss capabilities and the markets requirements. Solar power businesses have propagated like a green wave across global markets in the past decade. The first mover markets in grid connected PV power were Germany, Japan, Australia, United Kingdom and some states in the USA (New Jersey and California). These markets have pioneered models involving different policies, regulations, revenue streams, businesses and delivery channels, providing a useful point of reference for newer markets. There has been a significant and dramatic transition in the PV industry with the capital cost of PV power plants falling drastically in the last two years. This has been driven partly by overcapacity in certain parts of the value chain (cell and module manufacturing) and by organic capacity additions in others (polysilicon). As an example, the capital cost of setting up a PV power plant in 2010 in Europe was around `162.5 195 (2.5 - 3.0)/Wp. This value fell by half by the beginning of 2012. Coupled with this, there has been a significant shift in markets both in terms of size and geography. The combination of these factors has pushed PV businesses to cross over from a technology focused, subsidy driven business to an application centric, market driven one. This has been a turbulent transition and one that is still underway. But, there are
BRIDGE BRIDGE TO TO INDIA, INDIA, 2012 2012
clear signs that once the transition is completed, the PV business will slip into the mainstream energy business and be driven by demand and supply elasticity as opposed to subsidies. This has started to happen already. On the sunny Sunday of August 19th 2012, Germany had 18.6GW of PV power available in the grid, while the total demand was 50 GW. In many ways, the emerging solar markets are building on the experiences of mature markets, avoiding pitfalls and learning from best practices. There is little sense in reinventing the wheel. Most of the learnings on PV technology, systems engineering and its application, field performance and operations from these pioneering markets can be applied to newer markets with some localization. That said, there are some learnings that are unique to a given market and cannot be replicated from pioneering markets in totality. Chief among these are regulatory, statutory, investment, taxation, exchange volatility, receivables, project delivery and debt financing amongst others. Compared to conventional energy projects, PV power plants are, from an engineering point of view, relatively less complex and can be developed and installed much faster a 10MW PV plant in eight to ten weeks is manageable in most mature PV markets. However, as opposed to conventional energy, where technology has matured and is not fast changing, PV witnesses fast changes in technology and hence increases the risk of technology obsolescence. Further, a new technology takes time to demonstrate performance fidelity. Lab test results and actual field performance in varying climatic conditions differ significantly in some cases. A decision on choosing PV technology needs to factor both, the risk of obsolescence and the track record in field performance.
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In many ways, the emerging solar markets are building on the experiences of mature markets, avoiding pitfalls and learning from best practices.
Energy production from PV is a function of technology as well as local meteorology.
Energy production from PV is a function of technology as well as local meteorology. Modules power degrades with time and the rate of this degradation is also dependent on the technology. An optimal way to select a technology will be to assess the cumulative energy generated over its useful life of 25 years factoring in annual degradation. When practical degradation rates are available, such field data needs to be used to ascertain the energy production. However, a degradation of maximum 0.25% per year is a standardized value for lenders in matured markets. Another pitfall in technology selection relates to cost assessment. Module level costs alone are not a useful metric to compare project costs. For some module types, the balance of system costs like those of mounting structures, DC cables and land are higher for a given plant capacity. Further, in some countries, labor or land costs are high. As a result, even if a given modules costs are lower, overall project costs may skew in the other direction. Choosing the right insolation data set and meteorological database for system design is also important. In many countries, real measured data for the proposed installation location may not exist. In such cases, one needs to depend on commercially available meteorological datasets. A range of such data sets exists, but the energy production estimated using them can vary by up to 5%. This can have a significant impact on the projects economics. A pragmatic choice of data is essential to ensure that the theoretical energy estimates are closer to reality. Simulation techniques used also have an impact on energy estimates and a right choice needs to be exercised here as well. Predicting nature remains more an art than a science and a wrong choice may look good on paper but has the potential to adversely affect real project economics. In countries and markets where solar
BRIDGE BRIDGE TO TO INDIA, INDIA, 2012 2012
energy policies are newly introduced, regulatory uncertainties are a norm in the initial period. Usually, there is a lag between the announcement of a policy and the clarity needed on the various aspects of its deployment. This delay needs to be factored into investment decisions. Financing is another area that needs focus in new markets. Here, manufacturers, investors and developers need to spend considerable effort and time in interacting with banks and lenders on the nuances of solar energy. This will help lenders understand the solar business. The time taken for a financially viable project to close debt financing tends to be in the order of four to six months in new markets. On the other hand, in matured markets, this can take only four to six weeks as the solar business is well understood and has a proven track record. Also, in certain countries where regulations do not permit foreign currency borrowing or limit the same, access to low cost debt becomes a problem. In countries where local currency is volatile, hedging the currency risk also needs to be factored in. Both of these factors, if not sufficiently understood, have a potential to adversely affect the viability of the investment. Another risk in new and emerging solar markets is the financial health of end customers (utilities or open access customers) that buy solar energy. As tariffs for solar electricity normally are above the average pool price at which utilities have been historically procuring energy, a detailed assessment of receivable risks needs to be done and adequately factored in to assess the viability of the projects. Local manpower and contractors in such nascent markets will lack experience in executing solar projects. The pioneering risk of executing with local contractors and manpower can sometimes lead to delay in execution. It may also result in improper or ill engineered projects which may impact the projects energy delivery over its life time. On the other hand, having an
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In countries and markets where solar energy policies are newly introduced, regulatory uncertainties are a norm in the initial period.
As developers gain experience in PV, there is a tendency in matured markets to move away from turnkey contracts to either an EPCM model or split packages.
History has shown that emerging technologies always go through a period of development, demonstration and deployment before entering in to the main stream.
experienced partner executing projects commercial establishments, offices and industries. Such small capacity can de-risk these delays. solar plants may end up connecting to medium voltage or low voltage grids. The mode of project execution in Such grids in urban and rural areas new and emerging markets tend in emerging markets tend to have a to be lump-sum turnkey EPC higher downtime due to scheduled and contracts along with operations unscheduled power outages. Also, in and maintenance contracts for a markets where there is a net deficit limited period. Such contracts are an of electricity in peak demand periods, advantage for the developers as it derisks them from product performance the grid quality drops. Solar plants will not be able to export energy in such and energy generation passing situations of grid non-availability and these risks to the EPC contractors. this risk needs to be factored into the In markets where local currency is volatile, hedging risks also gets passed projects financials. on to the EPC contractors in the History has shown that emerging turnkey EPC model. On the flip side, technologies always go through a such contracts will also be expensive and also reduces the developers span period of development, demonstration and deployment before entering in to of control on the project. the main stream, depending on the strength and scale of the demand As developers gain experience in for that technology. Energy is one of PV, there is a tendency in matured the prime needs of societies and the markets to move away from turnkey demand for energy is ever increasing, contracts to either an EPCM model as the ability to support economic or split packages with the system integration responsibility lying with an growth depends in large part on the availability of energy. EPCM company or with the developer directly. There are some tangible Over the last few years, there is financial benefits that the developers also an increasing awareness to derive in an EPCM contracting model. control and mitigate the potentially Such contracts tend to drive down harmful effects to the environment the cost of the solar installation by arising from rapid economic growth. avoiding the cascading effects of the The initial skepticism on human margins. In addition, they provide contributed climate change has given the developers with extended credit way to an acceptance of this effect. period benefits that OEMs offer and Both, Governments and communities complete control over the selection of are becoming increasingly aware the sub-contractors and components. Lastly, they enable developers to derive that economic progress should be the benefits of low cost debt financing accomplished without adversely impacting our environment. or equity financing that some OEM suppliers, like module companies, Solar energy makes it possible to offer. have the cake and eat it too; to cater to ever increasing energy needs Grid fidelity, its quality and uptime is without adversely affecting the another area that needs a detailed assessment in the conception stage of environment. As solar energy enters the mainstream, some of the lessons projects. Large megawatt scale solar from its growth and development cycle projects normally are connected to will be important to understand and high voltage grids whose quality and learn from. uptime will be good and predictable. However, as solar deployment gathers momentum, there is also a tendency for solar plants to be deployed in smaller capacities in a distributed decentralized model largely in
BRIDGE BRIDGE TO TO INDIA, INDIA, 2012 2012 23
9. INTERVIEWS
Mr. Stefan Mueller COO, Enerparc
How do you rate the Indian solar market in the international context? India has for long demonstrated its commitment to green and sustainable energy. Both off grid solar as well as contract manufacturing businesses have existed in India for a long time. The National solar mission is a bold and proactive step by the Indian Government in enlarging the solar deployment. In a short span of 2 years, India has already commissioned projects in excess of 1 GW. India, as we know, is one of the fastest growing economies in the world and is the second most populous country. However over the last 50 years there has been a chronic shortfall of electrical energy supply over an ever increasing demand. The liberalization of the power generation sector has helped plug this to an extent but non availability of domestic coal and gas in sufcient volumes have resulted in most of the new private conventional energy plants operating below their optimal plant load factors. India is blessed with more than 300 days of sunshine and solar energy is hence the right technology to plug the energy decit. As a solar market, India has emerged into the sunshine and will continue to be attractive for many years to come. What is Enerparcs strategy in India? Will Enerparc focus on projects outside of policy allocation, such as REC? Generation based subsidy (GBI) projects and merchant energy and carbon trade based projects both have their attractions and in many ways synergies. The GBI route provides a committed revenue stream whereas merchant energy along with carbon trade investments provides a way for solar to be deployed outside the licensing mechanism and driven by market forces.
While we have a clear interest in GBI projects under the policy allocation umbrella, once REC trading stabilizes and one is able to witness its track record, there will be an increased interest from private enterprises to consider projects along merchant and carbon trade route. There are signs of this happening already. Enerparc views both GBI and merchant and carbon trade as two parallel tracks and will have an interest in both these vehicles. Bankability has been the key challenge for solar projects and in particular REC based projects in India, how do you see this improving? Is it improving? In India solar energy is categorized under power sector in debt parlance. Banks have already substantial exposure to power sector. As close to 1 GW of solar projects are now commissioned in India, lenders can now start to get a real feel of asset performance and hence the risk perception would become more tangible and less speculative, thereby easing nancing. While the initial round of solar project bidding saw aggressive and sometimes very bullish energy tariff discounts offered by developers, if the recent Madhya Pradesh bidding result is anything to go by, there seems to be a rationalizing effect and a correction happening with developers getting more aware of real economics of investment. Bankability for such projects that have a workable tariff might not be a concern. With REC based projects, as trading of solar REC has commenced, once price and volume discovery is done, bankability would improve. What are the challenges as foreign company entering the Indian market? India has opened to international investments and the processes are
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For REC based projects, once price and volume discovery is done, bankability would improve.
Finding skilled manpower with the right entrepreneurial mindset is still a challenge.
getting progressively better and more transparent from the governmental point of view. The solar market is evolving and businesses need to build in flexibility and agility to enable changing and adopting with the market. Finding skilled manpower with the right entrepreneurial mindset is still a challenge and so is synergizing high performance expectations of the international investor with that of the local team. How do you see EPC prices in 2013? Where do you see major cost saving potentials?
Overall the PV industry is still dependent on subsidies but when compared to 4-5 years ago, owing to the dual effects of PV cost and price reduction and increase in conventional electricity tariff, the point at which grid parity will be reached is very near. In fact in some geographies, grid parity is already reached. How do you rate punitive tariff duties on modules in order to protect the local industry?
Globally, oversupply has been the number one bane of PV industry in the last 2 years.
The drive to promote local manufacturing is certainly commendable. However in an increasingly globalized world, The big drop in module prices in 2011 regulatory intervention in solar was a result of oversupply and this trade can have adverse effect on is getting corrected across the solar industry. We do not expect sharp price solar industries growth. The larger mission of solar energy is to provide reductions like the one in 2010 to an alternative to fossil fuel, to reduce continue in 2013. There are signs of greenhouse gas emissions and to prices plateauing in 2012. We could do this economically. To achieve expect perhaps a 3-5% reduction in EPC prices driven by module prices in this end, competitive sourcing and consequently lower capex will lead to 2013. The main driver for Indian EPC prices are the timing and the efficiency increased solar installations. Punitive tariffs will be counterproductive to of design and execution. achieve this end. The solar modules costs are decreasing in proportion to Other cost elements of EPC are the overall project cost and modules however not seeing significant reduction, in fact there could be some are becoming commoditized. Already transport cost have a tangible effect potential upside in some cases, like the volatile rupee exchange rate which and this commoditization will drive local production of modules sooner has a potential to offset the module than later. price reduction gains. What are the challenges for the PV industry at the moment and what can be done to overcome them? Globally, oversupply has been the number one bane of PV industry in the last 2 years. This is getting corrected now to an extent. Upstream costs like those of polysilicon have also dropped significantly in recent years as more capacity addition has happened. This effect of upstream cost reduction is a more sustained one.
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Mr. Vinay Shetty Country Manager Indian Subcontinent, Canadian Solar
With the first solar RECs having been traded, the REC market seems to be taking off slowly. Do you think that the mechanism will create a robust market outside of NSM? As opposed to the licensed and competitive tariff based subsidy models already in place in various states, the REC mechanism offers a market driven and a license free vehicle to deploy PV projects. Since RECs have been traded only very recently and in small volumes developers and bankers are not confident of the sustainability of the demand for Solar RECs going forward. The floor price of ` 9.3/ unit ends in 2017. The market is unable to forecast future outlook post 2017. However we are of the opinion that REC trading will not cease in 2017 but would continue and with lower floor prices from the current values. Even a very pessimistic view of prices post 2017 still offers good IRRs to the developer. REC projects of 1 to 5MW scale are slowly coming up all over India. These are mostly being financed by developers themselves or through financial institutions. Banks have still not played a role here. If the policy makers, regulatory authorities and the ministry take necessary steps to make REC projects bankable, the market will open up dramatically. This will give an immense boost to the investors. In order to achieve this, RPOs needs to be enforced diligently in all the states across India. Hence we are confident that REC trade enabled merchant power based solar projects will grow and will complement the GBI based solar investments with an equal or better installation base. Financing is a key issue, especially so for REC projects. What can be done to improve the bankability and ensure availability of finance to such projects? The concept of bankability in PV modules surfaced when new module
Projects with premium quality materials and engineering with Tier 1 suppliers from all over the world should be showcased as bankable REC projects.
manufacturers started operations and banks were not willing to fund projects with these modules since they had no history in India. For the last two years, grid connect solar projects have existed in India, banks are progressively getting familiar with the business and confidence levels are improving. Banks prefer tier 1 suppliers who have a proven history with qualified management and leadership teams and a strong technology focus. Hence, bankability is nothing but providing assurance to the investors and bankers that the asset will perform through its lifetime and provide the returns expected. When bankers see this happening on the ground, they will come forward. It is important that the regulators and the MNRE play a key role to provide confidence to bankers in India by having an approval mechanism for good quality materials and engineering. We already have a few projects in the REC mechanism which are working well. These investors could be good brand ambassadors for the REC mechanism. Projects with premium quality materials and engineering with Tier 1 suppliers from all over the world should be showcased as bankable REC projects. We hope that the banks find this as an attractive investment in the coming years. India is a unique market requiring indigenous solutions. What can India learn from mature solar market and where does India need to find its own solutions? India has over 1600 hrs of peak sun annually. We have an abundance of land and our climate is most suited to solar PV unlike the harsh winters in the west. Look at how Europe [Germany, Italy] with even less than 1000 hours /year of peak sun, made it extremely investor friendly to reach double digit GW installations in a matter of five to eight years. Their policies address large MW scale projects and also small rooftop
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The Indian PV manufacturers have been left far behind with respect to the top manufacturers in China, Taiwan and Korea.
The NSMs phase two offers a good opportunity for us to look at manufacturing options in India.
programs. With a well-informed banking system and open market policies these countries with low sun insolation rates are the worlds largest markets. There are a few areas where the Indian solar industry and policies can adopt and learn from other markets. These are 1) creating an investor friendly environment, 2) simplifying complex import duty and local tax structures 3) easing debt finance rates for the green energy sector 4) simplifying policy deployment between several policies NSM plus various state policies 5) facilitating faster land acquisition for solar projects 6) Building expertise in human resources technical, R&D are in tremendous shortage 7) improve grid quality and reliability 8) enforcing RPOs enlarge RPO applicability to a wider consumer base 9) support and promote open market policies and not create trade barriers [anti dumping duty, import duty, etc]. 10) Create a robust program for roof installations and look at options similar to net metering. 11) separate focus for rural electrification and offgrid. We must learn from mature markets and understand that good quality installations with good quality materials and components only will survive the 25 year life time of PV projects. The Indian government wants to promote domestic manufacturing through the projects under the NSM. What, according to you, would be the best way to promote high quality and low cost manufacturing in India? The Indian PV manufacturers have been left far behind with respect to the top manufacturers in China, Taiwan and Korea on manufacturing cost, manufacturing scale, technology and manpower. Hence, several operations in India have shut down. The best way to salvage the situation from here is to 1)open doors for foreign investment
and technology. 2) promote JVs. 3) abolish import duties on raw materials and create an open market for top quality tier 1 PV players to look at India as an investor friendly place to expand their global operations. 4) rationalise the tax structure LST/CST/VAT etc 5)create training institutes for training young engineers 6) and most importantly, discourage monopolistic and unfair trade practices as antidumping duties on imported solar PV modules. These will only create trade barriers and will not help local manufacturing in any way. The dichotomy in current local current requirement prohibiting crystalline silicon module imports while permitting thin film ones also needs to be relooked. Going forward, do you see sufficient visible domestic demand in the Indian market for Canadian Solar to look at manufacturing locally? We do see a considerable demand for modules in the coming years. Several States like Madhya Pradesh, Andhra Pradesh and Uttar Pradesh have announced their solar policies. The PV projects based on the REC mechanism are picking up steam. The NSMs phase two offers a good opportunity for us to look at manufacturing options in India. Local manufacturing could also cater to the international markets of Europe and USA in the coming years. A rationalisation of the Import duties would help. While there is no Import duty on finished modules, import duties are applicable for raw materials like wafers, Al paste, etc. This renders the local manufacturing to be expensive [0.076/Wp-0.114/Wp]than in China. The other view is that ancilliary units for EVA, tedlar, frames, glass and other raw materials also needs to be available within India to build a strong supply chain.
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Mr. Jens Burgtorf CSO, Director, Indo-German Energy Program, GIZ
Do you see the REC projects segment meeting RPO demand, or the FiT policy based projects play a bigger role? The announcement of a feed-in-tariff together with a Renewable Purchase Obligation (RPO) target encouraged renewable energy installations which stand at around 25GW, as on date. Later, as a tool to effectively comply with the RPO targets, the REC Mechanism was introduced. Since implemented in 2010, capacities of more than 3GW, almost 12% of the total renewable energy installations, have been registered to participate in the REC Mechanism. The framework allows compliance with the RPO target by purchase of renewable energy at the feed-in-tariff rate specified by the appropriate electricity regulatory commission or by purchase of equivalent RECs or through a combination of both. In the medium term, obligated entities may rely primarily on the purchase of renewable energy under the feedin-tariff route for complying with the targets, since they are tied up under power purchase agreements with the renewable energy generators. The purchase of RECs will essentially meet the incremental targets. However, the REC mechanism has provided a larger amount of flexibility to obligated entities for fulfilling their RPO targets and the purchase of RECs shall be the preferred choice, for complying with RPO targets, in the longer term. What are your suggestions to make the RPO mechanism more enforceable? Presently, the RPO compliance term for the obligated entities is on an annual basis. In order to create increasing enforceability of RPO targets, the compliance period may be reconsidered as quarterly or half yearly. It has been observed that the Electricity Regulatory Commissions in spite of enforcement provisions
allowed the carry forward of shortfall units from one compliance year to another, on account of the nonavailability of sufficient renewable energy or RECs. It is expected that this will impact the RPO enforcement clause and also the REC market. Such provisions should be discouraged in order to make the RPO mechanism more enforceable. However, in order to safeguard the interests of the stakeholders, the electricity regulatory commissions may specify the carry-forward of the shortfall in energy units, for any compliance year, if it is less than the certain percentage specified by the appropriate electricity regulatory commission. Such provisions, for example, have been adopted by the Office of the Renewable Energy Regulator in Australia. Further, in order to make RPO compliance more enforceable, the liable entities should be imposed shortfall charges which may be refundable in case the liable entities fulfil their RPO targets cumulatively in consecutive years, or any such term as permitted by the electricity regulatory commissions. Indian PV projects have so far showed varied performance and quality of project execution. What can be done to further improve their standards? For timely implementation of solar projects and improving their quality of execution, it is necessary to the make relevant information required at each level of the project cycle available to the stakeholders in a transparent manner. From the results seen so far, it is expected that the projects under the central or state level policy schemes will be developed by the involvement of both, the experienced as well as less experienced project developers. The successful implementation and timely commissioning of projects requires the completion of many stages of approvals and clearances from various agencies, especially for the availability
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In order to create increasing enforceability of RPO targets, the compliance period may be reconsidered as quarterly or half yearly.
of land, permission for evacuation of power, permissions for construction and operation, and its financing. GIZ, in coordination with the MNRE initiated the development of a web based platform SOLAR GUIDELINES which will facilitate the dissemination of the latest information on the development of projects, policies by central and state governments, regulatory frameworks specified by the appropriate electricity regulatory commission, contractual agreements, and details of approval and clearances required for the timely commissioning and financial closure of solar installations. What is the one key policy measure that India can learn from Germany with regards to decentralized energy solutions? A key policy measure that made Germany one of the worlds leading markets for renewable energy and decentralized energy solutions is the German renewable energy act, called EEG. The main successes within the EEG framework are the different feed-in tariffs for the specific technologies that are fixed for a long term of up to 20 years. The tariff is the single source of income. RECs cant be combined, RPOs are not implemented. Within a set of regulations the utilities are obliged to feed-in the electricity produced and this electricity has feedin priority. Based on this regulation, the EEG allows private investors from small house owners to international investment funds to take clear investment decisions and thus install and operate their own systems. Attractive business cases with a reasonable ratio between risk and anticipated returns were built up to attract an investment volume of ` 1,448 billion (22,9 billion) just in 2011. The impact to decentralisation can be visualized by the number of PV systems installed until end of 2011
1,090,000 have been installed throughout the country (Source: BSW/ German Solar Industry Association) PV systems has been installed. Should the REC mechanism be extended to off-grid projects in India? Under the provisions of Electricity Act 2003, any person undertaking generation, based on renewable energy sources and distribution of electricity shall not require any license. However, the access to energy by the last mile consumer in rural area is still a challenge in India. Innovative approaches needs to be explored which aim at creating a potential for private sector participation. In this context, bringing off-grid renewable energy projects, installed in rural areas, under the ambit of REC Mechanism could create another source of revenue stream enhancing the viability of the projects. The Forum of Regulators (FoR), a statutory body under the Electricity Act 2003, has started developing a framework to boost deployment of renewable energy projects in rural areas. Such framework is a welcome move by the FoR to encourage renewable energy installations in the off-grid space.
A key policy measure that made Germany one of the worlds leading markets for renewable energy and decentralized energy solutions is the German renewable energy act, called EEG.
Bringing off-grid renewable energy projects, installed in rural areas, under the ambit of REC Mechanism could create another source of revenue stream enhancing the viability of the projects.
29
Director, Commercial Department, PV Projects, IBC Solar
Mr. Jan Marc Raitz
India is considered to be a very pricecompetitive PV market. How can a German EPC succeed here? The prices are dictated by the market. You have to deal with it or have to skip India from your list of potential markets. To succeed, you have to find a good mix of proven components, engineering and further services at an acceptable level. IBC SOLAR will be in the position to offer clients an one-stop solution with product and plant performance guarantees. These of course will be backed by first-class bank guarantees. We believe such a strategy will prove to be successful for us in India. Furthermore, we intend to offer operation and maintenance services via our Mumbai offices. This package will provide our customers and their financiers with the required trust to work with IBC SOLAR as one of the leading PV solution providers. You have constructed several projects in India already. Could you briefly elaborate on the challenges you faced and how you overcame them? What is the CUF of your projects? And what kinds of guarantees have you given?
certified training courses, national and international customers learn everything about how to operate and maintain a running PV system. Do you see REC mechanism based projects as a strong growth segment? What is your approach towards this segment? Yes, of course. This will be one of the core segments over the coming years providing a key opportunity for large scale systems following the FIT segment. We are already in discussion with potential clients and developers, who are operating in this field and are looking for an EPC provider like IBC SOLAR. These projects will have a more complex business model. We therefore believe that our full service package will contribute in having a successful project. We also offer prefinancing packages in smaller scale sizes (around 1MWp), where the client has to pay us after full grid connection of the system. Indian banks and financing institutions are reluctant to fund solar projects due to a lack of reliable irradiation and performance data. How can players secure funding for projects and what should be their approach towards Indian banks? Bankers prefer to grant loans at a minimum of risk. The question is, how to satisfy the risk related concerns of the money lending institutions. Firstly, the project has to be developed in a professional manner and has to show economic feasibility. Secondly, bankers prefer to see an experienced EPC company executing the job and taking over product and performance plant guarantees, which have to be backed up by first class bank guarantees. In addition, reliable plant operation has to be guaranteed. This could be secured by a comprehensive O&M agreement preferably concluded with the EPC company, which has constructed the plant. This helps prolong the plants performance ratio guarantee. IBC SOLAR is in the position to cover all these tasks. By this the overall project
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The REC mechanism will be one of the core segments over the coming years providing a key opportunity for large scale systems following the FIT segment.
The CUF of our installations is around 20%. The challenge was to find a compromise between the Indian and German way of project execution without compromising on the plant quality. In addition, we had to focus on having the plant connected to the grid on time to avoid a potential loss of the initial tariff. We have given performance ratio guarantees which were proved by a performance test procedure after the official grid connection. These guarantees are backed and secured by first-class bank guarantees or retention payments. This also requires investing in the so-called know-how transfer. Besides supervising the sites during the project execution IBC SOLAR is offering these days in its Competence Centre in Bad Staffelstein, Germany. In TV
risk is minimized and the financing is easier. In case of the aforementioned pre-financing for smaller scale installations, the project could also be financed on a balance sheet approach. In this case, the system would begin operation before the financing is finally arranged by the project owner. A complex non-recourse project financing is not required in that case. International companies are looking for contract manufacturing In India and IBC-Solar has announced such plans as well. Do you see a future for setting up full scale local manufacturing in India? IBC SOLAR solely operates with socalled OEM manufacturers, who are producing IBC SOLAR components in accordance with the IBC specifications and quality regime. At this years Intersolar in Mumbai being held in November, we will present our Indian IBC module: The IBC Polysol CI. It is a
The project could also be financed on a balance sheet approach, in which case the system would begin operation before the financing is arranged.
crystalline module where the cell and module have been manufactured in India. Due to its advanced mono-like design, the module will have a higher Wp output compared to modules of similar sizes. These modules are manufactured in accordance with our specifications and under our quality regime. This will help us be active in projects with local content requirement without any compromise on plant or product quality. Product guarantee is given by IBC SOLAR later on.
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BRIDGE TO INDIA is a consulting company with an entrepreneurial approach based in New Delhi, Munich and Hamburg. Founded in 2008, the company focuses on renewable energy technologies in the Indian market. BRIDGE TO INDIA offers market intelligence, strategic consulting and project development
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BRIDGE TO INDIA is a consulting company with an entrepreneurial approach based in New Delhi, Munich and Hamburg. Founded in 2008, the company focuses on renewable energy technologies in the Indian market. BRIDGE TO INDIA offers market intelligence, strategic consulting and project development services to Indian and international investors, companies and institutions. Through customized solutions for its clients, BRIDGE TO INDIA contributes to a sustainable world by implementing the latest technological and systemic innovations where their impact is the highest.
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BRIDGE To INDIA - The REC Mechanism - Viability of Solar Projects in India

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BRIDGE To INDIA - The REC Mechanism - Viability of Solar Projects in India

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The REC Viability of Mechanism

solar projects in India

The REC Mechanism

BRIDGE TO INDIA, 2012 Original illustration by Dwarka Nath Sinha

BRIDGE TO INDIA, 2012

BRIDGE TO INDIA, 2012

BRIDGE TO INDIA, 2012

1. Overview 2. The Renewable Energy Certicate (REC) Mechanism

3. Is the solar RECs market viable? 4. Solar REC business models

5. Regulations under discussion 6. Conclusions and recommendations 7. Annexure

BRIDGE TO INDIA, 2012

RPO requirements of selected states in India

BRIDGE TO INDIA, 2012

Indian solar policies initially focussed on supply side measures.

Now, solar RPOs are supposed to create a demand side pull.

* All values are at 1 = `65 (long-term average rate)

BRIDGE TO INDIA, 2012

Figure 2-1: RPO requirements of selected states in India

Figure 2-2-1: Floor and forbearance prices3

Source: BRIDGE TO INDIA

Source: BRIDGE TO INDIA

BRIDGE TO INDIA, 2012

BRIDGE TO INDIA, 2012

2.3 Lessons from the non-solar REC market

Capacity (MW) 1.0 0.15 0.5 8.5 5.0 1.16 2.0

Figure 2-3-1: Registered REC projects by renewable energy resource8

Source: BRIDGE TO INDIA

BRIDGE TO INDIA, 2012

Figure 2-3-2: Historical non-solar REC demand by consumer category10

200,000 TOTAL DEMAND

Figure 2-3-3: History of demand-supply of non-solar RECs11

BRIDGE TO INDIA, 2012

Source: BRIDGE TO INDIA

Indian Energy Exchange Indian Energy Exchange 11 Indian Energy Exchange

BRIDGE TO INDIA, 2012

Figure 2-3-4: Historical price discovery of non-solar REC prices13

Price Floor Price Forbearance Price

eb-12 May-12 Aug-12

BRIDGE TO INDIA, 2012

2.4 Procedures and timelines

Step 1: Fulfill Prerequisites

Figure 2-4-1: Process of issuance of solar RECs

Figure 2-4-2: Solar REC eligibility

BRIDGE TO INDIA, 2012

with the National Load Dispatch Centre

The NLDC is responsible for the issuance of RECs.

Step 3: Issuance of RECs

Step 2: Accreditation with a State Load Dispatch Center

BRIDGE TO INDIA, 2012

FEES AND CHARGES

`30,000 (462) `10,000 (154) `15,000 (231) 12.36%

Revalidation/Extension (end of 5 years) Taxes and duties

Figure 2-4-4: Details of the registration fees payable to the NLDC

`5,000 (77) `1,000 (15) `1,000 (15) `5,000 (77) 12.36%

Figure 2-4-5: Details of the issuance fees payable to the NLDC

`10 per REC (0.15) 12.36%

BRIDGE TO INDIA, 2012

BRIDGE TO INDIA, 2012 08 8

BRIDGE TO INDIA, 2012

One-time application processing fee (paid to state agency) `5,000 (77)

3. Is the solar REC market viable?

EXPECTED DEMAND (MW)

2012 Source: BRIDGE TO INDIA