Financing Solar Photovoltaic Rooftop Revolution in India

Working Paper on
Financing the
Solar Photovoltaic (PV)
Rooftop Revolution in India
TITLE
Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India
YEAR
January, 2016
AUTHORS
Nitin Sukh, YES Institute (YI), YES BANK

Raghavendra Mandavilli, YES Institute (YI), YES BANK
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Contents
Executive Summary
1.
Current State of Solar Rooftop PV Systems in India
1.1 Institutional Structure Stakeholder Mapping
11
1.2 Solar Rooftop Projects in India Challenges
11
1.3 Policy Landscape
12
1.3.1 Promising Central Government Incentives
12
1.3.2 State Governments
13
1.3.3 International Rooftop Solar Programs
13
2.
Implementation Models for Rooftop Solar Systems
15
2.1 Straight Forward Sales Model or CAPEX Model
16
2.2 Renewable Energy Service Company (RESCO) Model
17
2.2.1 Rooftop Leasing
17
2.2.2 Power Purchase Agreement
17
2.2.3 Local Micro Utility Model
17
3.
Financing Solar Rooftops
19
3.1 Financing Programs for underdeveloped off-grid markets
20
3.2 Financing Intermediates Communities/Village Scale Projects
21
3.3 On-bill Financing
21
3.4 Alternative Stock Exchange Markets
22
3.5 Power Purchase Agreements (PPAs)
22
3.6 Renewable Energy Certificates
22
3.7 Feed-in Tariffs
22
3.8 Energy Service Companies (ESCOs)
23
3.9 Yield Companies (YieldCos)
23
4.
The Way Forward
25
6 | Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India
Executive Summary
India is running one of the largest renewable energy capacity expansion
programs in the world, with solar energy being the core focus and expected
to generate 100 GW by 2022. Solar power installed capacity has increased
from only 3.7 MW in 2005 to about 4060 MW in 2015, with a CAGR of
more than 100% over the decade.
Rooftop solar PV is expected to play a prominent role in meeting the
ambitious target with an installed capacity of 40 GW by 2022, and
addressing energy demands across segments. It has already achieved
grid parity for commercial and industrial consumers, and is fast becoming
attractive for residential consumers as well. As a result, multiple state
governments have taken necessary steps to kick-start implementation of
rooftop solar PV projects.
However, there are still various challenges to scale-up rooftop solar energy
generation in the country namely, technical, operational and financial. The
aim of this paper is to highlight interesting business and financial models
currently in operation across the world, and their applicability to the Indian
context. Engaging with key stakeholders through surveys and face-to-face
interviews, the paper hopes to identify interventions that could promote
extensive development of the sector.
Therefore, YES Institute in collaboration with IIT-KGP takes this study
forward with the belief that the policy support and greater private sector
investment will foster the growth of rooftop solar PV in the country.
Working
Working Paper
Paper on
on Financing
Financing the
the Solar
Solar Photovoltaic
Photovoltaic (PV)
(PV) Rooftop
Rooftop Revolution
Revolution in
in India
India || 7
7
1
Current State of
Solar Rooftop PV Systems in India
1 Current State of
Solar Rooftop PV Systems in India
India has huge potential for generating solar power using unutilized space on urban rooftops. Given the
limited availability of land for ground-mounted solar power projects, rooftops provide an alternative to meet
the targeted solar power generation in the country. Solar power generated by each individual household,
industrial, institutional, commercial or any other type of building can be used to partly fulfill the requirement
of the building occupants and surplus, if any, can be fed into the grid.
The rooftop solar PV market in India is being
driven by a mix of national targets and support
schemes at various legislative levels. Recently
the government of India has expressed its
intent to achieve 100 GW of solar capacity
in the country by 2020, of which 40 GW is
expected to be achieved through decentralized
and rooftop-scale solar projects.1
Today it is possible to generate solar power
from solar rooftop systems at about Rs.6.50/
kWh2, relatively cheaper than diesel generator
based electricity generation. It is also cheaper
than the cost at which most distribution
companies (DISCOMs) would make power
available to the industrial, commercial and
high-end domestic consumers.
1
2
Advantages of Solar Rooftop PV Systems

Social

Greater consumer participation and investment

High employment generation and entrepreneurship
Technical

Savings in transmission & distribution losses

Last-mile support to grid stability, w.r.t voltage &
reactive power support
Creates a strong case for smart grids
Administrative

Widely accepted and saves valuable space

Low gestation time to commission
Lower investment in distribution infrastructure
Can improve distribution grid capacity
A Big Boost for Solar Rooftops in India, Press Release by Ministry of New & Renewable Energy on Press Release 30th Dec, 2015
The growth of rooftop solar has been relatively slow in India with only about 350 MW of installed capacity,
largely due to a lack of clear policy thrust. Maharashtra, Tamil Nadu and Gujarat are the leading states with
close to 30% share (>100 MW) of total rooftop capacity.3
Spurring private sector finance participation in the rooftop solar market can facilitate its rapid development,
upsacling and thereby achieving the ambitious solar targets. However, forming a well-balanced
complementary relationship between public and private sectors is challenging, and can have consequences
impacting a wide range of stakeholders. The process needs to be carefully managed through adequate
planning and implementation.
1.1 Institutional Structure Stakeholder Mapping

Utilities
Policy and Governance

Institutions
Ragulator
Technical
Authority
Funding
agencies
Others
Consumer
Policy
DISCOMS
MNRE
Central
nodal NVVN & SECI
agency
State
nodal
agency
CERC
&
SERCs
CEA
SNAsI
IREDA,
nationalised/
private banks,
housing loan
companies,
multi/bi-laterals
Solar
developer and
installer
Equipment
manufacturer
and supplier
1.2 Solar Rooftop Projects in India Challenges

a. Difference in Capital Costs between Ground-mounted and Rooftop Solar PV Plants
Capital costs per megawatt of rooftop solar PV systems are higher than that of large-scale PV projects,
given the factors such as higher installation costs, lower economies of scale, and a small base to spread
fixed costs. Some state electricity regulators have provisioned higher tariffs for rooftop solar as compared
to large-scale projects. For example Gujarat Electricity Regulatory Commission has a higher tariff rate for
kilowatt scale solar rooftop as compared to megawatt scale projects.4
b. Availability and Cost of Debt Finance

Despite the recently announced policy of treating renewable energy projects as a priority sector for lending
(PSL), debt appetite for rooftop solar projects including availability and cost of debt is expected to be a key
challenge. It might also take a long time for lenders to consider rooftop solar projects for non-recourse
finance.
c.
Quality Concerns
The rooftop solar market in India is very competitive. Excessive cost pressure and poorly trained technicians
often lead to poor quality of installations with numerous reports emerging from the market. A negative
feedback for performance of rooftop solar projects by early adopters can also be detrimental to the market
in the long term.
3
4
India Solar Handbook 2015, Bridge to India

Gujarat Electricity Regulatory Commission, Order No. 3 of 2015
Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India | 11
d. Legal Enforcement of Contracts

This challenge is pertaining to the Build-Own-Operate (BOO) model for rooftop solar projects. The legal
enforceability of contracts in India is not very robust. The problem is more pronounced for solar, with long
pay-back period and power purchase contract of over 15 years. Due to this, a model similar to the US based
SolarCity is still struggling to find its feet in the Indian market. Such BOO projects account for only around
40 MW (12%) of installed capacity in India.
e. Lack of Sustainable Business Models

Although the technology for rooftop solar systems is well proven, the market lacks sustainable business
models. Individual households as well as commercial rooftop owners lack knowledge, information, and
financial incentives to install these systems to optimal standards. India lacks pilot projects developed jointly
by public and private sector, to serve as proof-of-concept to encourage future segment growth.
f. Net Metering Economies, Billing & Settlements

Rooftop solar projects have, thus, far been implemented in India under either gross metering arrangements
or on captive consumption arrangements. For a grid connected net-metering arrangement to foster, there
is a need for a well-defined regulatory and commercial framework address issues such as
99
Non availability of clearly defined technical standards and guidelines for grid connectivity,
metering, safety and security, etc
99
Lack of energy accounting and commercial settlement guidelines for grid connected solar rooftop
projects
99
Lack of clarity on applicability of charges relating to wheeling, open access, cross-subsidy etc.
1.3 Policy Landscape

Ministry of New & Renewable Energy (MNRE) is responsible for implementing a Grid Connected Rooftop
and Small Solar Power Plants Programme to support projects ranging between 1kWp and 500 kWp5 using
policy interventions such as capital subsidy and accelerated depreciation. Though the policy interventions
have been in force for a while, there has been limited success. Going forward, greater provisioning of debtfinancing and net-metering are expected to be the main policy tools in the sector.
The Cabinet Committee on Economic Affairs has recently scaled up the budget allocated from Rs.
600 crore to Rs. 5,000 crore for implementation of Grid Connected Rooftops systems over a period
of five years upto 2019-20 under National Solar Mission (NSM)6. The increased budget is expected to
support the installation of 4200 MW Solar Rooftop systems in the country in next five years.
1.3.1 Promising Central Government Incentives

a.
Capital Subsidy Model: The model has been used by MNRE and Solar Energy Corporation of India
with limited success largely to implementation issues and lack of funds. The model is expected to be
discontinued in the coming months.
b.
Accelerated Depreciation: Accelerated Depreciation (equivalent to 25% of the capital cost of the
system) is expected to continue at least until March 2017.7 A company can claim 80% depreciation in
the first year of installation. This benefit is equivalent to 25% of the capital cost and can be claimed by
profitable corporate entities.
Off-Grid and Decentralized Solar Application Scheme: Operational Guidelines for Grid Connected Rooftop and Small Solar Power
Plants Programme, Ministry of New & Renwable Energy, 26th June, 2014.
6
7
India Solar Handbook 2015, Bride to India
5
c.
Interest rate subvention: The central government is working with KfW, Asian Development Bank
(ADB) and World Bank to provide financing support in the form of interest rate subvention for rooftop
solar in India. This scheme will provide debt at a lower cost of about 8.50% in comparison to the
current cost of 12-12.5%. More than $2,100 million is known to have been committed by these
developmental banks for the scheme.8
1.3.2 State Governments

State Governments have also been supportive to promote solar rooftop projects and close to 25 states
and union territories have already put in place net-metering guidelines (draft and approved) for rooftop
solar installations. Annexure I gives a comparison of the incentives provided by major states for solar
rooftop developers. While net-metering guidelines are available in most states now, local implementation
authorities are not sufficiently trained in handling execution and technical issues, thus slowing the rapid
implementation of projects.
1.3.3 International Rooftop Solar Programs

A key driver of rooftop solar PV development across the world has been the design and implementation
of innovative models combining policy and regulatory measures with market dynamics to deliver
bankable and sustainable projects. Such international experiences also indicate that several administrative
and institutional challenges need to be addressed to allow each stakeholder to participate in the transition
to a mature self-replication phase.
Solar Rooftop Program: International Perspective

Germany
Japan
USA (California)
Incentive Structure
- Feed-In-Tariff,
periodically updated
- Capital subsidy
- Renewable Purchase
Obligations
- Capital Subsidy
- Tax credits, rebates
Long-term project
viability
- Long-term Feed-InTariff guarantee

- Public participation to
enhance financing
- Streamlined
interconnection &
permitting processes
- Soft financing
- Streamlined
interconnection and
approval process
- Third party service

providers, who assume
risk and performance of
systems
Metering
arrangements
- Gross metering till now - Net metering

- Piloting net metering
- Net metering
Implementation
Models
- Income from
preferential tariff
- Savings in electricity
bill
- Savings in electricity
bill for rooftop owners
- Lease payments and
tax benefits to project
developers or owners
Reasons for
Programme Structure
- Encourage solar
project development
independent of captive
load of the consumers
- Encourage solar
project development
independent of captive
load of the consumers
- Facilitate development
of decentralized solar
systems
- Limited cooperation
from electric utilities
Source: YES Institute Analysis
India Solar Handbook 2015, Bride to India
International Solar Alliance (ISA) launched at the UN Climate Change Conference in Paris by India Prime
Minister Narendra Modi and French President Francois Hollande, is a global alliance of solar resource rich
countries to address their special energy needs and provide a platform to collaborate on dealing with the
identified gaps through a common, agreed approach. The mission of the alliance is to provide a platform
for cooperation among solar resource rich countries where global community including bilateral and
multilateral organizations, corporates, industry and stakeholders can make a positive contribution to the
common goals of increasing utilizing of solar energy in meeting energy needs of ISA member countries in
a safe, convenient, affordable, equitable and sustainable manner.
The objectives of the ISA are following:
99
Promote solar technologies and investment in the solar sector to enhance income generation for
the poor and global environment
99
Formulate projects and programmes to promote solar applications
99
Develop innovative Financial Mechanisms to reduce cost of capital
99
Partnering to develop innovative financial mechanism to access low cost, long tenure financial
resources from bilateral, multilateral agencies and other sources
99
Building a common Knowledge e-Portal
99
Facilitate capacity building for promotion and absorption of solar technologies and R&D among
member countries
2
Implementation Models for
Rooftop Solar Systems
2 Implementation Models for

Rooftop Solar Systems
Rooftop solar systems could be broadly segregated as Grid Connected and Off-Grid, each catering to a
specific requirement and geographical location.
Grid Connected: Grid-tied systems are the most common type of solar rooftop PV systems. They allow for
rooftop owners to use solar energy as well as electricity from the grid. Such systems are often located in
built up areas, and supply electricity directly to the household (net metering) or to the electricity grid (gross
metering). When power is directly supplied
to the grid, the home owner or the developer
Rooftop Solar Segment
usually receives a credit or a payment for that
electricity called as feed in tariff (FiT).
Off-Grid: Such systems are independent of the
electricity grid and generally meet only partial
demand of a household. Such systems are
more complex in nature and less flexible as
compared to grid-tied systems.
2.1 Straight Forward Sales Model

or CAPEX Model
Grid Connected
Off-Grid
Gross
Metering
Sale to Grid
Standalone
Mini-Grid
Rural
Net
Metering
SelfConsumption
BI-lateral
Sale
RESCO
It is the most common business model for rooftop solar where a consumer pays 100% of the PV system
cost upfront. The key advantage of this model is that it allows industrial and commercial consumers to own
the system and claim tax depreciation benefits. Majority of the solar rooftop growth in the country has been
on this model. Due to the high capital costs, a customer might not have the required liquidity to finance
a system upfront or get the best debt terms. In

addition, customers usually do not have access
to the skills to maintain these PV systems.
2.2
Renewable Energy Service

Company (RESCO) Model
Straight Forward Sales or CAPEX Model

Rooftop
Solar PV
Solar
Energy
Self-finance,
Installation,
O&M
Under the RESCO model, a third-party company

finances, installs, operates and maintains the
Sell Excess Energy
rooftop solar panels. The advantage of this
Building
State
model is that the consumer can install a solar
Owners
DISCOM
PV system and also have the choice whether
Payment for
or not to consume the electricity. Based on the
Excess Energy
consumption choice, the model is further divided
into two types Rooftop Leasing and Power
Purchase Agreement (PPA). The key drawback in this model is the shifting of building owners from time
to time. In case the owner of the building sells the building and the new owner would not like the roof to
be utilized for solar, the project developer might have no other option but to shift the system to another
location. Shifting an existing system to another roof would create significant additional costs and would
push back the viability of solar power.
2.2.1 Rooftop Leasing

In this case the project developer would
be paying a fixed lease payment to a
building owner over the time of the
lease period for installing the solar panel
on the rooftop.
2.2.2 Power Purchase Agreement

Here the project developer could sell the
power back to the building owner in favor
of a lower solar power tariff. The excess
power could be sold by the developer to
the utility.
2.2.3 Local Micro Utility Model
RESCO Rooftop Leasing Model

Rooftop Solar
PV Systems
Finance,
Installation, O&M
Use of Rooftop
for Installation
Building
Owners
RESCO
Payment
Rooftop fees for
specified periods
Sell
Energy
State
DISCOM
RESCO Power Purchase Agreement Model

Rooftop Solar
RESCO
PV Systems Finance, Installation,

A local micro utility model involves
O&M
giving solar power generators easy and
cheap access to the distribution grid and
Sell
Use of Rooftop
Payment Excess
allowing them to sell power directly to
for Installation
Energy
third parties. This model helps reduce
the off-take risk for a RESCO investor
Sell Energy @
Fixed Rate for
and allowing for leasing of large, bundled
Building
State
defined period
Owners
DISCOM
roof spaces from building owners in a
designated area, install PV systems and
sell the power generated to the rooftop owners, other consumers or the DISCOMs at a pre-negotiated
tariff. This model also allows project developers to bundle rooftop space in a community and thereby
minimize the legal, commercial and technical transaction costs by increasing the size of individual plants.
This makes the model especially useful for the deployment of solar for residential consumers. Building
owners will be able to generate new income through leasing their roofs for a period of time (e.g. 15 years).
RESCO based local micro utility models have the potential to unlock a greater number of residential rooftops
for PV systems, by providing economies of scale to developers and easy income to a rooftop owner.
However there lacks a regulatory support for selling distributed power directly to end customers or utilities
in India. The city of Gandhinagar in Gujarat, has initiated a pilot project that has some characteristics
of the solar rooftop leasing model described above.
3
Financing Solar Rooftops
3 Financing Solar Rooftops

Growth of rooftop solar capacity is largely dependent on its financial competitiveness vis-a-vis grid power.
While the government has been proactive on its commitment by announcing encouraging financing initiatives
(priority sector lending, interest rate subvention) improving availability and cost of debt financing to go along
with wide ranging net-metering policies, there are still many roadblocks that have to be addressed to achieve
40 GW rooftop solar targets. In particular, the traditional models of financing pose various challenges for
investment in renewable energy due to:
99
Most renewable energy installations are of a scale that will not attract interest from traditional
financial institutions, as transaction costs would be too high.
99
Most regions where solar rooftop systems could provide energy access have high risk attached
to financial investments. Fragile economic viability, political instability, and/or underdeveloped
energy and financial infrastructures struggle to secure financing within the traditional banking
system.
99
Traditional financial systems only rely on credit ratings and collateral-based financing of
infrastructure.
3.1 Financing Programs for underdeveloped off-grid markets

a.
Microfinance: Microfinance systems provide alternative loans to individuals and small businesses
lacking access to traditional banking and financial services. A wide variety of microfinance products
and services have rapidly expanded to renewable energy installations and infrastructure, helping to
bring new energy online in previously underserved communities.
b.
International Bank Financing: Various international and regional banks such as The World Bank, Global
Environmental Facility, Green Climate Fund disburse large loans for renewable energy projects. In
addition, agencies such as United Nations Development Program (UNDP), United Nations Environment
Program (UNEP) provide funding and technical assistance for small off-grid projects. Such grants play
a large role in initiating renewable energy programs and they catalyze and expedite the renewable
energy market investment.
c.
Margin Money Finance: It involve providing support in the form of margin money finance to borrowers
who are unable to provide the down payment required for traditional loan products. In effect, margin
money financing bootstraps investment, as new owners use the benefit of their first installation to
purchase additional units under their own financing.
d.
Business-in-a-box for Micro-entrepreneurship: Business-in-a-box is a tool to support microentrepreneurs, circumventing traditional avenues of finance by providing solar kits for solar charging
or solar light businesses and repay a central provider company over time. r company over time.
3.2 Financing Intermediates Communities/Village Scale Projects

Intermediate scale renewable energy development permits consideration of more financing options than
for rural non-grid installations. In terms of return on investment, greater the size of the project, more likely
it is to attract resources, hence the need for community/village scale projects.
a.
Community Microgrid Projects: Instead of decentralized solar rooftop projects, electricity distribution
through microgrids at a village/town level will attract more traditional investors to finance significant
portions of a project. Institutional electricity customers may be able to raise funds from commercial
sources more readily and can carry a higher debt-capital ratio than can an individual customer,
making investment more attractive. As critical infrastructure receives power, additional opportunities
for smaller community customers emerge to capitalize on the expanded capacity. Microgrids have
numerous benefits in terms of resilience, efficiency and reduced maintenance costs, so much so that
there is currently a movement in developed nations to redevelop along the lines of a micro-grid model.
b.
Distributed Finance Internet Lending: The Internet is rapidly creating new avenues for fundraising
and investment. Individual borrowers can now present their ideas directly to individual lenders,
circumventing traditional financial institutions. Direct connections between lenders and borrows
promotes transparency while reducing transaction costs.
c.
Peer-to-Peer Funding: Peer-to-Peer (P2P) lending allows individuals and companies to invest without
going through a traditional intermediary such as a bank. Peer-to-Peer (P2P) lending allows individuals
and companies to invest without going through a traditional intermediary such as a bank.
d.
Crowd Funding: Crowd funding has also been successfully used to finance solar power projects.
Crowd funding aggregates numerous individuals through an Internet lending source to support a
project. Individual loans may be small, but in the total aggregated amount may be a substantial loan.
Under this model of crowd funding, as solar projects produce and sell electricity, investors are paid
back with interest. However, crowd funding rules in India are yet to be defined, but must urgently be
done so to unlock the publics goodwill as well as serious investment appetite.
3.3 On-bill Financing

Under on-bill-financing, the utility or municipality provides, in effect as a loan, the initial capital to install
renewable energy that is so often hard to raise. Repayment of this loan is then amortized and distributed
as a charge on the customers monthly utility bill or, in the case of municipality financing, a surcharge on
the property tax. Often the energy savings from the financed energy efficiency or renewable measures can
offset the repayment charges in whole or in part.
a. Property-tax Assessed Clean Energy Investment
In this case the municipalities arrange the upfront financing for solar rooftop equipment to the property
owners, which is repaid over a specified period through additional surcharge on property taxes. The key
advantage is that even after the ownership of equipment the building changes, the surcharge could still be
collected.
b. Electricity Bill Assessed Clean Energy Investment

Pay As You Save (PAYS), is a variant of bill financing in which the customer agrees to pay a monthly surcharge
which is lower than the independently verified, estimated savings. PAYS systems circumvent traditional
barriers to finance by providing the upfront capital requirements. Participants do not take on any debt
obligation for energy installations; making PAYS an attractive option for residential and business customers
who may not be in a position to obtain a loan to pay for the upfront capital costs of the installed measures.
As an independent system, PAYS does not require credit checks or liens. Here, all obligations are attached
to the meter, and dependent upon efficiencies.
3.4 Alternative Stock Exchange Markets

Pioneering stock markets have taken a role in creating sources of capital for renewable energy projects.
In addition to basic listing requirements, several stock markets have added requirements for social
responsibility including environmental practices. This allows the growing number of ethical investors to buy
stock with confidence in the companys virtues. In an era where there are a growing number of large funds
divesting from fossil fuel investments, social value stock markets could streamline changing reinvestment
patterns and spur investment in renewable energy. The Social Stock Exchange trades shares of companies
that contribute to social or environmental projects. This model takes the traditional benefits of raising capital
through public trading and focuses on investments in companies promoting socially beneficial values such
as renewable energy production.
3.5 Power Purchase Agreements (PPAs)

Power Purchase Agreements are contractual arrangements in which a wholesale energy company may
purchase exclusive rights to all or part of an energy providers electricity. PPAs allow the facility owner to
secure a revenue stream from the project necessary to finance the project and determine the quality of
credit. PPAs are a standard financing mechanism for the grid-based power market, enabling wholesale
purchasers, retailers and customers to buy and sell electricity through a distribution system. Innovations to
these contracts are providing an excellent tool to augment and encourage renewable investment.
3.6 Renewable Energy Certificates

Renewable Energy Certificates (RECs), represent the property rights to the environmental, social and
other non-power qualities of renewable electricity generation. By enabling producers to sell the rights
separately from the underlying physical electricity associated with renewable generation, organizations
can support renewable energy development and protect the environment when green power is not locally
available.194 RECs have become a staple system to finance the production and sale of renewable power
in the United States.
3.7 Feed-in Tariffs

Feed-in tariffs (FITs) are government mandated renewable energy subsidies requiring utilities to purchase
renewable energy at a subsidized rate. Feed-in tariffs have played an important role in incentivizing customer
uptake of renewable energy. These subsidized rates incentivize market participation from individual
customers to add renewable electricity to the grid.
FITs legally obligate utilities to purchase electricity from renewable energy producers at favorable, higherthan-market rates. The government, for a certain period of time, typically guarantees the favorable rates
assured by FITs. However due to a wider popularity of the reserve action process of Govt. of India, the FITs
may be discontinued in the near future.
3.8 Energy Service Companies (ESCOs)

Energy Service Companies or ESCOs have also emerged as viable market participants supporting investment
in renewable energy. ESCOs can serve a variety of functions. They can actively participate in the electricity
generation market by developing installing, and arranging financing for energy projects. ESCO essentially
arranges the project, while the tenants or owners pay the project costs, usually over a seven to twenty year
term. The ESCO arrangement helps to catalyze renewable investment by shifting qualification for financing
on to an ESCO specializing in renewable energy or energy investment installations.
3.9 Yield Companies (YieldCos)

Yield companies, or YieldCos, are publicly traded corporations that own and operate wind and solar
power plants. As a publicly traded corporation, a YieldCo enables sophisticated investors to own a share
in renewable energy production. Ownership of renewable energy plants provides YieldCos with a steady
stream of revenue at low cost. The steady revenue stream helps the Yieldco buy new plants from developer
partners at favorable terms. The relationship between a YieldcCo and a renewable energy developer allows
developers to recycle their capital. Selling an existing plant to a YieldCo makes it cheaper to raise equity
for subsequent plant investments. Since the YieldCo owns a variety of renewable energy plants, investors
are able to reduce risks by benefiting from diversification.
4
The Way Forward
4 The Way Forward

Innovation in financing mechanisms to spur investment in renewable energy programs, be it groundmounted or rooftop, is rapidly evolving ranging from microfinance in off-grid rural applications, on bill
financing of community renewable energy programs, to YieldCos acquiring increasingly larger scale
generation capacity. The progress thus far has been extremely encouraging and aiding the growth in the
renewable energy sector. As the cost of infrastructure decreases and access to cheap financing becomes
more readily available, renewable energy will become an even more viable force in helping to bring global
emissions from the power sector within safe and sustainable levels.
While the financing market adjusts itself to the evolving business models and market dynamics, there is an
urgent need to address various administrative, regulatory, operational and social challenges to supplement
growth of the solar PV rooftop models.
Stability in Legal
/ Regulatory
Framework and
Public Policy
Protection of
Property Rights
and Credibility of
Institutions
Access to Long
Term Finance at
reasonable cost
Reduction of
transactions costs
Suitable physical
and operational
infrastructure
Social
Acceptance
99
Laws and regulations must be transparent and stable over time
99
Short duration of policy cycle compared to the recovery period of

investment requires public policy stabilty
99
Title to essential assets of the project must be robust and ensure

peaceful use by the developer
99
Permissions and authorizations that have been duly given in adherence

to current legislation must not be revoked without clause
99
Energy projects have high capital costs and therefore require moderate
interest rates over long term
99
Basel III norms will restrict the abiity of banks to lend long-term,
hence new models that combine different soures of funding should
be explored
99
Individual projects must achieve a certain scale to attract private sector

financing on economic terms
99
Individual projects that do not meet this criterion should be aggregated

to reduce transaction costs
99
Need for a robust distribution and smart metering system
99
Need for a well-trained workforce to maintain the PV systems
99
RE must be accepted as a reasonable cost solution and must be on

equal footing with conventional energy generation technlogies
99
Development of renewable energy projects must represent long-term

benefits for communities in which they are implemented
Annexure - I
Incentive
offered
to solar
Rooftop
Projects
Delhi
Andhra
Pradesh
Haryana
J&K
Jharkhand
Karnataka
Kerala
Rajasthan
Banking Applicability
Silent
100% allowed;
however
no banking
for energy
produced
being
consumed on
the same day
Allowed for
one year
Banking for
captive use
or/and for 3rd
party sale
provided for 2
months.
100% allowed
Permitted
Conditional
Banking
facility to
captive
generators
after
considering
system
constraints.
As per
the RERC
regulations.
Banking
Charges
No Banking
Charges
Developer to
pay 2% of the
banked energy
towards
banking
charges
Silent - But
charges
applicable
presuming
banking being
allowed
Applicable as
per norms
Banking of 100%
of energy during
every financial
year permitted
subject to certain
conditions
Charges to be
applicable as
determined
by KERC form
time to time.
Applicable as
per norms
As per
the RERC
regulations.
Wheeling
charges
No wheeling
charges
No wheeling
charges for
captive use/
third party
sale within the
state through
33KV system
subject to
industries
maintaining
their demand
within its
contracted
demand.
As per HERC
Regulation
2010 with
amendments
Applicable as
per J&K SERC
for sale of
Power within
or outside the
state
As per wheeling
charges specified
by JSERC for
wheeling within
or outside the
state
State Govt.
grant of 4% of
the wheeling
charges, in
terms of energy
injected, and
the balance to
be borne by the
developer
Charges to be
applicable as
determined
by KERC form
time to time.
Not
applicable
for the
Captive Solar
generators
within the
state - i.e.
Applicable for
Non Captive
Solar
generators
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Transmission
Charges
No
Transmission
Charges for
solar plants
commissioned
during the
Operative
Period of the
Policy
Transmission
charges for
sale outside
the state
will be as
per APERC
regulations.
As per HERC
Regulations/
Orders
Applicable as
per J&K SERC
for sale of
Power within
or outside the
state
Developer to
pay transmission
charges to JSEB
/ Discom, in
case of sale of
power to third
party consumer/
distribution
licensee/JSEB
or its successor
Discoms, subject
to the regulations
of JSERC.
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Applicable as
per norms
Incentive
offered
to solar
Rooftop
Projects
Delhi
Andhra
Pradesh
Haryana
J&K
Jharkhand
Karnataka
Kerala
Rajasthan
Cross Subsidy
charges/
Surcharges
No Cross
Subsidy
charges/
Surcharges for
solar plants
commissioned
during the
Operative
Period of the
Policy
Not applicable
for Open
Access
obtained for
third party
sale within
the state
subject to
the industries
maintaining
their demand
within its
contracted
demand with
the DISCOMs
and for captive
use
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Open access
charges applicable
as approved by
JSERC from time
to time
Charges
shall be
applicable as
determined
by KERC form
time to time.
No open
access
charges for
wheeling the
power within
the state.
Open access
charges
applicable as
approved by
RERC/CERC
from time to
time
VAT and
Entry Tax
exemption
VAT and entry

tax Exemption
over the
devices
purchased for
the installation
of solar plants
in Delhi during
the Operative
Period
VAT for all the

inputs required
for solar
power projects
refunded
by the
Commercial
Tax
Department.
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
No entry tax
to be levied
on Power
generation/
transmission
equipment
and building
material
used for SPPs
Equipments
purchased for
installation of
Solar power
plants shall be
exempted from
VAT and entry
tax.
Tax
concessions
in respect
of entry tax
shall be as
per Karnataka
Industrial
Policy
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Reactive
Power
Charges
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Applicable as
per APERC
norms
As per Grid
Code of CERC
Applicable
as peras
per JKSERC
order.
Applicable as per
as per JSERC
norms
Applicable
as peras per
KERC norms
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
To be
charged by
RVPN as per
the RERC
orders
Stamp duty
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Refund
of Stamp
Duty and
Registration
charges
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Exemption
from payment
of stamp
duty and
court fee for
registration of
documents
Exemption in
stamp duty
in case the
Developer
purchases private
land
Stamp
duty and
Registration
charges
applicable as
per Karnataka
Industrial
Policy.
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Electricity
Duty
exemption
Electricity Tax
exempted
for solar
energy units
generated,
whether
for selfconsumption
or supplied to
the grid.
Exempted
for captive
consumption
and third party
sale within the
state
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Electricity
duty for self
consumption
/sale to third
party/ sale to
licensees @4
paisa/unit.
50 % electricity
duty and cess
for a period of
10 years from
the date of
commissioning.
Captive plants
to have 50%
exemption on
electricity duty for
5 years.
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
Energy
generated
from the
plants fully
exempted
from paying
the Electricity
duty
Silent - But
charges
applicable
presuming
the incentive
has not been
specifically
declared
YES BANK, Indias fifth largest private sector Bank with a pan India presence
across all 29 states and 7 Union Territories of India, headquartered in the Lower
Parel Innovation District (LPID) of Mumbai, is the outcome of the professional &
entrepreneurial commitment of its Founder Rana Kapoor and its top management
team, to establish a high quality, customer centric, service driven, private Indian
Bank catering to the future businesses of India.
YES BANK has adopted international best practices, the highest standards of
service quality and operational excellence, and offers comprehensive banking and
financial solutions to all its valued customers.
YES BANK has a knowledge driven approach to banking, and offers a superior
customer experience for its retail, corporate and emerging corporate banking
clients. YES BANK is steadily evolving as the Professionals Bank of India with the
long term mission of Building the Finest Bank of the World in India by 2020.
YES Institute, a new practicing think-tank, has been established as a division of
YES BANK, to focus on Indias sustainable and inclusive socio-economic growth and
development.
YES Institute will focus on six core areas of (1) Smart Urbanization; (2)
Sustainable Economies; (3) Design, Innovation, Creativity & Entrepreneurship;
(4) Co-operative Federalism; (5) Doing Business in India and (6) Culture &
International Relations.
The Institute believes that Indias economic growth must adopt a low carbon
pathway, leapfrogging to a scenario of unique and resource-efficient high technology
manufacturing, sustainable agriculture and services and also that Indias glorious
past and rich culture that is anchored in arts, crafts, frugal innovation and diversity
must be leveraged to define the countrys growth trajectory along a knowledge
driven pathway.

Financing Solar Photovoltaic Rooftop Revolution in India

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Financing Solar Photovoltaic Rooftop Revolution in India

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Nitin Sukh, YES Institute (YI), YES BANK

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Current State of Solar Rooftop PV Systems in India

1.1 Institutional Structure Stakeholder Mapping

1.2 Solar Rooftop Projects in India Challenges

1.3 Policy Landscape

1.3.1 Promising Central Government Incentives

1.3.2 State Governments

1.3.3 International Rooftop Solar Programs

Implementation Models for Rooftop Solar Systems

2.1 Straight Forward Sales Model or CAPEX Model

2.2 Renewable Energy Service Company (RESCO) Model

2.2.1 Rooftop Leasing

2.2.2 Power Purchase Agreement

2.2.3 Local Micro Utility Model

Financing Solar Rooftops

3.1 Financing Programs for underdeveloped off-grid markets

3.2 Financing Intermediates Communities/Village Scale Projects

3.3 On-bill Financing

3.4 Alternative Stock Exchange Markets

3.5 Power Purchase Agreements (PPAs)

3.6 Renewable Energy Certificates

3.7 Feed-in Tariffs

3.8 Energy Service Companies (ESCOs)

3.9 Yield Companies (YieldCos)

The Way Forward

Advantages of Solar Rooftop PV Systems

Greater consumer participation and investment

Savings in transmission & distribution losses

Widely accepted and saves valuable space

1.1 Institutional Structure Stakeholder Mapping

Policy and Governance

1.2 Solar Rooftop Projects in India Challenges

b. Availability and Cost of Debt Finance

India Solar Handbook 2015, Bridge to India

d. Legal Enforcement of Contracts

e. Lack of Sustainable Business Models

f. Net Metering Economies, Billing & Settlements

1.3 Policy Landscape

1.3.1 Promising Central Government Incentives

1.3.2 State Governments

1.3.3 International Rooftop Solar Programs

Solar Rooftop Program: International Perspective

- Long-term Feed-InTariff guarantee

- Third party service

- Gross metering till now - Net metering

Source: YES Institute Analysis

India Solar Handbook 2015, Bride to India

Formulate projects and programmes to promote solar applications

Develop innovative Financial Mechanisms to reduce cost of capital

Building a common Knowledge e-Portal

2 Implementation Models for

2.1 Straight Forward Sales Model

a system upfront or get the best debt terms. In

Renewable Energy Service

Straight Forward Sales or CAPEX Model

Under the RESCO model, a third-party company

2.2.1 Rooftop Leasing

2.2.2 Power Purchase Agreement