In part 1 of the 3 part series we have covered the Indian power generation scenario and Gujarat Solar policy with insights on pros and cons of the state. In this post we will cover the Central Government Policy as well as certain key state polices.
JNNSM – The Central Government Policy for Solar Grid based Power Generation
The Jawaharlal Nehru National Solar Mission solar policy is the flagship for solar power development of the central government but has generated a lot more noise than it has created value. In the initial stages, prior to launching JNNSM, MNRE had a policy granting a maximum of 10MW of Solar Projects per state which was then superseded by the target of 20 GW by 2020, this made the world stand up and take notice of India’s Solar Market.
The JNNSM comprises of targets for rooftop as well as grid, off grid and collectors (heating) as shown in the table below
The goal of the mission is to provide enough tariff subsidies to increase scale and drive down costs to grid parity which is expected by 2022 and then on to tariffs comparable with Coal Thermal by 2030. This is to be achieved in a phased manner as mentioned in Table 1.
Table 1 – Jawaharlal Nehru National Solar Mission Targets
*Source – MNRE.gov.in
The seemingly huge target for 2022 of 20,000 MW or more, will be incident on the ‘learning’ of the earlier phases, which if successful, could lead to conditions of grid-competitive solar power. The transition phases could be appropriately scaled up, based on availability of international finance and technology.
Some stated goals of the central government outlined in the JNNSM policy document are
- To create favourable conditions for solar manufacturing capability, especially solar thermal for indigenous production and market leadership.
- To promote programmes for off grid applications, reaching 1000 MW by 2017 and 2000 MW by 2022
- To achieve 15 million sq. meters solar thermal (water heating) collector area by 2017 and 20 million sq meters by 2022
- To deploy 20 million solar lighting systems for rural areas by 2022
This literally created a stampede of developers and EPC players rushing to the field. However time taken from draft to final policy was excruciating long, with a number of conferences and seminars focusing on the final policy and the potential for Solar in India.
With allocations of just 650MW (CSP 75% + PV 25%) in Phase 1 which pulled the rug under the feet for most, as applications for capacities were in excess of 5GW.
A total of 804.5 MW capacity grid, connected solar power projects were selected by December, 2010, these comprised of:
ii. 37 projects of 620 MW capacity (7 projects of 470 MW of solar thermal and 30 projects of 150 MW of PV) projects selected by NVVN through discounts on CERC tariff.
- Eligible bids to set up PV plants had offered weighted average discount of Rs. 6.06 per unit on CERC tariff of Rs. 17.91 per unit and for solar thermal plants the average discount was Rs. 3.95 per unit on CERC tariff of Rs. 15.31 per unit.
iii. An additional 100.5MW were selected under the IREDA Small Solar and Rooftop Program
- Under this component of the Mission, MNRE provided a generation based incentive (GBI) of Rs. 12.41 per kWh to the State utilities that would directly purchase solar power from the project developers. The quantum of GBI to the utilities was kept fixed, as a difference of the CERC tariff for 2010-11 (Rs. 17.91 per kWh) and a reference of Rs. 5.5 per kWh.
Table 2 – Projects capacities allocated by MNRE
*Source – MNRE Annual Report 2010-2011
The MNRE annual report for 2010-2011 has details for all Renewable Energy projects conducted under its aegis. Allocations were spread across a few states only, with Rajasthan being the preferred destination for developers both Concentrated Solar Power and PhotoVoltaics.
MNRE subsidizes the costs of solar power by bundling the solar energy generated by plants with unallocated coal thermal power. This is being done with the help of NTPC Vidyut Vyapar Nigam (NVVN) the trading arm and a wholly owned subsidiary of Indias largest power generating utility, National Thermal Power Corporation (NTPC) coordinating the evacuation of power through distribution utilities. The entire objective of this process was to achieve lowering of tariff for solar power and making it independent of government subsidies, thus avoiding a further burden on the nation.
The final policy release had a mandated requirement for reverse bidding, a 5MW maximum cap for PV and bank bonds which pushed tariffs down to unreasonable levels with an additional provision for lowering rates on availing accelerated depreciation further eating into the developer’s pie. This process helped reduce tariff by about 30% over the tariff fixed by the Central Electricity Regulatory Commission. The projects are to be set up on build, own and operate basis for a period of 25 years.
The initial small solar and migration projects totalling 184.5 MW were the true gainers under JNNSM. The rates received from IREDA and NVVN varied from Rs. 15.31 to Rs. 17.91 per KWh unit of power, making these projects the most sought after by solar investors.
MNRE had announced the Guidelines for Rooftop and other Small Solar Power Plants connected to distribution network (Below 33 kV) in June 2010. This was designed as a State driven scheme to encourage the States to declare their solar policy for grid connected projects focusing on distribution network and to strengthen the tail end of the grid. The State utilities purchase power from any of the generation company based on the tariff fixed/approved by the respective State Electricity Regulatory Commissions (SERCs).
The project size was also limited to a maximum of 2 MW per plant to be connected to distribution grid. The projects were registered with IREDA on 15th July, 2010. The ministry provided a generation based incentive (GBI) of Rs. 12.41 per kWh to the State utilities that would directly purchase solar power from the project developers. The quantum of GBI to the utilities was kept fixed, as a difference of the CERC tariff for 2010-11 (Rs. 17.91 per kWh) and a reference of Rs. 5.5 per kWh. The final selection had 78 project developers setting up 98 MW capacity projects. PPAs were signed by the project developers with the respective State utilities.
These were the most lucrative PPAs passed out and quite a few PPAs allotted have changed hands since. However, there still remains a deep disconnect between genuine investors and some opportunistic PPA holders. The wants of developers aren’t in sync with Investors keen on entering the solar marketplace.
The lucrative prices for solar may further reduce as MNRE has recently kicked of the process of allocating PPAs under the JNNSM Phase 1, Batch II by calling for guidelines on the NVVN site.
Things will come to a head in the coming month with those unable to achieve financial closure facing imminent danger of losing their PPA allocation and bank guarantees as well. This is an opportunity that big guys interested in the power business have waited for on the side-lines and have already begun taking advantage.
Key Highlights of the JNNSM Program
- Levelised tariff of Rs. 12 for PV and Rs. 11 for a period of 25 years
- Low Risk of sovereign default based on subsidy structure
- State independent capacities, state electricity boards not burdened with high priced power
- Payments guaranteed by Public Entities
- Target of 20GW of Grid Connected Solar by 2020
- CSP capacities promoting large scale efficiencies
- Lucrative tariffs allocated to the first 184MW projects
- Intended to incentivize solar grid parity achievements
- Promotion of local manufacturing
Key concerns on the JNNSM Solar Allocations
- The maximum allocated Solar PV project size was 5MW per developer including its subsidiaries thus restricting serious players from building capacities
- Tariffs pushed down by reverse bidding, driving down IRRs significantly
- Other than the Small Solar and Migration projects, the banks have expressed severe apprehension on the viability of funding Solar power plants
- Financial risk perception is high
- Storage technology not given prominence for CSP
- Minimal allocation insufficient to spur significant grid parity efforts
- Efficiencies of technologies not promoted, maximum cap applied on unit generation
- Does not use Renewable Energy Certificates (REC)s to promote projects
A month ago, Mr. Deepak Gupta of MNRE, in an interview to Bloomberg highlighted that developers would not be allowed financial closure extensions for JNNSM allocated projects, post July 9th, 2011. Post that update, NVVN claims all projects have achieved financial closure.
In case developers are unable to build out the plants, these failed bidders will be allowed to reapply under the new phase and their allocations will return to the pool of projects to be allocated.
The breaking point would be the increasing negative risk outlook by the banks and only if they get past the initial lethargy in risk taking. However lately some banks have come forward to close financial requirements for solar developers. We sincerely hope most issues are resolved and a large majority of the projects are successful to ensure a healthy India and a better planet.
Indian State Grid Solar Policies
A number of states have begun drafting policies post JNNSM to incentivize solar generation within their states. Power distribution companies also have begun to set up plants under Renewable Purchase Obligation (RPO) targets for state / private distribution boards and captive units. A common problem shared by most states is paucity of power due to insufficient generation and poor fiscal state of the utilities due to political and financial abuse. Only a very few state power utilities are cash rich similar to Gujarat and have good credit ratings. This is a major reason why, inspite of allowing 100% Foreign Direct Investment (FDI) into the Power sector as far back as 2003, the government has not been able to attract serious investments by large global power generation companies in India. Most of them have adopted a wait and watch policy to date.
A comprehensive list of draft solar policies specific to states is available on the IREDA website. Below are a few key states that have begun promoting their own solar programs.
The Rajasthan solar policy through its Renewable Energy arm RRECL was released in May 2011 and an enforcement date of 19th April 2011, with the aim to push Rajasthan to the forefront of the Solar Movement in India. In the Initial stages of solar, a majority of developers preferred the state for its high solar irradiation as well as plentiful availability of waste and arid land.
The state government has leased out a large amount of land for a pittance for solar farms, and the JNNSM policy was announced which put the brakes on the state. The projects with the land allocated and permissions in place were moved to JNNSM under the migration and small solar scheme, with the vast majority of all solar allocations being given to the state.
There have been almost 1.5GW of applications to the RRECL and the stated target by the year 2012-14 for Rajasthan is 10GW with a JNNSM similar coal bundling policy to subsidize tariffs. The first phase of allocations for 100MW with CSP and PV given equal weightage is believed to begin shortly.
The key goals of the policy were to ensure use of arid land, generate employment, create an industry as well as an R&D hub and promote the state as a solar hub.
However given the poor financial state of the state distribution authorities, whether solar subsidies will be possible for such a large amount is questionable.
The Uttar Pradesh Power Corporation Limited has recently issued an Expression of Interest for the generation of a 100MW at a very low tariff of Rs. 4.74 per unit of power. Whether there will be takers for this is highly improbable unless availing of RECs are allowed.
The city of Delhi is in the process of launching a rooftop policy which will incentivize use and sale of residential generated solar power to the grid. The national capital city has tremendous issues of load shedding in peak usage months and expects to use the power to minimize impact to residential location.
The policy proposal announced by the Delhi Chief Minister Sheila Dikshit, at a conference envisages a target of 20MW over 3 years by house owners who would have the option of either paying 30% of the total cost of installation or can lease their roof to a solar power developer, who would then set up a unit. The remaining 70% would be financed by banks.
The home owners would have to sign power purchase agreements with the state distribution companies for the approval for feeding power into the grid. Home owners will get to earn approx. Rs.17 ($0.38) per kWh of power produced through the solar panels, which will be directly fed into a grid. The utilities may even deduct the amount the house owner earns through the solar unit from the electricity bill. These agreements will be for 25 years and are on similar lines of Feed in Tariffs followed in Germany and other nations.
Punjab had one of the first commissioned solar plants of 2MW by Azure Power Private Limited which powered 32 villages and was on the forefront of the GBI scheme of MNRE. The Punjab Energy Development Agency is the nodal authority for the generation of non-conventional energy of the power surplus state.
It deserved a mention because it was one of the pioneer distribution boards that encouraged solar power.
The largest consumer of power in the country has issues with the cost of solar power due to the high costs of cross subsidies provided to the poor and agricultural users to the tune of Rs. 4000 Crores or approx. $1 Billion. Recently Maharashtra State Power Generation Company (MAHAGENCO) has handed out a large chunk of the EPC for a 150MW solar power plant in Dhule district to a consortium between Lanco and Juwi . MAHAGENCO had connected its first ever solar plant of 1MW to the grid in April 2010.
The Maharashtra Electricity Regulatory Commission MERC has set the cost of Rs. 12 per KWh as the sale price of power from the solar farm with a technology split of 2:1 between crystalline and thin film. There are two other farms of 1 MW and 4 MW being built as well.
Tata Power one of the largest generators of power in the state has also commissioned a 3MW solar power plant in April 2011 at a procurement cost of Rs. 17.91 per KWh unit, at Mulshi, to meet its own Renewable Purchase Obligation (RPO) of 0.25% of total power distribution with a renewable target of 20-25% of its generation portfolio. This plant has generated just short of 1.6 million units per MWp yearly.
Currently the state hasn’t yet started the process of drafting a state wide solar policy for itself but the MERC has clarified a few of the issues in its July 2010 order by toeing the CERC line for tariffs.
The draft Karnataka Renewable Energy Development Limited (KREDL) Solar policy with targets from 2011-2016 has called for suggestions with a final policy effective from the 1st of June*. The decade long target of installed solar projects call for 3% of the total state energy generation by the year 2022.
The state has set itself a target of 126MW by 2013-2014, including those projects sanctioned under JNNSM with a total capacity of 200MW by 2016.
Plant sizes will be restrained to a maximum of 10MW for both thermal and PV, with a minimum of 5MW. A tariff of Rs. 14.50 for PV grid as well as rooftop / small solar plants and Rs. 11.35 for Solar Thermal is applicable for projects commissioned upto March 2013 based on the KERC order dated 13th July 2010.
Our final part in this three part series will cover the Central Government’s Offgrid Policy as well as ground realities on Solar Power in India.
The author leads an Advisory organization focused on Renewable Energy Projects and also runs two of the largest renewable energy forums on linkedin.com dedicated to the Indian subcontinent.