THE BRIDGE TO INDIA BLOG
Andhra Pradesh has opened the financial bids for allocation of 500 MW solar projects. Developers have quoted a tariff for the first year, which will then increase at 3% every year till the 10th year. The term of the Power Purchase Agreement (PPA) is 25 years. First Solar has quoted the lowest bid at INR 5.25/kWh (levelized at INR 6/kWh) and has shown the way to reach parity with imported coal.
- The lowest bid of INR 5.25/kWh (levelized at INR 6/kWh) is also the lowest in India
- Over 95% of the projects will be installed in the southern districts of Anantapur, Kurnool and Chittoor
- The bid shows solar as almost at par with imported coal
Over the past few weeks, we have been discussing the various positive and ambitious announcements of the new Indian government on the solar sector (refer blog 1, blog 2 and blog 3). Now, the government has started announcing broader coal and power sector reforms in the country. It is clear that power sector is top priority for the new government and that should be highly beneficial for the overall economy.
- Pooling of domestic and international coal to arrive at a balanced coal price could lead to an across-the-board increase in power prices by around INR 0.50/kWh
- The e-auction process for the cancelled coal blocks, might be the first step towards privatization of coal mining
- Given India’s huge power deficit and social-cum-environmental imperatives, increase in coal and thermal power output is unlikely to affect growth prospects for solar power
Madhya Pradesh has emerged as the preferred state for new solar investments, overtaking earlier favorites Gujarat and Rajasthan. With close to 322 MW of solar capacity installed, MP is now ranked third after Gujarat and Rajasthan in cumulative terms. Interestingly, about 96% of this was added only in the last two years (2013 and 2014), the highest among all states. Key drivers for this growth are:
- The transmission and losses charges in Madhya Pradesh (about INR 0.62 / USD 0.01), are lower than in most other states
- The state government is offering land at almost free of cost to solar power developers and has introduced a “right to use” concept for government land to reduce the time and cost of land allotment
- To avoid delays, the state government has also simplified the process of clearances, approvals and inspections for setting up solar plants
Statements by Mr. Upendra Tripathy, Secretary, Ministry of New and Renewable Energy (MNRE), suggest that the government is thinking about a “Renewable Energy Act 2015” to create a comprehensive framework for investment in the sector (refer). Such an act would be a part of the build-up towards the Renewable Energy Global Investors Meet and Expo (RE-INVEST) hosted by the MNRE in February 2015 in Delhi (refer). Preparations for RE-INVEST have already begun. Road shows in London and Hyderabad have informed the investors about the sector and the event; the next roadshow is planned for Singapore on the 27th of October’14. A “Renewable Energy Act 2015” could focus on reducing the risks and transaction costs in the Indian renewables market, creating a framework that makes India an attractive option for professional and for global investors.
- To keep pace with the ambitious NSM, it’s about time for a comprehensive new arrangement that gives clarity on grid rules to consumers, investors, utilities and grid operators
- The MNRE has in the past stated that reducing the cost of capital for renewables would be one of its key tasks
- BRIDGE TO INDIA assumes that, Renewable Energy Act 2015 – if really in the works – is still in the conceptualization phase
India’s new government is revamping the National Solar Mission (NSM). The planned allocation of 1,500 MW under batch II of phase II has been cancelled. Instead, the Ministry of New and Renewable Energy (MNRE) has now issued draft guidelines for a more ambitious 3,000 MW for tranche-I. The guidelines clarify the allotment for part-I of this tranche, for 1,000 MW, located at a solar park in Kurnool district in Andhra Pradesh. We expect the allocation process will begin in December (“December tranche”). The guideline document for this can be accessed here.
- Out of 1,000 MW, 250 MW is reserved for domestic content requirement (DCR)
- The individual project size is set as 50 MW; a company can apply for a maximum of five projects
- The objective is to make life as easy as possible for developers. However, the draft guidelines leave crucial questions unanswered
The Renewable Energy Certificate (REC) mechanism was introduced three years ago as a market tool to support the policy of Renewable Purchase Obligation (RPO). However, since then, the mechanism has attracted little interest from investors. Projects that counted on REC income have made losses as there were not enough takers for RECs. The Central Electricity Regulatory Commission (CERC) has now proposed a revision for the mechanism. Will the changes finally revive the dysfunctional solar REC market?
- So far the REC market has failed to deliver because of non-implementation of the RPO mechanism and a high minimum price of RECs (set by CERC)
- Despite CERC’s step towards reducing the price per REC, the market not fly unless RPOs are enforced
- The long term demand for RECs looks bleak considering that parity is fast approaching
Last week, the Delhi Electricity Regulator Commission (DERC) released the guidelines for implementation of solar energy systems on rooftops in the city. The document details the procedure for application, registration and connectivity. These guidelines bring clarity to the nitty-gritties of installing solar on rooftops and greatly simplifies the approach for people looking to go solar. The key takeaways:
- The registration process has been divided into 3 tiers: feasibility analysis, registration and connection agreement
- The rooftop solar plant must get connected to the grid within one year of registration
- If more power is fed into the grid than taken out, the distribution company will, at the end of the year, reimburse the system owner at the Average Power Purchase Cost (APPC) for that year (currently around INR 4.75-5/unit)
There are currently nine states (Gujarat, Andhra Pradesh, Uttarakhand, Tamil Nadu, West Bengal, Karnataka, Kerala, Delhi and Punjab) that have announced net-metering policies in India. These policies are aimed at encouraging the adoption of distributed solar PV generation in the country. A careful examination of the policies, indicate that the technical pre-requisites of the solar system components in each of these policies vary significantly and are in some case, not aligned to the central guidelines on distributed generation tabulated by the Central Electricity Authority (CEA). Should there be uniformity in distributed regulations?
- Most states in India that have announced net-metering policies have not adhered to the CEA regulations of distributed solar generation. These discrepancies can hinder the overall solar market in India.
- There is a large variation is metering regulations. Andhra Pradesh for instance has very stringent metering requirements that can push meter costs to well over 15% of overall systems costs.
- Grid penetration limits are yet another important requirement that is completely missing from the CEA as well as many other states (ex: Uttarakhand, Andhra Pradesh, etc.). Among the states that have announced limits (Example: Delhi), they need to be reviewed and perhaps upgraded to allow for greater deployment of solar