Will Andhra Pradesh be India’s next solar boom state?

Will Andhra Pradesh be India’s next solar boom state?

Andhra Pradesh receives some of the highest irradiation in India. The state has significant renewable purchase obligations (RPO) stemming from its high power demand. In addition, Andhra Pradesh has India’s best performing state power utility (State Electricity Board, SEB). So far, the state has no solar policy in place but it has nevertheless signed a contract for a 100 MW solar power plant with Welspun Ltd.

Andhra Pradesh receives a global horizontal irradiation (GHI) of 1,900 – 2,000 KWh/m2/Year. This is among the highest values in the country after Rajasthan, Gujarat and Tamil Nadu. On further technical parameters, the grid infrastructure in the state is strong with AT&C losses (~16%) significantly lower than the national average (~27%).  Good intra-state power evacuation grids directly translate into good opportunities in grid-tied systems. In addition, there are large infrastructure projects planned to improve inter-state grid connectivity of the state.

Andhra Pradesh has a significant total solar RPO requirement of 551MW until 2016. Solar projects worth 100 MW have already been allocated or are in the process of allocation to meet these obligations. However, there are doubts over the timely implementation of RPO. Policy implementation for the RPO is expected to meet reconsideration requests in absence of availability of options to meet these obligations (lack of enough renewable energy certificates in the country, for example). Therefore, the feasibility of setting up solar plants to meet RPO in the long run is questionable. Notwithstanding these arguments, the long-term power scenario of Andhra Pradesh still provides an opportunity for solar energy: The state currently has a total power demand of 51,563 GWh and a peak load demand of 13,177 MW; the second highest in the country, after Maharashtra. This demand is expected to grow by 48% in next five years as compared to a range of growth of 32% to 72% in rest of the states. Currently there is a total deficit of 2,519 GWh and peak load deficit of 1,586 MW in meeting the power requirements of the state. These account for 5% and 12% of total and peak load power demand respectively. The peak load deficit is higher than the national average (~9.8%). Solar availability is the highest at the peak load time in hot weather conditions. Given these facts, solar is one of the key options to bridge the peak load deficit in the state.

According to the Planning Commission of India report on the working of power utilities in 2011-12, Andhra Pradesh’s SEB reported a net profit of INR11 billion (EUR173m). This makes it one the best performing SEB in the country. The financial health of the SEB makes the PPAs relatively more bankable compared to those by SEBs of other Indian states. Also, AP has been ranked as the third most investor friendly state by a 2012 report by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). The report states that AP attracts 10.05% of the nation’s foreign direct investment (FDI), which amounts to INR121 trillion (EUR1.86 trillion). The public private partnership (PPP) India database corroborates the fact based on information from the Indian Brand Equity Foundation (ibef.org). The database records 96 PPP projects in the state with a contract value worth INR670 billion (EUR10 billion), the highest in the country. More public partnership projects indicate the confidence of private entities in investing in a particular state considering the social, economic and political conditions of that state and therefore corroborate the investment friendliness of Andhra Pradesh.

There are, however, also some caveats to AP’s strong position. For example, there are concerns over the sociopolitical conditions. It is rated 1.42 on a scale of 5 for law and order condition by India Today “State of States” conclave, 5 being the highest. Demands for the state’s division into Andhra Pradesh and Telangana may also pose a risk to the PPA, depending on the location of the plant. AP also has a significant number of districts affected by left-wing “Naxal” insurgents. A further drawback is that Andhra Pradesh does not have a dedicated solar policy, which implies the absence of a well-defined procedure for solar projects in the state. The state had announced in November 2009 that it would introduce a solar policy with a special focus on manufacturing but has not executed on its plans yet. Instead of using a policy guided Feed-in-Tariff (FiT) mechanism to meet RPO requirements, Andhra Pradesh is going for large direct contracts. However, a specific solar policy limits project development opportunities by size or scope. Thus, not having a policy is a positive point for large solar project developer willing and able to negotiate a PPA directly with the government. This is what Welspun Energy Ltd, the energy arm of Welspun Group, has done. Welspun has received a contract worth INR9.5 billion (EUR150m) from AP to set up a 100MW solar power plant in Anantpur district. Vineet Mittal, Managing Director, Welspun Energy Ltd. Says: “we had entered into the agreement with the state government in January, this year, and will complete the project by 2013. We will construct, operate and maintain the power plant and are acquiring land for the project.”

With high irradiation, strong grid infrastructure, significant solar RPOs, second highest peak demand and peak load deficit in the country, best performing SEB and investment friendliness, Andhra Pradesh could very well become the next solar boom state in India.

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