The REC

Mechanism

INDIA SOLAR
DECISION BRIEF

Viability of
solar projects in India

The REC
Mechanism
Viability of solar projects in
India

LEAD SPONSOR

ASSOCIATE SPONSORS

© BRIDGE TO INDIA, 2012
Original illustration by Dwarka Nath Sinha

LEAD SPONSOR
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:
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+91 011 4060 1235
Email: info@enerparc.com
www.enerparc.com

ASSOCIATE
SPONSORS
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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achieving its objectives in the field of international cooperation for sustainable
development.
GIZ operates in many fields: economic development and employment promotion;
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© BRIDGE TO INDIA, 2012

Established in 1982 in Bad Staffelstein, Germany, IBC SOLAR is one of the
world’s 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

The opinions and analyses expressed in this report are those
of BRIDGE TO INDIA, and do not, in any way, unless specifically
mentioned, convey or include the opinions of the sponsors of this
report.

© BRIDGE TO INDIA, 2012

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© 2012 BRIDGE TO INDIA Energy
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September 2012, New Delhi

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© BRIDGE TO INDIA, 2012

CONTENTS

1. Overview

01

2. The Renewable Energy Certificate
(REC) Mechanism

02

2.1. Background

02

2.2. Solar RECs

02

2.3. Lessons from the non-solar REC market

03

2.4. Procedures and timelines

06

3. Is the solar RECs market viable?

09

4. Solar REC business models

12

4.1. Business Model 1: APPC + REC

12

4.2. Business Model 2: RESCO + REC

13

4.3. Business Model 3: Captive + REC

15

5. Regulations under discussion

17

6. Conclusions and recommendations

18

7. Annexure

19

7.1. State-wise RPO Quotas (2012-2013)
7.2. Status of non-solar RPO compliance across different states
(2012-2013)

19
19

7.3. Glossary of terms

20

8. Guest Article

21

Setting up large scale PV: Lessons from new markets by
Mr. Santosh KM, Managing Director, ENERPARC India

9. Interviews

24

Mr. Stefan Mueller, COO, Enerparc

24

Mr. Vinay Shetty, Country Manager – Indian Subcontinent,
Canadian Solar

26

Mr. Jens Burgtorf, CSO, Director, Indo-German Energy Program, 28
GIZ
Mr. Jan Marc-Raitz, Director, Commercial Department, PV
Projects, IBC Solar

© BRIDGE TO INDIA, 2012

30

LIST OF
FIGURES

Figure 2-1

RPO requirements of selected states in India

02

Figure 2-2-1 Floor and forbearance prices

02

Figure 2-2-2 Projects registered under the REC mechanism

03

Figure 2-3-1 Registered REC projects by renewable energy resource

03

Figure 2-3-2 Historical non-solar REC demand by consumer category

04

Figure 2-3-3 History of demand-supply of non-solar RECs

04

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

05

Figure 2-4-1 Process for the issuance of solar RECs

06

Figure 2-4-2 Solar REC eligibility

06

Figure 2-4-3 Details of the accreditation fees payable to the SLDC

08

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

08

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

08

Figure 3-1

Expected solar PV capacity based on the REC mechanism

09

Figure 3-2

Derivation of expected solar PV capacity based on the REC
mechanism (year-on-year)

10

Figure 3-3

India solar and grid price projections

11

Figure 3-4

Assumptions for the projection of solar and grid prices

11

Figure 3-5

Solar REC price projections

11

Figure 4-1-1 State-wise APPC prices (2012)

12

Figure 4-1-2 Assumptions for determining EIRR – APPC + REC

12

Figure 4-1-3 Financial viability of APPC+REC projects

13

Figure 4-2-1 Assumptions for determining EIRR – RESCO + REC

14

Figure 4-2-2 Financial viability of RESCO+REC projects

14

Figure 4-3-1 Assumptions for determining EIRR – Captive + REC

16

Figure 4-3-2 Financial viability of Captive + REC projects

16

© BRIDGE TO INDIA, 2012

6

1. OVERVIEW

Indian solar policies
initially focussed on
supply side measures.

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

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.

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

© BRIDGE TO INDIA, 2012

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.

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

RECs are traded on
the Indian Energy
Exchange (IEX) and
the Power Exchange of
India Ltd. (PXIL).

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%

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 2-2-1: Floor and
forbearance prices3
Floor Price

`9,300 (€155)

Forbearance Price

`13,400 (€223)
© BRIDGE TO INDIA, 2012

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

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 Minister’s 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

© BRIDGE TO INDIA, 2012

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.
India’s 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
State

Capacity (MW)

Jaibalaji Business Corporation Pvt.Ltd.

Maharashtra

1.0

Omega Renk Bearings Pvt.Ltd.

Madhya Pradesh

0.15

M/S Gupta Sons

Madhya Pradesh

0.5

Jain Irrigation Systems Ltd.

Maharashtra

8.5

Kanoria Chemical & Industries Ltd.

Rajasthan

5.0

Numeric Power Systems Ltd.

Tamil Nadu

1.16

M&B Switchgears Ltd.

Madhya Pradesh

2.0

© BRIDGE TO INDIA, 2012

While the solar REC
market has just taken
off, the non-solar REC
market has been active
since May 2011.

Project

Source: BRIDGE TO INDIA

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%
© BRIDGE TO INDIA, 2012

Source: BRIDGE TO INDIA

REC Registry
105 KW
6
The REC Registry lists this project as 1.055MW
7
REC Registry
8
REC Registry
4
5

© BRIDGE TO INDIA, 2012

03
3

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.

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.

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

Figure 2-3-2: Historical non-solar REC demand by consumer
category10
250,000

Source: BRIDGE TO INDIA

100,000

Feb-12

Jan-12

Dec-11

Nov-11

Oct-11

Sep-11

Aug-11

Jul-11

Jun-11

May-11

Apr-11

0

Mar-12 © BRIDGE TO INDIA, 2012

150,000

50,000

Captive Power
Prod ucer
Open Access
DISCOM

Figure 2-3-3: History of demand-supply of non-solar RECs11
600,000
NUMBER OF RECs

500,000
400,000
300,000

Demand
Supp ly

200,000
100,000

Jul-12
Aug-12

Jun-12

May-12

Apr-12

Mar-12

Jan-12

Dec-11

Oct-11

Nov-11

Sep-11

Aug-11

Jul-11

Jun-11

May-11

Apr-11

Mar-11

Feb-12

© BRIDGE TO INDIA, 2012

Feb-11

The maximum demand
for non-solar RECs
occurred towards the
end of the financial
year between the
months of January and
March 2012.

TOTAL DEMAND

200,000

Source: BRIDGE TO INDIA

Indian Energy Exchange
Indian Energy Exchange
11
Indian Energy Exchange
9

10

© BRIDGE TO INDIA, 2012

4

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

The lack of supply
in the REC market is
likely to correct itself
with the registration of
India’s first solar REC
project.

3,000
2,500

Price
Floor Price
Forbearance Price

2,000
1,500
1,000
500
Feb-11 May-11A ug-11 Nov-11F

© BRIDGE TO INDIA, 2012

eb-12 May-12 Aug-12

Source: BRIDGE TO INDIA

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 India’s 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

© BRIDGE TO INDIA, 2012

05
5

2.4 PROCEDURES
AND TIMELINES

Step 1: Fulfill
Prerequisites

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.

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)

0

30
days

45
days

day

Figure 2-4-2: Solar REC eligibility
Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

© BRIDGE TO INDIA, 2012

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.

The NLDC is
responsible for the
issuance of RECs.

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.

Step 3: 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 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

© BRIDGE TO INDIA, 2012

07
7

FEES AND
CHARGES
One-time application processing fee (paid to state agency) `5,000 (€77)
One-time accreditation charge (paid to state agency)

`30,000 (€462)

Annual charge (to be paid by April 10 )

`10,000 (€154)

Revalidation/Extension (end of 5 years)

`15,000 (€231)

Taxes and duties

12.36%

th

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

Figure 2-4-3: Details of the accreditation fees payable to the
SLDC

One time registration fees

`5,000 (€77)

One time application processing fee

`1,000 (€15)

Annual charge (to be paid by 1st April)

`1,000 (€15)

Revalidation/Extension fees (End of 5 years)

`5,000 (€77)

Taxes and duties

12.36%

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

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
Application for issuance

`10 per REC (€0.15)

Taxes and duties extra

12.36%

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

© BRIDGE TO INDIA, 2012

08
8

3. IS THE SOLAR
REC MARKET
VIABLE?

The enforcement of
RPOs remains the
weak link in the REC
mechanism.

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 NAPCC’s 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 INDIA’s 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.

Figure 3-1: Expected solar PV capacity based on the REC
mechanism (year-on-year)15
337

350
300
250

220

200

173

150

© BRIDGE TO INDIA, 2012

EXPECTED DEMAND (MW)

BRIDGE TO INDIA's
analysis indicates that
the total capacity of
REC projects would be
868MW by 2016.

110

100
50

27

0

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, 2012

09
9

Year

2012

2013

2014

2015

2016

I. Total solar RPO
requirement

2,027

2,985

3,944

4,788

5,964

928

1,728

2,558

3,533

4,543

III. Remaining solar RPO
requirement (I-II)

1,099

1,257

1,386

1,255

1,421

IV. Solar RPO fulfilled
through the direct
purchase of solar power

824

943

1,040

941

1,066

V. Remaining solar RPO
requirement (III-IV)

275

314

346

314

355

Probability Factor 18

10%

35%

50%

70%

95%

27

110

173

220

337

II. Solar RPO fulfilled
through policies17

BRIDGE TO INDIA
expects that the total
number of RECs traded
is likely to touch 480m
by the year 2016.

Expected/required solar
REC projects
Source: BRIDGE TO INDIA

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 CERC is unlikely
to announce solar REC
prices post 2017 until
the current control
period (2012-2017)
comes to an end.

© BRIDGE TO INDIA, 2012

Figure 3-2: Derivation of expected solar PV capacity based on the
REC Mechanism (year-on-year)16

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 (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

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
INDIA’s analysis shows that grid parity
is likely to be achieved by 2022 across
all the states in India.

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.
16
17

© BRIDGE TO INDIA, 2012

10

Figure 3-3: India solar and grid price projections15
10.00
9.00
8.00
INR/kWh

7.00
6.00
5.00

APPC Tariff
LCOE of solar

4.00
3.00
2.00
1.00

Source: BRIDGE TO INDIA
0.00
2010
2012
2014
2016

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.

© BRIDGE TO INDIA, 2012

2018

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 INDIA’s REC pricing model
shows that projected REC floor and
forbearance prices for the control
period 2017-2022 are:

2020

2022

2024

Figure 3-4: Assumptions for
the projection of solar and grid
prices
Assumptions
Annual APPC escalation

5.00%21

CERC solar tariff (`/kWh)22

15.39

CERC CAPEX consideration
(2012) (`m per MW)

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)

(2017-2022)

Forbearance Floor
`13,400
(€223)

`2,200
(€34)

Source: BRIDGE TO INDIA

(2022- )

Forbearance

Floor

`4,000
(€62)

0

Forbearance
0

© BRIDGE TO INDIA, 2012

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

© BRIDGE TO INDIA, 2012

11

4. REC
BUSINESS 4.1 BUSINESS
MODELS MODEL 1: APPC+REC

This model is viable for
the state of Tamil Nadu
for a financial investor
looking for a minimum
of 15% EIRR.

Figure 4-1-2: Assumptions for
determining EIRR – APPC + REC
Assumptions

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.

Annual APPC
escalation

Figure 4-1-1: State-wise APPC
prices (2012)25

Debt interest rate 6.00%27

State

APPC (`/kWh)

Kerala

1.99

Madhya Pradesh

2.09

Himachal Pradesh

2.23

Uttarakhand

2.34

West Bengal

2.43

Andhra Pradesh

2.50

Rajasthan

2.60

Maharashtra

2.62

Uttar Pradesh

2.62

Karnataka

2.66

Punjab

2.71

Haryana

2.77

Gujarat

2.98

Tamil Nadu

5.00%

REC prices
2012-2017

`9,300 (€155)

2017-2022

`2,200 (€223)

2022-2027

`0 (grid parity
achieved by 2022)

CAPEX (per
MW)26

`88m (€1.3m)

CUF

18.00%
© BRIDGE TO INDIA, 2012

Source: BRIDGE TO INDIA

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 .

3.38

BRIDGE TO INDIA’s 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%).
© BRIDGE TO INDIA, 2012

Source: BRIDGE TO INDIA

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

© BRIDGE TO INDIA, 2012

12

Figure 4-1-3: Financial viability of APPC+REC projects29
3.50
TN

2.50
2.00
1.50

KL

MP

HP

UK

WB

AP

KA PB
MH UP

HR

GJ

© BRIDGE TO INDIA, 2012

APPC (INR/KWh)

3.00

1.00
0.50
Source: BRIDGE TO INDIA
0.00
2.0%
4.0%
6.0%

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.

The major drawback
in this model is the
poor financial state of
most DISCOMs in the
country.

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.

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,
29

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
customer’s 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 INDIA’s REC price forecast (see
previous section).

Source: BRIDGE TO INDIA analysis

© BRIDGE TO INDIA, 2012

13

Figure 4-2-1 Assumptions for determining EIRR – RESCO + REC
Assumptions30
Tariff escalation

5.00%

REC prices
`9,300 (€155)
`2,200 (€223)
`0 (grid parity achieved by 2022)

CAPEX (per MW)

`88m (€1.3m)

Debt interest rate

12.00%31

CUF

18.00%

© BRIDGE TO INDIA, 2012

2012-2017
2017-2022
2022-2027

Source: BRIDGE TO INDIA

Figure 5-5: Financial viability of RESCO+REC projects32
9.00

EIRR

8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00

© BRIDGE TO INDIA, 2012

GRID PRICE (INR/kWh)

In cases where supply
exceeds demand,
there must be an
option of injecting the
excess electricity onto
the grid during times
of peak demand.

0%

5%

10

Source: BRIDGE TO INDIA

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.

15%

20%

25%
Equity IRR (%)

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

© BRIDGE TO INDIA, 2012

14

For the CSS to be
completely discarded,
the DISCOMs expect an
even pricing of power
across all consumer
categories.

In the captive + REC
model, commercial or
industrial consumers
of grid electricity set
up a solar project for
the self-consumption
of solar power.

(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.

© BRIDGE TO INDIA, 2012

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.

15

Figure 4-3-1: Assumptions for determining EIRR – Captive +
REC33
Assumptions
Tariff escalation

5.00%

2012-2017

`9,300

2017-2022

`2,200

2022-2027

`0 (grid parity achieved by 2022)

CAPEX (`m)

88

Debt interest rate

12.00%

CUF

18.00%

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

REC prices (`)

Figure 4-3-2: Financial viability of Captive + REC projects
10.0

8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0

Source: BRIDGE TO INDIA

0.00%

5.00%

10.00%

© BRIDGE TO INDIA, 2012

GRID PRICE (INR/kWh)

9.0

15.00%

20.00%

Investor Expectation

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

33
34

25.00%

30.00%

35.00%

Equity IRR (%)

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

Source: BRIDGE TO INDIA analysis
Source: BRIDGE TO INDIA analysis

© BRIDGE TO INDIA, 2012

16

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.

Currently off-grid
projects are excluded
from the REC
mechanism.

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.

b. Accounting and billing

Some of these are:

e. An overarching policy
framework for distributed
energy generation

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.

c. Safety standards and technical
requirements
d. Taxes and duties (or waivers)
for self-generated electricity

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.

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

© BRIDGE TO INDIA, 2012

17

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.

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.

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 month’s 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,

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.
35

© BRIDGE TO INDIA, 2012

18

7.1 STATE-WISE RPO QUOTAS (2012-2013)36
State

Non-Solar RPO

Solar RPO

Andhra Pradesh

4.75%

0.25%

Arunachal Pradesh

4.10%

0.10%

Assam

4.05%

0.15%

Bihar

3.25%

0.75%

Chhattisgarh

5.25%

0.50%

Delhi

3.25%

0.15%

Goa and Union Territories 2.60%

0.40%

Gujarat

6.00%

1.00%

Haryana

1.50%

0.50%

Himachal Pradesh

10.00%

0.25%

Jammu and Kashmir

4.75%

0.25%

Jharkhand

3.00%

1.00%

Karnataka37

10.00%

0.25%

Kerala

3.35%

0.25%

Madhya Pradesh

3.40%

0.60%

Maharashtra

7.75%

0.25%

Manipur

4.75%

0.25%

Meghalaya

0.60%

0.40%

Mizoram

6.75%

0.25%

Nagaland

7.75%

0.25%

Odisha

5.35%

0.15%

Punjab

2.83%

0.07%

Rajasthan

7.10%

NA38

Tamil Nadu

8.95%

0.05%

Tripura

0.90%

0.10%

Uttar Pradesh

5.00%

1.00%

Uttarakhand

4.50%

0.025%

West Bengal

4.00%

NA39

Source: BRIDGE TO INDIA

© BRIDGE TO INDIA, 2012

7. ANNEXURE

7.2 STATUS OF NON-SOLAR RPO
COMPLIANCE ACROSS DIFFERENT STATES
(2012-2013)40
State

Non-solar RPO (million kWh)

Andhra Pradesh

3,44041

Assam

137

Bihar

172

Chhattisgarh

276

Gujarat

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).

© BRIDGE TO INDIA, 2012

19

929

Himanchal Pradesh

741

Karnataka

5,180

Kerala

576

Madhya Pradesh

888

Maharashtra

7,477

Punjab

319

Rajasthan

2,089

Tamil Nadu

2,433

Uttar Pradesh

3,016

Uttarakhand

404

West Bengal

1,279

Orissa

311

Delhi

432

Total non-solar RPO (MWh)

33,534,056

Total non-solar REC traded on
exchange

834,103

Percentage non-solar Achieved/
Fullfilled through purchase of REC

2.49%

© BRIDGE TO INDIA, 2012

Haryana

Source: BRIDGE TO INDIA

7.3 GLOSSARY OF TERMS
APPC
CAPEX
CEA
CERC
CSP
CSS
CUF
DISCOM
EIRR
FiT
FoR
IEX
LCOE
LT
NAPCC
NLDC
PERC
PPA
PXIL
REC
RESCO
RoE
RPO
SERC
SLDC

Average Pooled Purchase Cost
Capital Expenditure
Central Electricity Authority
Central Electricity Regulatory Commission
Concentrated Solar Power
Cross Subsidy Surcharge
Capacity Utilization Factor
Distribution Company
Equity Internal Rate of Return
Feed-in-Tariff
Forum of Regulators
Indian Energy Exchange
Levelized Cost of Electricity
Low Tension
National Action Plan on Climate Change
National Load Dispatch Center
Punjab Electricity Regulatory Commission
Power Purchase Agreement
Power Exchange India Ltd.
Renewable Energy Certificate
Renewable Energy Service Company
Return on Equity
Renewable Purchase Obligation
State Electricity Regulatory Commission
State Load Dispatch Center

© BRIDGE TO INDIA, 2012

20

8. GUEST
ARTICLE SETTING UP LARGE
Mr. Santosh KM,
Managing Director,
ENERPARC India

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.

In many ways, the
emerging solar
markets are building
on the experiences
of mature markets,
avoiding pitfalls and
learning from best
practices.

SCALE PV: LESSONS
FROM NEW
MARKETS

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 business’s capabilities and
the market’s 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.
21

Energy production
from PV is a function of
technology as well as
local meteorology.

In countries and
markets where
solar energy
policies are newly
introduced, regulatory
uncertainties are a
norm in the initial
period.

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
project’s 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 project’s energy delivery over its
life time. On the other hand, having an
22

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
can de-risk these delays.
and industries. Such small capacity
solar plants may end up connecting to
The mode of project execution in
medium voltage or low voltage grids.
new and emerging markets tend
Such grids in urban and rural areas
to be lump-sum turnkey EPC
in emerging markets tend to have a
contracts along with operations
higher downtime due to scheduled and
and maintenance contracts for a
unscheduled power outages. Also, in
limited period. Such contracts are an
markets where there is a net deficit
advantage for the developers as it deof electricity in peak demand periods,
risks them from product performance the grid quality drops. Solar plants will
and energy generation passing
not be able to export energy in such
these risks to the EPC contractors.
situations of grid non-availability and
In markets where local currency is
this risk needs to be factored into the
volatile, hedging risks also gets passed project’s financials.
on to the EPC contractors in the
turnkey EPC model. On the flip side,
History has shown that emerging
such contracts will also be expensive
technologies always go through a
and also reduces the developer’s span period of development, demonstration
of control on the project.
and deployment before entering in to
the main stream, depending on the
As developers gain experience in
strength and scale of the demand
PV, there is a tendency in matured
for that technology. Energy is one of
markets to move away from turnkey
the prime needs of societies and the
contracts to either an EPCM model
demand for energy is ever increasing,
or split packages with the system
as the ability to support economic
integration responsibility lying with an growth depends in large part on the
EPCM company or with the developer
availability of energy.
directly. There are some tangible
financial benefits that the developers
Over the last few years, there is
derive in an EPCM contracting model.
also an increasing awareness to
Such contracts tend to drive down
control and mitigate the potentially
the cost of the solar installation by
harmful effects to the environment
avoiding the cascading effects of the
arising from rapid economic growth.
margins. In addition, they provide
The initial skepticism on human
the developers with extended credit
contributed climate change has given
period benefits that OEMs offer and
way to an acceptance of this effect.
complete control over the selection of
Both, Governments and communities
the sub-contractors and components.
are becoming increasingly aware
Lastly, they enable developers to derive that economic progress should be
the benefits of low cost debt financing accomplished without adversely
or equity financing that some OEM
impacting our environment.
suppliers, like module companies,
offer.
Solar energy makes it possible to
have the cake and eat it too; to cater
Grid fidelity, its quality and uptime is
to ever increasing energy needs
another area that needs a detailed
without adversely affecting the
assessment in the conception stage of environment. As solar energy enters
projects. Large megawatt scale solar
the mainstream, some of the lessons
projects normally are connected to
from its growth and development cycle
high voltage grids whose quality and
will be important to understand and
uptime will be good and predictable.
learn from.
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
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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 sufficient volumes have resulted in
most of the new private conventional
energy plants operating below their
optimal plant load factors.

For REC based
projects, once price
and volume discovery
is done, bankability
would improve.

India is blessed with more than 300
days of sunshine and solar energy is
hence the right technology to plug the
energy deficit. As a solar market, India
has emerged into the sunshine and
will continue to be attractive for many
years to come.
What is Enerparc’s 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.

© BRIDGE TO INDIA, 2012

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 financing.
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
24

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.

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?

How do you see EPC prices in 2013?
Where do you see major cost saving
potentials?

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.

© BRIDGE TO INDIA, 2012

25

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 REC’s have been traded only
very recently and in small volumes
developers and bankers are not
confident of the sustainability of the
demand for Solar REC’s 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.

Projects with premium
quality materials and
engineering with Tier 1
suppliers from all over
the world should be
showcased as bankable
REC projects.

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

© BRIDGE TO INDIA, 2012

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

26

The Indian PV
manufacturers have
been left far behind
with respect to the
top manufacturers
in China, Taiwan and
Korea.

The NSM’s 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 world’s
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

© BRIDGE TO INDIA, 2012

and technology. 2) promote JV’s. 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 NSM’s
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.

27

Mr. Jens Burgtorf
CSO, Director,
Indo-German Energy
Program, GIZ

In order to
create increasing
enforceability of
RPO targets, the
compliance period
may be reconsidered
as quarterly or half
yearly.

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
© BRIDGE TO INDIA, 2012

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
28

of land, permission for evacuation of
power, permissions for construction
and operation, and its financing.

A key policy measure
that made Germany
one of the world’s
leading markets for
renewable energy and
decentralized energy
solutions is the German
renewable energy act,
called “EEG”.

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?

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.

A key policy measure that made
Germany one of the world’s 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 can’t 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.

– 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.

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

© BRIDGE TO INDIA, 2012

29

Mr. Jan Marc Raitz

Director, Commercial
Department, PV Projects,
IBC Solar

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?

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 TÜV

© BRIDGE TO INDIA, 2012

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 plant’s
performance ratio guarantee. IBC
SOLAR is in the position to cover all
these tasks. By this the overall project
30

risk is minimized and the financing is
easier.

The project could
also be financed
on a balance sheet
approach, in which
case the system
would begin operation
before the financing is
arranged.

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.

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.

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 year’s
Intersolar in Mumbai being held in
November, we will present our Indian
IBC module: The IBC Polysol CI. It is a

© BRIDGE TO INDIA, 2012

31

BRIDGE TO INDIA is a consulting
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Munich and Hamburg. Founded
in 2008, the company focuses on
renewable energy technologies in
the Indian market. BRIDGE TO INDIA
offers market intelligence, strategic
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© BRIDGE TO INDIA, 2012

services to Indian and international
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33

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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