Pg 1 Module 1 C

ONLINE
CERTIFICATION
PROGRAM
INSTALLATION
OF SOLAR
POWER PLANTS

MODULE 1 C

BUSINESS MODELS
Pg 2 Module 1 C

BUSINESS MODELS ONLINE CERTIFICATION PROGRAM -

INSTALLATION OF SOLAR POWER
Installation of solar power plant is not only about PLANTS:
generating electricity and saving money and saving
nature, but it is one of the biggest investment Module 1:
opportunities of coming decades. 1 a. How Solar Works
1 b. Installation and working of
Installation of solar power plants started some where
in 2007-2008. At that time there were mega watt solar power plant
plants installed in Gujarat and Rajasthan. Big 1 c. Business Models
industrialists were enrolled in investing in mega watt 1 d. Investment, Saving, Return on
solar power plants through tenders. Considering the
investment, Internal Rate of
project costs, power purchase agreements were
signed for 25 years at Rs.18/- per unit. Which was Return
much higher than the rate per unit of Rs.3/- for
producing electricity from coal-based power plants.
Later, mega watt plants were installed in Madhya
Pradesh also.
Solar power policies were being formulated. National
solar policy was launched.
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BUSINESS MODELS - CONTINUED

As years went by, the project costs went down.
Earlier, the solar panels and inverters were
mainly manufactured in USA and Europe, mainly
in Germany. As China entered the
manufacturing of Solar panels and inverters, the
rates started going down.

It was said that solar power plant installation will

become viable once the rate reaches grid parity.
This means that cost per unit of producing
electricity from solar becomes equal to cost per
unit of producing electricity from coal plants.
And later, cost per unit of solar power will
become lesser than conventional power. Grid
parity was expected to reach in 2016 but came
much earlier as cost of solar panels fell by more
than 35% in 2015.
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Module 1 C
BUSINESS MODELS - CONTINUED
With change in government in India in 2014, the solar target was increased from 20
GW to 100 GW. Many states got their policies, while many go their updated policies.

Roof top solar power plants became viable financially where the rate per unit of
power was high, or with subsidies where rate per unit was low.

The investment opportunity is that you invest an amount that will give you much
higher rate of return, that is guaranteed, that too for 25 years. There cannot be such
investment opportunity in any business model.

International funds have great attraction towards investment in renewable energy. 

Billions of dollars are available for the purpose to save the nature from global
warming. These funds expect very low return.

Softbank invested in 1000-Megawatt solar power plant in India with a power

purchase agreement for 25 years. They were so happy with the return that they
promised to offer free electricity after the expiry of PPA to the nearby locations.

Let us look at various business models

that bring win-win situation to concerned entities.
Pg 5 Module 1 C

VARIOUS BUSINESS MODELS:

Capex Model
Opex Model
Open Access Captive Consumption
Open Access Third Party
Megawatt Plant under Bidding
Pg 6 Module 1 C
VARIOUS BUSINESS MODELS:
Common about all these models is that there need to
be a power consumer with very heavy consumption.
That the power rates are high as compared to cost of
producing solar power. Hence the difference is saving.

CAPEX MODEL:
In capex model, there is a power consumer. This can be
a commercial building, an industrial premise, a
residential society, a mall or anyone who has high
power consumption.

This consumer installs with own investment, a solar

power plant in its premises on the roof top or in any
shadow free area. The consumer also has a choice to
invest partly from its own investment and partly by
borrowings and paying interest on borrowings which
would be much cheaper than savings. This will result in
higher internal rate of return.
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CAPEX MODEL - CONTINUED

This consumer saves on

electricity bill to the extent
of solar power units
generated and consumed.
Hence, if the monthly
consumption is 10000 units
and solar power generation
is 7000 units than the
electricity bill will be only for
3000 units.
Now this saving of around 7000 units per month can continue happening for every month for
next 25 years subject to degradation in generation to the extent of 1% every year.
Apart from saving every month, the consumer, if commercial. will also get income tax benefit by
claiming depreciation.
Hence, the investment is recovered in less than 4 years. Sometimes where power rates are very
high, it is recovered in less than two years.
Pg 8 Module 1 C
CAPEX MODEL - CONTINUED
Once the investment is recovered, there will be savings
without any investment for more than 20 years.

The solar power plant will continue to operate for 25

years, keeping generating power.

The maintenance cost is very low as compared to

savings. As it is possible to project the generation of solar
units on annual basis for 25 years, it is possible to project
savings for 25 years and calculate the cost per unit of
power for 25 years on annualized basis.

This can also help in planning the production costs and

beat the competition.

Apart from saving money the consumer will also save on

carbon emissions.
 Pg 9 Module 1 C

CAPEX MODEL -
ILLUSTRATION -
ASSUMPTIONS
Grid Rate per unit Rs.12.00
Increasing by 3% every year

Solar Units 1st year - 138600

Reducing by 1% approx, yearly

O & M - 2% of investment
increasing by 5% every year

CAPEX MODEL - ILLUSTRATION

Investment in Solar Power Plant: Rs.55.00 Lacs
Tax benefit from Depreciation: Rs.16.50 Lacs
Net Investment: Rs.38.50 Lacs
Recovery of Investment in 3rd year
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Module 1 C

OPEX MODEL
In this case, there is a consumer who has very high power consumption. The rate per
unit is high. As compared with Capex model, in this case, the consumer is not willing to
invest in the solar power plant.

There is an investor, who invests in the solar power plant for the consumer on the
consumer’s roof or shadow free area. There is a power purchase agreement where the
consumer will purchase power from the investor at a rate per unit which is less that the
rate of power supplied by grid. This will result in savings for the consumer and return on
investment for the investor.

The power generated by this solar power plant is consumed by the consumer. A bill for
solar power consumed is raised every month by the investor to the consumer for the
solar units consumed during the month.

This results in monthly income for the investor and monthly saving for the consumer.

This is a basic opex model. The investor and consumer can device many terms and
conditions for mutual benefit.
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OPEX MODEL - CONTINUED

Third Party invests, installs, operates and maintains roof top solar plant
PPA is signed between investor and consumer
Tariff normally low than the grid rate
Consumer has choice to buy the plant at a predetermined price
Lack of bankability of private consumers
Lack of strong legal enforcement of contract
 Module 1 C
Pg 12

OPEX MODEL - CONTINUED - ILLUSTRATION

Consumer Rate per unit Rs.14.73 Saving without investment in 1st

Solar Rate per unit Rs.8.84 year Rs.5.57 Lacs
Discount of 40% Saving of Rs.62.55 Lacs in 10 years
Pg 13 Module 1 C
RENT A ROOF MODEL: RENT A ROOF MODEL:
There is a policy in making. Investor will take a roof on
There is an investor. There is a roof
rent and install solar power
owner.
The investor goes into an agreement with plant
the roof owner where investor hires a roof Offer lease rent to the roof
for a duration and pays rent per month owner
for that duration.
This premises owner is not interested in
Sell power to the grid
generating or buying solar power. Gross metering used for
The investor installs solar power plant on power supplied to grid
the hired roof and generates power.
Grid will pay investor every
The investor enters into power purchase
agreement with the power distribution month
company.
The investor’s income from selling the
power to the grid is higher than the rent
he is paying by hiring the roof.
Pg 14
OPEN ACCESS MODEL
In this model, the consumer’s power consumption
is so high that the roof and shadow free area
available are miniscule as compared to solar
power plant capacity requirement.
The solution is that a megawatt power plant is
installed on a vacant land which is far away from
the consumption point.
.The power is generated in this megawatt plant
and supplied to grid. The consumer receives the
power from grid out of the power produced from
the megawatt plant.
Module 1 C
OPEN ACCESS MODEL -CONTINUED
This open access model is further divided
into two options. Open access for captive
consumption and open access through
third party investment.
In first option the consumer invests in the
solar power plant. The return on investment
is the difference what the consumer will pay
for the grid power and what it pays for its
own generation. Favorable policy can save
immensely for the consumer.

There are mathematical calculations governed

by state policies that determine the ratio of units
supplied to grid and units consumed at the
consumer point. The policy also determines the
charges under different heads levied by power
distribution company.

Pg 15
OPEN ACCESS MODEL - CONTINUED
In the second option, the consumer does
not invest in the solar power plant but
there is a third-party investor who
invests in the solar power plant.
The consumer pays for the charges
levied by the power distribution
company plus a rate per unit based on
the power purchase agreement. The total
of this rate is less than the rate per unit
charged by the grid.
This model is so competitive that the
consumer buys power on open access
from third party at one-rupee difference.
So, if the monthly intake is say 25 lac
units, the consumer saves 25 lac rupees
per month.
Module 1 C
COMPETITIVE BIDDING MODEL:
The government releases tenders in different
category of ground mounted megawatt and
roof top solar power plant installations.
These are very large installations for more than
100 megawatt each. The allocation is done
based on bidding process.
Bidding provides fair allotment through
transparency. Since the tenders are standard
and provides each specification in detail, there
is least ambiguity about the pricing and
performance.
Investor is ensured a competitive tariff and
better return on investment. The grid is supplied
with reliable power at highest competitive rate.
Pg 16 Open Access Model: Module 1 C

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