The World Bank – SBI Grid Connected Rooftop Solar PV

TA Program

Session X : Solar PV Rooftop Business Models

Presented by
The World Bank SBI GRPV TA Program

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Content

• Solar PV Rooftop implementation models across the globe

• Advantages of SPVRT deployment
• SPVRT Business Model design parameters
• Key policy and regulatory parameters defining SPVRT business models
• Gross metering and Net metering
• Different business models
• Key challenges

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Importance of Business Model Design for SPVRT
A business model
 is a plan, implemented by a company or an organization
 to deliver a value-based proposition (product or a service or a combination of the two)
 to a customer with the objective of earning revenues and profit

A business model
 formulates and communicates the logic behind the value created and delivered to consumers
 is a conceptual, rather than financial, model of a business

 Design of appropriate business models assumes significance due to their relatively high cost
of energy generation/high upfront investments
Building Blocks for an SPVRT Business Model

Downstream Supply Chain Ownership & Operation

Up-stream System
Distributor/ System Energy End
Supply Installer/
Integrator Owner User
Chain EPC

• System ownership • Revenue Stream

• Self Owned Systems • Feed in Tariffs
• Third Party Owned • Net Metering/ Self
Systems Consumption
Grid Connected PV Power – Global Scenario

Globally, grid-connected solar project development has followed 2 broad routes:

 Utility Driven Solar Project Development: Large MW-scale centralized solar projects developed
to meet renewable purchase obligations (RPO) of the utilities – either developed by utilities
themselves or by third parties for their procurement
 Customer Driven Solar Project Development: Small-scale decentralized projects developed by
electricity consumers on their own premises. Interest fuelled by the declining cost of solar energy,
fiscal incentives like feed in tariffs (FiT’s), net metering and tax rebates, coupled with the increase
in the cost of grid based conventional energy

Several hybrids of the above routes have emerged in specific markets, depending on the regulations,
market opportunities and role of intermediaries
Solar Power Program Implementation Models

These business models are strongly

influenced by existing policies and
regulations promulgated in national /
regional markets
Solar PV Rooftop Business Models Design Parameters

Variable Ownership Variable Fiscal

1 3
Structure Drivers
  Accelerated
Utility based
depreciation
Variable
 Third party owned 2
Revenue
Structure  Production income tax
 Customer owned  Solar lease credits

 Low-interest loans &

 Sale of power
(FiT’s/Bilateral PPAs) other fiscal benefits

 Self consumption
(replacing more
expensive power)
Evolution of Decentralized SPVRT Models
with Time & Ownership
1st Gen
End User Owned System
Supply
 Pioneering business model
 Focus on direct ownership by
building / rooftop owners
 End user of energy either user or
utility through FiT
 Institutions limited to financing,
designing, deploying and
maintaining systems
 Utility role limited and passive –
providing net metering, FiT
payments and interconnection
 E.g. Germany, Japan, USA,
WBREDA Pilot in Kolkata
2nd Gen
3rd Party Owned & Operated
Key Characteristics
 Business model addresses (through
third parties) market barriers – scale,
technical expertise, optimization
 Third parties install system on
rooftop, earn a lease payment / tariff
for use of energy generated
 Utility role still limited
 Incentives range from variations in
tax rebates to lease payments, net
metering feed in tariffs, ToU
metering, capital subsidy etc.
3rd Gen
Fully Integrated with USBM
 Hybridized business model/s
emerging with greater variations in
ownership, control and operation
 Utilities are driving these models to
actively become a part of the value
chain and earn returns
 Power fed into grid – becomes a
part of utilities supply
Key Policy & Regulatory Parameters Defining SPVRT Models
Key Incentive Mechanisms Used by Policy Makers & Regulators
Gross Metering
A framework where all the energy
generated is exported to the grid with no
internal consumption at the rooftop
owners facility
FiT
A Feed in Tariff (FiT) is used to denote
the price paid by a utility for power under
the gross metered regime
Net Metering
A framework wherein the energy
generated by the rooftop system is first
used internally (by the rooftop owners
facility) and the excess is exported to the
grid only to be netted against imports at
later times
Solar Tariff
This is the tariff paid for excess power
exported to the grid by the Net Metered
consumer under the Net Metering
Regulations in any jurisdiction
Interconnection Options for SPVRT System
Solar PV Rooftop Plant

Gross Metering
Captive
Plant

Net
Metering

Distribution
Internal Grid Electricity Meter Utility Grid
Captive Plant – Off Grid & Hybrid
 Entire generation should be consumed
Solar PV Rooftop Plant simultaneously (or)
 Surplus can be stored in Batteries (but expensive)
 Capability to consume energy immediately or store
energy limits the capacity of solar rooftop systems
 Consumers without steady daytime load throughout
Captive the year cannot go for captive plants. E.g., schools,
Plant households, offices

Distribution
Internal Grid Electricity Meter Utility Grid
Grid Connected SPVRT Systems
 Grid connected systems allow surplus to be generated without storing
Solar PV Rooftop Plant  Size of systems is not limited by capacity to consume energy immediately or
store energy

Gross Metering

Net
Metering

Distribution Utility is a regulated entity. It is importantDistribution

to understand
Internal Grid Regulatory Framework for Grid Connected Systems Utility Grid
Net Metering Arrangement
Solar PV Rooftop Plant

Meter 2: Solar
electricity
generation Grid

Meter 1: Bi-directional Net

Uni-directional
Meter Measuring
EnergyElectricity
Meter Consumption & Export
Working of Net Metering – Case 1

2 KW

3 KW 1 KW

Utility Bills for 1 kW Net Consumption to the consumer

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Working of Net Metering – Case 2
Allows surplus generation to be consumed at a
later time/ date within settlement period. E.g.,
 Households can generate during the day and
consume during the night
 Offices can generate on weekends and consume
during weekdays
Under Net Metering, system size limited by total consumption of
 Schools can generate during vacations and
the solar power annually
consume during working days
5 KW
End users gain from savings on electricity bill

3 KW 2 KW

Utility pays for 2 kW Net Generation by the consumer

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Gross Metering Arrangement
Solar PV Rooftop Plant

Meter 2: Solar
Electricity
Generation

Uni-directional Electricity Meter

Concept: Gross Metered
 Rooftop capacity is not limited by the
consumption of solar generation
 Allows end users with low energy demand
but large roof spaces e.g., large schools,
warehouses, assembly units etc. to optimally
use roof for solar

Distribution Utility pays for the solar generation at fixed

tariff for 25 years 5 KW

5 KW
3 KW

Utility pays for 5 kW Gross Generation by the consumer

Summary of Net & Gross Metering
Net Metering Gross Metering

Solar  Consumed by the end user.  Entire generation is injected to DISCOM grid
Energy  Surplus generated (when demand is low) is banked with the
Utilization grid Revenue for the project
 Banked energy utilized during high demand periods
 Unutilized banked energy may be compensated at the end
of settlement period

Effect on  End user saves on their electricity bill for the solar energy
end user generated and consumed
 Increasing end user tariff increases the savings
 Most suitable for high tariff paying consumers like
Industrial and commercial consumers
 Entire energy injected compensated at a constant feed-
in-tariff for 25 years
 No consumption required by rooftop owner
 Most suitable for low tariff paying consumers like
residential consumers

Effect on  Can be used for meeting solar RPO
DISCOM  Loses revenue due to reduced sales of electricity
 Increase in tariffs leads to increased adoption of solar
rooftop leading to higher reduction of revenue
 Can be used for meeting solar RPO
 Cost of energy procurement increases over the short
term
 With increase in cost of conventional power,
DISCOMs can gain over long term
Sub-models within the SPVRT Segment

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Self Owned Business Models
 Promotes investment in SPVRT systems by end users of solar energy themselves
 Generated electricity is either used onsite or exported to the grid

3 Possible Routes

Captive Net Gross

(Off Grid Mode) Metered Metered

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Self Owned - Captive
Self Owned – Net Metering
Self Owned – Gross Metering
Third Party Owned Business Models
A third party, separate from
consumer (rooftop owner) and
(utility) owns SPVRT systems to:
Lease rooftops and generate power,
sold back to utility or rooftop owner
through PPA
Lease entire system to rooftop
owner to utilize solar power to
replace utility based supply
Globally and in India, third party
owned models are a significant
market force due to:
Ability to access lower cost Third party owned SPVRT systems
financing compared to individual are have been developed through
consumers the following 2 main routes:
Greater ability to take on,
understand, and mitigate technical Solar Leases
risks Solar PPA
Aggregate projects and bring in
economies of scale
Effectively avail tax benefits and
make use of government incentives
Third Party Owned Rooftops with Captive Consumption –
No Grid Feed
Third Party Owned Rooftops with Combined Rooftop Lease –
Grid Feed
Gandhinagar Case –
3rd Party Owned Combined Lease Gross Fund
Gandhinagar Case –
3rd Party Owned Combined Lease Gross Fund (2)
Gandhinagar Case –
3rd Party Owned Combined Lease Gross Fund (3)
Comparative Assessment of different SPVRT Models
Design of Utility Based Business Models

Utility Ownership Utility Financing Customer Programs Energy Purchases

Southern California APS (special financing/ Ellensburg Municipal We Energies (Offered a

Edison (250 MW on refinancing to solar (WA): 136 kW available feed-in tariff for 10
Customer Sites) customers) with customers for net years contract)
metering
Western Massachusetts PSE&G
Electric Company (Lend capital to end- Sacramento Municipal
(6 MW on public and users & solar (CA) : 1 MW -
private high visibility developers for 40%- customers purchase
sites) 50% of project cost) share
Florida Power and Light Arizona Public Service
(110 MW on Customer (AZ): Utility owned,
Sites) customer sited, host
customers receive fixed
price contract, 2 MW
Community Owned Business Model
Community Owned
3rd Party Developer
Utility

Investment Returns

Community Owned Utility Installation

Virtual Net Metering – solar Monthly lease rental or fixed
energy credits at fixed costs Cost of solar power

Community
Residential Educational Commercial Industrial
Service
Consumer Consumer Consumer Consumer
Consumer

 Community Share Solar Programmes – Consumers can utilize benefits of solar generation without installing
on-site generation; set up by Community-owned Utilities or Third Parties in partnership with Investor-
owned Utilities
 Customers who participate receive proportional benefits through virtual net metering or fixed price contracts
 These allow Utilities to develop larger programmes while lowering costs
 Key challenge - ensure a compelling value proposition to Consumers
Key Challenges (1/2)
 How appealing is the idea of onsite generation from a system management perspective?
 What are my energy requirements and how do they vary with time (season/day)?
 What is the availability of land and rooftop area with me?
 What is my investment potential?
 What are the challenges of integrating an intermittent source into my system?

 How appealing is the Third-Party Model?

 Am I willing to sign a 25-year PPA / lease agreement/s?
 Why can’t we invest and get all returns for the ourselves?
 What works best where – field deployments v/s static residential / office requirements?
Key Challenges (2/2)
 Interdependency of Contracts and Financial Closure:
 Lease Agreement and PPA

 Implementation:
 Coordination between Statutory Bodies, Regulator, DISCOM, Developer, Financer,
Project Management, Social

Dr Amit Jain
Renewable Energy Specialist
Email: amitjain@worldbank.org
Acknowledgment and Disclaimer:
This training material is made possible by the support of the American
People through the United States Agency for International Development
(USAID). The contents of this material are the sole responsibility of Nexant
Inc. and do not necessarily reflect the views of USAID or the United States
Government. This material was prepared under Contract Number AID-386-
C-12-00001. The images shown here are taken from the Internet for
education purpose only. Further the training material has been modified
and updated as necessary by The World Bank – SBI GRPV TA Program 36