International Solar Alliance

The 2015 United Nations Climate Change Conference, COP 21 was held in Paris France, from 30 November to 12 December 2015. The COP21 witnessed a major alliance (ISA- International Solar Alliance) between India and France, towards their effort to combat the impacts of Climate Change.

The ISA which is a partnership of 120 solar rich countries was officially and jointly launched by Prime Minister Narendra Modi and French President Francois Holland on 30th November 2015, in Paris. The foundation-laying ceremony of the Interim Secretariat of ISA was done by both on January 25, 2016 at the National Institute of Solar Energy in Gurgaon. It has been confirmed that the ISA headquarters will come up on five acres of land in the campus of the National Institute of Solar Energy (NISE).

India plays a major role in this since Government of India will support ISA by hosting its secretariat for an initial period of five years and thereafter it would be generating its own resources and become self-financed. The total financial support by India, including cost of the land, will be Rs 400 crores while the French president has committed to the amount of 300 million Euros for the initial projects of the ISA

Objective:  The objective of the alliance is

  • To create a collaborative platform for increased deployment of solar energy technologies, this will enhance the energy security & sustainable development.
  •  Improve access to energy and opportunities for better livelihoods in rural and remote areas.

ISA plans to work on five key areas to achieve the above objectives:-

  • Promote solar technologies and investment in the solar sector to enhance income generation for the poor and global environment:
  • Formulate projects and programmes to promote solar applications:
  • Develop innovative Financial Mechanisms to reduce cost of capital:
  • Build a common Knowledge e-Portal:
  • Facilitate capacity building for promotion and absorption of solar technologies and R&D among member countries

Following the International Solar Policy, Ministry of New and Renewable Energy has also promised to come up with a policy next month for creation of special solar zones across India having an area of 100 sq.km at least. The MNRE Secretary said that they would also explore option of hybrid zones which would have possibility of setting up both wind and solar power projects.

JNNSM Phase 2 Batch 1 bid results

We thank solar industry expert – Mr. Gopal Lal Somani, who has graciously provided his inputs and comments on the results of bidding process. 

The MNRE had authorized Solar Energy Corporation of India (SECI) to implement NSM Phase 2 program. In light of this, SECI auctioned 750 MW of solar energy projects and announced the financial bid results on 21st February 2014. In the subsequent paragraphs, we have covered these results in detail.

A total of 68 bids were received from 58 developers, covering 122 projects with a cumulative capacity of 2,170 MW. Of this, 36 projects with a capacity of 700 MW opted to bid under the Domestic Content Requirement (DCR) part A of the bidding process and the remaining 86 projects with a capacity of 1,470 MW opted for the open category Part B. Each part eventually got allocated an equal 375 MW capacity projects. Bids by PMP Auto Components, Zandu Realty, Golden Crystal and Green Energy Wind were cancelled as they did not meet the techno-commercial criteria. The bid by Moser Baer was cancelled as they could not provide bank guarantee.

Figure 1 : Total projects & cumulative capacity that participated in bidding of JNNSM Phase 2 Batch 1.

The financial bids followed a technical qualification round. Developers competed in the reverse-bid auction in two parts. Half the 750MW available had a mandatory domestic content requirement (DCR), and the other 375MW was left open with no domestic requirement.

The US filed a complaint to the World Trade Organisation earlier this month claiming that it should have equal access to the procurement round. First Solar had dominated the thin film market in Phase I Batch 1 & 2; courtesy a loop hole in previous JNNSM bids. The company which worked with the US Export-Import Bank on a number of projects, missed out its share in this bidding cycle. India in reply to allegations from US said – that First Solar had missed out “only based on the bid submitted by them. There are no political considerations. India cannot be blamed to be investment unfriendly”.

The reverse bid mechanism included bids for viable gap funding (VGF), a government capital subsidy to provide up to 30% of JNNSM project costs subject to maximum Rs. 250 lac / MW. There is a cap of up to 50MW per developer for funding applications.

The lowest bid under the DCR was for INR 13.5 million (US$0.2 million) by Swelect for 10MW and highest bid has been INR24.9 million (US$0.4 million) by IL&FS Renewables also for 10MW. Under the DCR, another 15 PPAs are to be signed for 21 projects, totalling 375MW.The lowest and highest VGF sought for projects outside the DCR were INR 1.7 million by Gujarat Power Corporation Limited (10 MW) and INR 24.9 million by Madhav Infra (10 MW) respectively. The highest bid under the non-DCR category is INR 24.5m (USD 0.4m) by Tata Power Solar. Under the non-DCR category, 15 project developers will be invited to sign power purchase agreements (PPAs) for 24 projects totalling 375 MW. Part A with the DCR oversubscribed twice whereas the non-DCR (open) part B four times over. The entire capacity of 750 MW will be converted into Letters of Intent (LOI) likely to be confirmed to respective winning bidders by end of February.

Figure 2 : Maximum-Minimum VGF sought in JNNSM Phase 2 Batch 1.

Average VGF (DCR) – 22.14 million INR, Average VGF (non-DCR) – 15.7 million INR

The average project size per developer would be around 25 MW and top solar potential states i.e. Gujarat and Rajasthan are the most preferred locations opted by most developers for implementation.

VGF payments are estimated for non-DCR projects to cost INR 97 billion (US$1.5 billion), whereas the DCR bids are estimated to cost much more at INR 160 billion (US$2.5 billion).

The difference in government funding of INR 63 billion (US$1 billion), has sparked questions from solar industry analysts who are of the view that this funding should have been extended as direct funding to encourage domestic manufacturing instead.

It is speculated that some of the winning firms who made aggressive bid would not sign the PPA and therefore the figures will not be final until PPAs are signed, which is expected to happen by March/April 2014.

21st February 2014 was a momentous day for solar in India as financial bids were opened at SECI.

It may also be noted that the tariff for the NSM Phase II batch I projects were fixed at Rs. 5.45/kWh while the bids were called for Viability Gap Funding (VGF) required by the developer.

Bidders enthusiasm and aggression in bidding perfectly matched with NSM Phase I Batch 1 and 2 success stories. This he infers is due to declining cost trends in EPC cost, more reliable players in the market, lenders confidence in funding on higher efficiencies/output, improved performance, improvised O&M (evidently observed in Phase I projects) and bankable PPA with SECI.

The lowest bid for VGF has been made by GPCL (Gujarat Power Corporation Ltd), a Gujarat State company; also the promoters of Gujarat Charanka Solar Park. This was the first solar park in the country with more than 500MW installed capacity. The VGF bid by GPCL was a jaw-dropping Rs. 17.5 lakhs/MW in the non-DCR category. The next bid in the non-DCR category was Rs. 73.29 lac /MW by Sun-Edison, a US based developer.

Amongst wide variance in bidding amounts from various bidders in Part A and Part B, there were some bids in Part A which matched with those of Part B, which is an indication that VGF can now be capped at INR 135 Lac/MW and going forward paves the way for subsequent bidding cycles conducted for entire capacities under VGF as it creates more jobs and thrives economic development of India.

This will also allow large scale solar energy deployment and boost local solar industry for sustainable development.   The success of this bidding has reconfirmed the interest of investors in solar projects and is a big booster from crawling solar market.

The heavy VGF discounting seen in Part A and Part B is almost unbelievable but allows Solar Power emerge  as a clear winner.

“Achieving status of financial closure by all winning bidders would be a world class result ever seen elsewhere in emerging markets.”

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For a brief profile of Mr. Somani please visit page 4 of our NL Vol. 39

75% local content in JNNSM 2nd Phase – MNRE

Against the backdrop of the recent episode in which the United States dragged India in World Trade Organization (WTO) for local content requirement in JNNSM Ist phase, the ministry of new and renewable energy has come out with a bold step to incorporate 75 % local content in phase 2 of its solar scheme. Mr. Farooq Abdullah said – “We want to encourage domestic industry also. The bidding would start in the coming month”, giving signs that India is still keen in developing local green manufacturing market and expecting that WTO will turn US’s allegation in its favor.

Another important statement given with respect to the fledgling wind energy market in India was to reinstate the withdrawn accelerated depreciation mechanism. Hon’ble minister was spotted saying that the proposal for reinstatement would be taken up to the cabinet and the same will be pushed. He also asserted that MNRE has taken cognizance of the predicament of investments in wind energy and how the same is affecting the small and medium scale enterprises, which house a high capacity of captive wind power in the nation. Our blog-post on petition filed by IWPA recently can be assessed here.

Relevant media articles -

The Hindu 

EFY Times

Solar RECs: Investor’s perspective and feasibility study

Solar Projects are the flavour of the season. The National Solar Mission (NSM) has laid out an ambitions goal to make India the global leader in solar energy, and plans to develop capacity of 20 GW by 2020.

This analysis focuses on the impact and feasibility of Solar RECs as a mechanism to finance and operate solar energy plants. As a significant number of companies and investor consider solar energy opportunities, we present an analysis of how workable solar energy plants are under the REC mechanism.

Solar RPO are included in most state regulations

RPO regulations in each state require fulfilling a separate Solar RPO. At present the solar RPO requirement ranges from 0% to 0.5% of total electricity consumed. It is expected to go upto 3% by 2022. At the same time, a separate Solar REC will be issued to generators who meet the eligibility criterion. These Solar RECs will have a floor price of Rs 12/kwh and a forbearance price of Rs 17/kwh.

Demand for Solar RECs

Our analysis suggests that Solar RECs demand will be robust. Majority of the upcoming capacity in solar energy is either through state feed-in tariffs, or though the NSM. In either case, that capacity will not access the REC market. At the same time, there will be robust demand as every obligated entity will also need to buy Solar RECs. REConnect’s analysis suggests that 2011-12 demand of Solar power for RPO requirements will be in excess of 1,300 million units* (roughly translating into 600MW of capacity). As a result, we expect Solar RECs to sell at a high price.

*Calculated from CEA data : For a detailed analysis please contact us.

Most state regulations provide that in the event for inadequate availability of Solar RECs, the Solar RPO requirement can be fulfilled through Non-Solar RECs. Since Non-solar RECs are significantly cheaper that Solar RECs, this can present issues in the Solar RECs markets – companies may wait for the Solar REC supply to be exhausted so that they can buy non-solar RECs for compliance, and it may result in a downward pressure on Solar REC prices. More clarity is needed on the implementation of this clause is the state RPO regulations. Read more…

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