Central Electricity Regulatory Commission (CERC) has promulgated a notification on 16th September 2009 and published on their web site called “Terms and Conditions for Tariff determination from Renewable Energy Sources, 2009”. This notification contains broad guidelines on many commercial and regulatory aspects for establishing a generic renewable energy power generation project in India. Renewable energy is hundred percent driven by private investment in India. This notification was sorely needed by the potential investors in this country.
First of all let me state that this notification is applicable for all kinds of renewable energy sources taken for commercial power production. These include Bio Mass, Small Hydro ( 200 Watts / Meter Square power density, Hydro less than 25 MW of installed capacity and Bio Mass plants using less than 15% of fossil fuel. Solar in general will be called Renewable Energy project, provided the plant and machinery is brand new.
• Tariff period will be 13 years except for 10 MW installed capacity, will be on must run principle. This implies that grid will accept generation any time from Solar and Wind plants without demur.
• For tariff determination, Debt to Equity Ratio will be taken as 70:30 for any renewable energy project. Project cost will be designated in Indian Rupees (INR) and tariff will also be in INR.
• Loan Tenure will be 10 years for calculating the tariff. Interest rates will be based on Long Term Prime Lending Rates (LTPLR) as given by State Bank of India (SBI) plus 150 basis points.
• Repayment of loan will be considered from 1st year onwards to lender irrespective of moratorium enjoyed by project developer. The amount designated will be equal to annual depreciation for the project.
• Depreciation will be 7% per annum for first 10 years; remaining years will be in equal installments such that 10% salvage value will be left at the end of useful life of the project.
• Return on Equity will be 19% Pre-Tax for 10 years and thereafter at the rate of 23% Pre-Tax per annum from 11th year onwards.
• Interest on working capital for Wind, Solar and Hydro will include O&M for one month, receivables for two months and 15% of O&M as spares and consumables etc. For Bio mass working capital norms are based on elaborate formulas given in the notification.
• There is a 2% rebate payable to buyer if paid through Letter of Credit.
• There is a formula given for sharing CDM benefits between project owner and power purchaser in this notification.
• Subsidy and incentives offered by Union Government and State Governments will be reflected in the tariff calculation.
• Taxes and duties will be allowed as pass through on actual basis as incurred by the project developer.
Having listed the broad contours, let us look at Solar PV generation plant and its cost of generation in India. The CERC allows per MW installed capacity cost as INR 170 million. It works to about $ 3.55 million per MW. Is this cost valid in the current context?
For Solar PV generation plant to deliver at bus bar 1 MW (with 10% auxiliary consumption lost in the plant itself) one would need 5000 panels of 220 watt each. Given the current prices for Modules having UL or TUV etc certification hovering around $2 – $2.1 per watt, the total cost will be about 2.2 million USD. The balance of systems including Invertors, transformers, cables, control panels, support structures, land and technical knowhow etc, will cost about 1.5 million USD. The total project cost at about 3.7 million USD thus arrived will be comparable to what CERC has proposed for PV based solar power plant at $3.55 million USD per MW as current exchange rates of 48 INR = 1 USD.
Plant load factor by CERC for PV generation unit is fixed at 19%. This means we will have about 1.665 million units from this plant supplied per MW of installed capacity. In case it is 10 MW plant, the total units supplied in one year will be about 16.7 million. Delivered Kwhr at the bus bar will be about 15 million.
Capital structure indicated herein implies that for 10 MW plant about 35 million USD will be needed which would include scaling up effect. The Equity will be 10.5 million USD and Debt will be 24.5 million. All panels will be imported and also the balance of system hardware (except the civil works and support structures) so it is better to take USD loan at about 4% interest rates through international banks. With 19% return on equity, 4% debt servicing each year, 7% depreciation and interest on working capital the total out go will be about $ 4.5 million in first year from the project after commissioning.
The estimated tariff from the solar plant for 15 million delivered units per annum will be about 30 US Cents or about INR 15 per unit as of today. Compare this with commercial customer tariff in India at about INR 6 per unit. In the power exchange the spot prices quoted were hovering between INR 10 -12 per Kwhr during summer months in 2009. This year during rainy season, due to shortfall, the spot priced reportedly went up to INR 18 – 19 per Kwhr for some period.
Union Government has considered feed in tariff of up to INR 15 per Kwhr. West Bengal state has proposed INR 11 per Kwhr. Orissa has proposed INR 15 per unit from 1 – 12 years. Karnataka state has proposed INR 3.4 per Kwhr over and above INR 12 proposed by Ministry of Non conventional Energy. Other states will follow. The balance will remain uncovered and it would be notional cash loss for the generator. The second year tariff will be lower due to progressive depreciation etc. It should be viable proposition to enter into this business in India from 2010 onwards. In coming years the grid tariff will rise due to fuel prices and Solar PV / Thermal prices will come down due to scaling up and technological advances etc. The peak power prices from gird and Solar PV generation cost may become equal in less than five years from now.
What I have tried to argue out is an approximate idea of the project feasibility from economic viability point of view. Financial viability taking into account details such as incentives, IT Exemptions, subsidies if any, can be worked out by the project finance experts for a specific solar site in India.
International Perspective: The installed capital cost of $ 3.55/W appears to be on lower side for PV. The approximate turnkey installed costs (including land, grid connection, insurance, etc.) for PV in North America a few months back were:
• $ 3. 7/W for a-Si though progressive deterioration in efficiency will be greater than c-Si panels. In the context of technological maturity for a-Si today, in long run it may not prove to be commercially superior to c-Si panels.
• $ 4.1/W for crystalline Si (fixed angle), and
• $ 4.6/W for crystalline Si (dual axis tracking).
• These prices were based on a-Si module prices of US$ 1.9/W and crystalline Si module prices of US$ 2.3/W. Now we have these prices about $0.2/W cheaper.
• The dual axis tracking system in India should generate about 35% more power from crystalline Si modules compared to fixed angle installation.
• The amount of power generated from a PV system is calculated quite differently than connecting a 1 MW system to the grid since Sun is not shining 24 hours a day.
• The output depends on the location and amount of solar radiation.
• Mumbai on an average will generate 1600 hours of “peak sun” power each year. Some southern states will have this amount in the range of 1800-2000 hours. So one really needs to know this figure before calculating precise cost of solar electricity.
• Taking an average of 1800 hours of “peak sun” (this is the figure for Los Angles and for Northern Germany this is 900 hours), a 1 MW PV system will produce 1800 Mwhr or 1,800,000 Kwhr (or 1.8 million Kwhr) of electricity per year.
• One has to provide for power loss through inverters, system mismatch and rest of the system. This could be 10-15%.