EvaluationIndependent

Performance Evaluation

Report

India: Dahanu Solar Power Project

Raising development impact through evaluation

Reference Number: PPE:IND 2016-15 Project Number: 45915-014 Investment Number: 7340 Loan Number: 2798 Independent Evaluation: PE-790

Performance Evaluation Report November 2016

India: Dahanu Solar Power Project

This is a redacted version of the document that excludes information that is subject to exceptions to disclosure set forth in ADB's Public Communications Policy 2011.

NOTES

(i) The fiscal year (FY) of Dahanu Solar Power Project ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year starts (e.g., FY2011 begins on 1 April 2011 and ends on 31 March 2012).

(ii) In this report, “$” refers to US dollars.

In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department (IED) does not intend to make any judgments as to the legal or other status of any territory or area. The guidelines formally adopted by IED on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of the management of IED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

Director General M. Taylor-Dormond, Independent Evaluation Department

(IED) Officer-in-Charge E. Kwon, Independent Evaluation Division 2, IED Team leader L. Hauck, Senior Evaluation Specialist, IED Team member I. Garganta, Associate Evaluation Analyst, IED

Abbreviations

ADB – Asian Development Bank CDM – Clean Development Mechanism CER – certified emission reduction CERC – Central Electricity Regulatory Commission COD – commercial operations date CSR – corporate social responsibility DSCR – debt service coverage ratio DSPP – Dahanu Solar Power Project EBITDA – earnings before interest, taxes, depreciation, and amortization EIRR – economic internal rate of return EPC – engineer-procure-construct ESHS – environmental, social, health, and safety FCF – Future Carbon Fund FIRR – financial internal rate of return GHG – greenhouse gas JNNSM – Jawaharlal Nehru National Solar Mission MERC – Maharashtra Electricity Regulatory Commission MNRE – Ministry of New and Renewable Energy NPAT – net profit after tax PLF – plant-load factor PPA – power purchase agreement R-Infra – Reliance Infrastructure Limited RPL – Reliance Power Limited RPO – renewable energy purchase obligation SERC – State Electricity Regulatory Commission SPO – solar purchase obligation UNFCCC – United Nations Framework Convention on Climate Change US-EXIM – Export-Import Bank of the United States WACC – weighted average cost of capital

Currency Equivalents

Currency Unit – Indian rupee/s (Re/Rs)

At Appraisal 23 August 2011

At Completion 31 May 2015

At Independent Evaluation 31 August 2016

Rs 1.00 = $0.015 $0.016 $0.014 $1.00 = Rs64.56 Rs63.79 Rs67.14

Weights and Measures

GW – gigawatt km – kilometer kV – kilovolt kWh – kilowatt-hour MW – megawatt MWh – megawatt-hour tCO2e – tons of carbon dioxide equivalent

Contents

Page

Acknowledgments vii Basic Data viii Executive Summary ix

Chapter 1: The Project 1

A. Project Background 1

B. Key Project Features 2

C. Progress Highlights 3

Chapter 2: Evaluation 5

A. Project Rationale and Objectives 5

B. Development Results 5

C. ADB Investment Profitability 7

D. ADB Work Quality 7

E. ADB Additionality 8

F. Overall Evaluation 8

Chapter 3: Lessons 9

Appendix

Results and Ratings for Project Contributions to Private Sector Development and ADB Strategic Development Objectives–Infrastructure

11

Acknowledgments

The team from the Independent Evaluation Department would like to thank Reliance Power Limited, ADB headquarters staff, Bhupendra Jain (consultant), and the ADB India Resident Mission for their time and input, and peer reviewer Kapil Thukral for providing valuable comments to strengthen the report. Cover photo taken by Lauren Hauck.

Basic Data Dahanu Solar Power Project Investment No. 7340/Loan No. 2798-IND

Key Project Data As per RRP ($ million)

Total project cost 147.50 ADB investment 48.00 Cancelled ADB loan

Key Dates Approval of concept clearance 16 Aug 2011 Board approval 2 Nov 2011 Loan agreement 1 Dec 2011 Loan effectiveness 3 Deb 2012 First disbursement 9 Feb 2012 Commercial operations date 31 Mar 2012

Mission data

Type of mission No. of Missions No. of Person Days

Loan appraisal 1 8 Project administration 3 22 XARR mission 1 15 ADB = Asian Development Bank; RPP = report and recommendation of the President; XARR = extended annual review report.

Executive Summary

To address its needs for increased power generation, energy security, and

concerns about climate change, the Government of India has focused on developing renewable energy resources. The world’s first ministry dedicated to renewable energy is India’s Ministry of New and Renewable Energy, which has contributed to policy development and research to increase the use of India’s abundant wind and solar resources. In 2008, the government created the Jawaharlal Nehru National Solar Mission, to launch in January 2010, which set ambitious goals towards the installation of 20 gigawatts (GW) of installed solar power by 2022, from a base of nearly zero at the time.

In response to the newly favorable policy environment for solar power generation projects, Reliance Power Limited (RPL; part of the Reliance Group) developed the Dahanu Solar Power Project (DSPP), a 40-megawatt solar photovoltaic (PV) power plant in Rajasthan. DSPP is India’s first utility-scale solar PV power plant. In November 2011, the Board of Directors of the Asian Development Bank (ADB) approved a 17.5-year loan of up to $48 million from ADB’s ordinary capital resources to finance the project. The project was commissioned on a short construction schedule to achieve commercial operations on 31 March 2012. The plant was one of the first solar PV projects to be certified under the United Nations Framework Convention on Climate Change, and has achieved certified emissions reductions (CERs) beginning from the 29 August 2012 certification date. DSPP signed an agreement with ADB’s Future Carbon Fund for the fund’s purchase of CERs in April 2013.

The DSPP project is evaluated according to ADB’s Guidelines for Preparing Performance Evaluation Reports on Nonsovereign Operations to give an overall rating considering four components: (i) development results; (ii) ADB investment profitability; (iii) ADB work quality; and (iv) ADB additionality.

The rating for development results is satisfactory. Four subcriteria support the development impact rating: (i) contribution to private sector development and ADB strategic objectives (rated satisfactory); (ii) economic development (rated satisfactory); (iii) environment, social, health, and safety performance (rated satisfactory); and (iv) business success (rated excellent). The DSPP has performed above expectations in terms of power generation, with technology, plant design, and construction appropriate for the hot, dry operating environment of Rajasthan. The project was an early demonstrator of the viability of privately owned and operated solar PV plants, with 100% of metered electricity sold to the privately owned distribution company Reliance Infrastructure Limited (also part of the Reliance Group). Across India, the solar PV power generation sector has grown rapidly, such that the government has revised its goals for installed solar from 20 GW to 100 GW by 2022. By March 2016, installed capacity had reached 5.87 GW, and the MNRE reports that 95% of this capacity is privately owned and operated. The project has complied with all ADB and government ESHS regulations and has provided annual ESHS monitoring reports on time. RPL also has its own corporate social responsibility program which works with local stakeholders at all RPL projects to identify needs in the community that could be met with support

x Dahanu Solar Power Project

from RPL projects without interfering with government programs. At DSPP, the program has brought in traveling medical services, built access roads, augmented school infrastructure, and provided vocational training programs for boys and girls.

ADB’s investment profitability is rated satisfactory. ADB’s loan is appropriately priced for a risk of this nature, and all loan repayments have been made as scheduled. ADB’s work quality is rated satisfactory. The project is aligned with ADB’s Asia Solar Energy Initiative and India’s national energy goals. ADB’s ability to rapidly assess the project’s requirements and develop appropriate financing builds on its extensive sector and country knowledge. ADB’s participation in the transaction was an important contributor to the participation of the project’s other lender, the Export-Import Bank of the United States. All three parties worked together to finance a subsequent concentrated solar power project co-located with DSPP. The rating for ADB additionality is satisfactory. Overall, the project is rated successful.

CHAPTER 1

The Project

A. Project Background

1. The International Energy Agency reported that in 2011, nearly 25% of India’s population—289 million people—did not have access to electricity. Even for those with

access to electricity the supply was not reliable, and India’s per-capita energy

consumption was 597 kilowatt-hours (kWh), well below the People’s Republic of

China’s 2,648 kWh per capita and the world’s 2,730 kWh per capita. Dependency on imported fuels for power generation added to concerns about energy security.1

2. India’s focus on renewable energy began in response to the oil shocks of the 1970s, recognizing the potential to contribute to its energy self-sufficiency. In 1981

India created a formal renewable energy commission, which by 1992 had evolved into

the world’s first ministry dedicated to renewable energy. Renamed the Ministry of New and Renewable Energy (MNRE) in 2006, MNRE is India’s lead ministry for the renewable energy portion of the energy sector. 2 Broad energy-sector reform became a high

priority in the 1990s, with numerous policy reforms enacted to stimulate much-needed

investment in electricity generation, transmission, and distribution. In 1998 the Central

Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions

(SERCs) were created. In 2003, the Electricity Act 2003 began the unbundling of State

Electricity Boards and the beginning of sector competition, along with mandatory

metering, the introduction of multiyear tariffs, and renewable energy purchase

obligations (RPOs). In 2005, the National Electricity Policy 2005 included the

progressive increase of RPOs and mandated a competitive bidding process for RPOs by

power distribution companies. In 2006, the National Tariff Policy 2006 required SERCs

to fix the minimum percentage of RPOs for their states and to set preferential rates for

renewable power. Building on all of the sector and MNRE work, in June 2008 the Prime

Minister’s Council on Climate Change announced the Jawaharlal Nehru National Solar

Mission (JNNSM), to launch in January 20103 with three implementation phases to

increase India’s solar capacity to 20 gigawatts (GW) of grid-connected photovoltaic (PV)

and 2 GW of off-grid PV by 2022. Under the JNNSM, the RPOs were amended to

include a specific solar purchase obligation (SPO).

1 OECD/IEA–International Energy Agency. 2012. Understanding Energy Challenges in India – Policies, Players,

and Issues. Paris. 2 GOI Ministry of New and Renewable Energy. 2016. www.mnre.gov.in. New Delhi. 3 The JNNSM is one of eight missions which form the Government of India’s National Action Plan on Climate

Change (GOI, Prime Minister’s Council on Climate Change. 2008. National Action Plan on Climate Change. New Delhi.) The other missions are: Enhanced Energy Efficiency; Sustainable Habitat; Water: Sustaining the Himalayan Ecosystem; a Green India; Sustainable Agriculture; and Strategic Knowledge for Climate Change.

2 Dahanu Solar Power Project

3. In response to these newly favorable policy conditions, Reliance Power Limited

(RPL) sought to develop solar power generation assets. With RPL’s generation portfolio including 86% fossil fuels, the development of solar projects would diversify its energy

mix. RPL is one of India’s largest private power generation developers and is owned by Reliance Infrastructure Limited (R-Infra, 45% owner), AAA Project Ventures Private

Limited (40% owner), and the general public (15% publicly listed). RPL, R-Infra and AAA

Project Ventures are part of the Reliance Group. In July 2011, RPL approached the Asian

Development Bank (ADB) to finance the 40-megawatt (MW) Dahanu Solar Power

Project (DSPP) in Rajasthan state. DSPP is a 100%-owned special-purpose vehicle

specifically set up by RPL to deliver the DSPP; the project would be RPL’s first solar project and India’s first utility-scale solar PV plant. In November 2011, ADB’s Board of Directors approved a 17.5-year loan of up to $48 million for the $147.5 million DSPP.4

The project aligned with ADB’s Asia Solar Energy Initiative5 and complemented ADB’s ongoing solar initiatives in India.

B. Key Project Features

4. Technology and Construction. The project uses fixed-tilt cadmium telluride (CdTe) thin-film solar PV modules purchased from First Solar. At the time of appraisal, U.S.-based First Solar was and today continues to be the world’s largest PV CdTe thin-film module manufacturer.6 CdTe modules have been in commercial operation since 2002 and are particularly suitable for hot, dry environments such as Rajasthan. 7 However, as a relatively new technology in 2011, its long-term performance had not yet been proven at the time of project appraisal, and it was also possible that unique local conditions could impair the module’s performance over time. First Solar provided 25-year performance warranties, and conservative energy-yield forecasts were used to develop the lenders’ financial model. The inverters were purchased from Power-One Inc., an established supplier of high-quality inverters. The First Solar FS377 PV modules (and module series upgrades) and the Power-One PVI 500TL inverters are compatible technologies. 5. The project’s construction had two components: (i) construction of the PV plant; and (ii) construction of a 30-kilometer (km) 220-kilovolt (kV) double-circuit transmission line from the plant to the Dechu substation of Rajasthan Vidyut Prasaran Nigam Limited. Following an international competitive bidding process, the plant’s construction was awarded to R-Infra to complete a lump-sum turnkey engineer-procure-construct (EPC) contract, with liquidated damages to apply if the plant turnover was not completed by 15 March 2012.8 R-Infra procured and supplied all

4 ADB. 2011. Report and Recommendation of the President to the Board of Directors Proposed Loan Dahanu

Solar Power Private Limited Dahanu Solar Power Project (India). Manila. 5 ADB. 2011. Asia Solar Energy Initiative Affordable Solar Power for Asia and the Pacific. Manila.

6 Solar Media Limited/PV-Tech.org. 2016. Top 10 Solar Module Manufacturers in 2015. www.pv-tech.org/editors-blog/top-ten-solar-module-manufacturers-in-2015.

7 Polysilicon modules produce a lower current in the cases of both higher temperatures and/or lower light, and when the project was being developed polysilicon prices were very high compared with thin-film modules. The thin-film manufacturing process is completely automated and requires less human intervention in the manufacturing process, which produces a more consistent product. At appraisal, very few manufacturers had the ability to produce the CdTe modules in the needed quantity and with the project-planning and follow-on service provided by the winning tender.

8 R-Infra has several significant lines of business: electricity utility, including generation, transmission, distribution, and power trading; EPC services for roads and power projects; and infrastructure, including roads, metro rail, airports; as well as cement manufacture and manufacture of defense equipment (aircraft carriers, submarines).

The Project 3

foreign and domestic equipment and all construction works, apart from civil works supporting the access road, control room, and common areas; these works were subcontracted to Larsen & Toubro. The contractual arrangements and bidding process were reviewed during ADB’s due diligence, which confirmed the competitive award. The arm’s-length terms were satisfactory to ADB.9 The transmission line construction, including all required civil works, was separately awarded to A2Z Maintenance & Engineering Services Limited.10 6. Sale of Electricity. All of DSPP’s generated electricity is sold to R-Infra for distribution to R-Infra’s customers in the Mumbai area of Maharashtra state. This contributes to R-Infra’s compliance with the solar RPO requirements of the Maharashtra Electricity Regulatory Commission (MERC) that all electricity distributors operating in Maharashtra purchase 0.25% of power for distribution from solar generation for FY2011–FY2013, increasing to 0.50% for FY2014–FY2016.11 On 28 March 2011, DSPP and R-Infra entered into a power purchase agreement (PPA) for 100% of DSPP’s output for 25 years from DSPP’s commercial operations date (COD). The tariff was fixed in accordance with CERC’s renewable energy tariff regulations of 2009, which were in effect until 31 March 2012 for projects achieving COD by that date.

C. Progress Highlights

7. Construction. The DSPP was constructed from November 2011–March 2012 over a period of 129 days. COD was achieved on 31 March 2012,12 in time to meet the requirements to receive the Rs17.91 per kWh in accordance with CERC’s tariff regulations. This very short construction and installation period had been considered very optimistic at the time of appraisal (footnote 9), and the ability to meet the required schedule is attributed to (i) detailed planning in consultation with all stakeholders; (ii) an experienced execution team and an experienced EPC contractor; and (iii) support from the local population and government.13 The performance and reliability test started on 3 August 2012 and was completed successfully on 8 September 2012, in accordance with the EPC contract. 8. At appraisal, the cost estimate for the project was $147.50 million. The only other lender to the project is the Export-Import Bank of the United States; the US-EXIM loan is also a senior secured, pari passu loan. 9. Carbon Emissions Reduction. Under the Kyoto Protocol, 14 the Clean Development Mechanism (CDM) allows emission-reduction projects in developing countries to earn certified emission reduction certificates (CERs). Projects must complete a registration process through the secretariat of the United Nations Framework Convention on Climate Change (UNFCCC); upon registration, the projects are monitored annually to confirm the estimated amount of greenhouse gas (GHG;

9 Sgurr energy. 2011. Technical Due Diligence of a Proposed 40MW Solar PV Plant in Gujarat, India. Pune. 10 A2Z Maintenance & Engineering Services Limited is now known as A2Z Infra Engineering Limited. 11 MERC’s overall RPO requirements (solar plus other renewables) for distribution companies were 6%

beginning in FY2011, increasing 1% per annum until FY2014; 9% for FY2015–FY2016. MERC’s orders were issued 3 March 2010.

12 Sgurr Energy. 2012. Asian Development Bank (ADB) 40MW DSPPL Solar PV Plant Project Completion Report.Maharashtra.

13 ADB. 2015. Extended Annual Review Report Dahanu Solar Power Project (India). Manila. 14

The Kyoto Protocol was adopted 11 December 1997 and entered into force on 16 February 2005. It is linked to the UNFCCC which commits the parties listed in Annex B of the protocol to internationally binding emissions reductions targets. www.unfcc.int.

4 Dahanu Solar Power Project

GHGs include carbon-dioxide [CO2]) emissions abated by the project each year. Once the annual certification of the number of estimated tons of CO2 is completed, the project is issued with CERs (1 CER/estimated ton of CO2 equivalent [tCO2e])15 which can be traded or sold. The DSPP was registered with the CDM on 29 August 2012, among the first few solar projects to be registered in the renewable energy sector.16 10. In April 2013, DSPP signed a CER purchase agreement with ADB in ADB’s capacity as trustee of the Future Carbon Fund.17 11. Safeguards. The project is classified category B for environment, category B for involuntary resettlement, and category C for indigenous people under ADB’s Safeguard Policy Statement (2009).18 An environmental and social impact assessment report was prepared at appraisal.19 The plant is located in a sparsely populated desert area 180km northwest of Jodhpur in Rajasthan state on 140 hectares of barren and unproductive government land. Right-of-way for the transmission line and towers was acquired from 85 landowners through a negotiated settlement; no land acquisition was required. A grievance redress mechanism, working with the village development committee, was put in place; no claims have been made.20 No people were relocated because of project construction and no businesses were disrupted. No indigenous people were affected. Ongoing operations comply with government environmental and safety requirements. 12. RPL’s standard business practice includes corporate social responsibility (CSR) programs. The head office in Mumbai has 3 full-time CSR staff, supported by a local point of contact and additional consultants as needed for each of its operations; 40 consultants were employed for CSR across all projects as of April 2016. The programs are designed to fill identified gaps in needed services, and not to replace existing government services. For the DSPP, consultations with stakeholders identified needs for infrastructure support, health care and sanitation, and education. A 4km access road along the perimeter of the project area was constructed, along with an additional 500-meter (m) road to serve the area residents. Mobile medical checkpoints are provided, with regular scheduled visits from medical staff who are able to offer routine health checks and medicines. An ambulance was also purchased. School infrastructure has been augmented, and employability and vocational training for boys and girls has been provided.21

15

The certification process uses agreed formulas to calculate the abatement. In the case of DSPP the basis is the power exported to the grid as measured at the Decchu substation metering point. The CERs for all certified projects are allocated: 98% to the project; 2% to the UNFCCC, which uses its CERs to finance the UNFCCC Adaptation Fund. Tonne of CO2 equivalent is abbreviated as tCO2e..

16 UNFCC reference number 7103. Cdm.unfcc.int/Projects/DB/TUEV-RHEIN1346121477.85/view 17

The Future Carbon Fund (FCF) is a trust fund established and managed by ADB on behalf of the fund’s 6 participants (4 private and 2 public sector partners; ADB is not an investor in the FCF. The FCF became operational in January 2009 to purchase CERs issued from 2012-onward, to encourage energy efficiency and renewable energy projects undertaken in ADB’s developing member countries and to which ADB has committed financing or technical assistance. www.adb.org/site/funds/funds/future-carbon-fund-fcf.

18 ADB. 2009. Safeguard Policy Statement. Manila.

19 Reliance Power. August 2011. Environmental and Social Impact Assessment Report for Solar PV Project (40 MW) at Dhursar, Rajasthan. Mumbai.

20 Reliance Power. 2014. Compliance Report May 15 2014 40 MW Solar PV: Dhursar Solar Power Pvt. Ltd. Mumbai.

21 Relaince Power. 2012. Compliance Report August 24 2012 40 MW Solar PV: Dahanu Solar Power Project. Mumbai.

CHAPTER 2

Evaluation 13. The project is evaluated according to ADB’s Guidelines for the Preparation of Project Performance Evaluation Reports on Nonsovereign Operations22 to give an overall rating considering four components: (i) development results; (ii) ADB investment profitability; (iii) ADB work quality; and (iv) ADB additionality.

A. Project Rationale and Objectives

14. The DSPP project was undertaken to demonstrate the commercial viability of a utility-scale solar PV plant. The utility-scale plant contributes to R-Infra’s compliance with MERC’s requirements for distribution companies to distribute solar-generated power as well as to increase RPL’s renewable energy portfolio. All activities related to the solar PV plant support India’s National Solar Mission and align with ADB’s solar programs both in India and in the regional developing member countries.

B. Development Results

15. Development results are evaluated in four subcriteria: (i) contribution to private sector development and ADB strategic objectives; (ii) contribution to economic development; (iii) environment, social, health, and safety (ESHS) performance; and (iv) business success.

1. Contribution to Private Sector Development and ADB Strategic Objectives

16. The private sector development rating is satisfactory, based on the project’s contribution to the development of the solar sector in India and to ADB’s strategic objectives. In 2011, India had only a few small-scale solar plants and a total installed capacity of about 20 MW. The project’s impact indicators were based on the goals of the JNNSM, which had an interim target of 4 GW of grid-connected PV and 1 GW of off-grid PV by 2017; the impact indicator was set at 2 GW of installed solar generation capacity by 2014. By 2014, installed solar capacity had reached 3.7 GW, 185% of the impact indicator. In June 2015 the government revised the target of 20 GW of installed solar capacity by 2022 to 100 GW by 2022. By March 2016, installed solar capacity had reached 5.87 GW. DSPP was the first full-scale utility solar PV plant to achieve commercial operations in India, and at 40 MW, is still one of the two largest in the country (the Bitta Solar Plant in Gujarat has 40.11 MW of installed capacity). Rajasthan also has five 20 MW solar plants and Gujarat has a further eight 25 MW plants plus three 20 MW plants (footnote 2). These projects satisfy the second impact indicator,

22 Independent Evaluation Department. ADB. 2014. Guidelines for the Preparation of Project Performance

Evaluation Reports on Nonsovereign Operations. ADB: Manila.

6 Dahanu Solar Power Project

that at least five other utility-scale solar PV plants be installed by 2014, of which at least three are in Rajasthan. India also has encouraged development of wind and hydroelectric power generation (including small hydropower, which is included in renewable energy). By June 2016, renewables comprised 14% of India’s installed capacity.23 These figures indicate that the project’s impact target of 15% of renewable-sourced energy by 2020 is on track. Renewable energy capacity is 95% privately owned.24 The rapid gains for both the wind and solar portions of India’s renewable energy portfolio are due to a number of factors, specifically the enabling policy environment, the abundant natural resources, and the participation of the private sector. ADB’s strategic objectives include specific focus on development of solar power projects, to which the DSPP contributes. 17. The project was also intended to contribute to a more diversified energy mix for RPL. As of 2016, RPL reported it has 5,945 MW of installed capacity, including 140 MW of solar power (the DSPP and a separate concentrated solar power project, co-located with the DSPP and financed by ADB, US-EXIM, Nederlandse Financierings-Maatschappij vor Ontwikkelingslanden N.V. [FMO] and Axis Bank Limited); and 45 MW of wind power. In 2011, these projects were all in the development stages. Further solar PV projects are expected to be developed as the opportunity to achieve target pricing for PPAs improves. The solar PV sector has evolved rapidly since the 2011 appraisal. With declining module prices and many new entrants competitively bidding for PPAs, the PPA price per kWh has declined to Rs4+ in 2016 (approaching the grid parity price of Rs3+ per kWh). Some solar PV operators are not expected to achieve profits at Rs4+ per kWh, which may lead to sales of installed capacity that RPL may pursue to add to its solar capacity. Additionally, the DSPP site has allocated land for a 60 MW phase II solar PV project, which can be developed as bidding returns to more favorable offtake prices.25 RPL has also entered into a memorandum of understanding with the government of Rajasthan to develop a 6,000 MW solar park, for which RPL will provide the needed land, infrastructure, drainage, water, security, and other requirements for operators installing their own PV plants in the solar park. The DSPP has been an important foundation for RPL’s renewable energy sector as well as for the private sector development of India’s solar PV sector.

2. Economic Development

18. The rating for economic development is satisfactory. The project is a contributor to India’s economic development as a provider of additional electricity and clean energy.

3. Environment, Social, Health, and Safety Performance

19. The rating for ESHS performance is satisfactory. The project complied with all ADB and government requirements for ESHS during construction and operations and has provided annual monitoring reports every year. The company’s own CSR program has contributed to community health and education needs, with mobile medical

23 Renewables include small hydropower (4.3 GW), wind power (26.9 GW), bio power (4.9 GW), and solar

power (6.8 GW). Total installed renewable capacity is 42.8 GW; total installed power capacity of all types is 303.1 GW.

24 Central Electricity Authority. 2016. www.cea.nic.in. New Delhi. 25 Roof-top solar projects are outside the scope of RPL’s generation activities and would be pursued by R-

Infra.

Evaluation 7

facilities serving approximately 3,000 villagers, improvements made to three school facilities, and vocational training provided to boys and girls in the project area.

4. Business Success

20. The rating for business success is excellent. The project has performed above expectations and has been a positive demonstration of the potential for solar PV in India.

C. ADB Investment Profitability

21. ADB’s investment profitability is rated satisfactory.

D. ADB Work Quality

22. ADB’s work quality is rated satisfactory. Work quality is evaluated using two subcriteria: (i) screening, appraisal, and structuring; (ii) monitoring and supervision.

1. Screening, Appraisal, and Structuring

23. The screening, appraisal, and structuring rating is satisfactory. The project is the first utility-scale solar PV plant in India and is owned and operated by the private sector with a strong sponsor able to implement a project of this nature. The project is an appropriate fit for ADB’s private sector operations, and builds on ADB’s extensive sector and country expertise. The project’s financing structure is appropriate for a project with a 25-year offtake contract, with appropriate debt levels and risk mitigation for the use of the CdTe technology being newly applied to the local environment. ADB’s due diligence and approval process were satisfactorily completed in a short time frame in order to meet the project’s tight schedule, and a successful working relationship with the US-EXIM allowed the parties to develop a financing structure that contemplated potential risks to the project and also led to the two parties working together on the subsequent concentrated solar power project with the same sponsor.

2. Monitoring and Supervision

24. The rating for monitoring and supervision is satisfactory. Overall, the monitoring and supervision for the project is fairly straightforward with the achievement of a steady state of operations. Monitoring reports have been received on time for ESHS matters and covenant compliance. Information related to plant operations, including performance and management of damage caused by storms, has been monitored closely. The deterioration of the foreign exchange rate was managed in a timely manner with reasonable changes made to protect the project in the context of the local financial markets. There have been some concerns raised about the timeliness of reporting changes to accounting practices and matters outside the immediate project operations (company name change, incorporation of subsidiary, inter-company transactions for tax management purposes). These matters have been satisfactorily explained, but the borrower’s timely advice is required on all aspects of the account, which has been impressed upon the borrower and is expected to improve with new staff in the head office.

8 Dahanu Solar Power Project

E. ADB Additionality

25. ADB’s additionality is rated satisfactory. ADB’s value to the project is the timely provision of long-term debt that the borrower would not otherwise have been able to achieve. ADB’s technical due diligence and ESHS standards were followed in working with a strong sponsor to develop a robust project that has been a solid demonstration of the potential for privately owned solar PV plants in India. ADB’s involvement provided important support for the US-EXIM’s analysis and contributed to the US-EXIM’s decision to proceed with the project.

F. Overall Evaluation

26. Table 3 summarizes the component ratings for the DSPP project, resulting in the overall rating of satisfactory.

Table 3: Performance of the Investment in DSPP Unsatisfactory Less than

Satisfactory Satisfactory Excellent

Development Outcomes and Impact

i) Private Sector Development

X

ii) Business Success X iii) Economic

Development X

iv) ESHS X ADB Investment Profitability X ADB Work Quality X

i) Screening, Appraisal, and Structuring

X

ii) Monitoring and Supervision

X

ADB Additionality X Overall Assessment X

ADB = Asian Development Bank, ESHS = environmental, social, health, and safety.

CHAPTER 3

Lessons

27. Sector Focus. ADB’s long-term focus on energy sector development in India has supported all aspects of the improving energy situation in the country. Work done by ADB has contributed to policy changes, new infrastructure, and increased private sector participation in the delivery of electricity to end-users. Established knowledge of the local situation, and particular focus on renewable energy enabled ADB to respond quickly to the policy changes supporting solar power and provide timely support to an important client to deliver the first utility-scale solar PV plant in India. This evaluation recognizes the importance of continued sector focus to allow ADB to continue to contribute its sector and technology knowledge in evolving economic situations. 28. Strong Sponsor. RPL is a strong company with extensive resources, enabling it to quickly identify appropriate technology, supervise quality construction, and be a good corporate partner within the communities it serves. To meet the requirements of CERC’s tariff regulations, RPL needed to develop and construct a project in a short period of time that would withstand the local climate conditions. The project’s performance above expectations is due to RPL’s decisions about technology, design, and construction quality. This evaluation recognizes the importance of financing projects that are implemented by sponsors qualified to manage them. 29. Hedging Policy. The hedging policy approved at appraisal did not reflect the foreign exchange hedging instruments available in the local market. When exchange rates deteriorated, the hedging policy and the required sponsor support needed to be renegotiated. It is fairly usual to have rolling foreign exchange hedging requirements, rather than the life-of-loan program that was originally documented, and better investigation of the likely options that would be available to the project could have reduced the work required to adapt to the situation as it arose. 30. Non-operational reporting. The DSPP entity undertook non-operational decisions relating to the company name and accounting practices without gaining the required approvals from the lenders before implementing the decisions. While these matters have been satisfactorily explained subsequently, they raise concerns for lenders seeking to confirm that the project entity is being managed in accordance with the requirements of the loan documents; significant time is expended to work through these issues as they are discovered. While the plant has performed above expectations, and ESHS matters related to the operations appear to be monitored closely, the non-operational matters are equally important. This evaluation recognizes that efforts have been made to improve communication on these matters, and seeks to reinforce their importance.

Appendixes

APPENDIX: RESULTS AND RATINGS FOR PROJECT CONTRIBUTIONS TO

PRIVATE SECTOR DEVELOPMENT AND ADB STRATEGIC DEVELOPMENT

OBJECTIVES–INFRASTRUCTURE

Results Area Actual Achievementsa Ratingb Justification Potential Future Achievements

Riskc

1. Within company PSD effects

Improved skills: New or strengthened strategic, managerial, operational, technical, or financial skills

Successful commissioning of 40 MW solar PV plant by 2012 Skills gained in solar energy sector: technology, plant design, operation, regulatory environment, bidding process

E Plant is performing above expectations

Phase II 60 MW solar PV plant Development of solar PV park

L-M: market conditions

Improved business operations: Improved ways to operate the business and compete, as seen in investee operational performance against relevant best industry benchmarks or standards

Plant is performing above expectations Plant has had minimal damage during storms

E Plant is performing above expectations

Design is replicable for Phase II project

L: should Phase II proceed, it is expected that successful practices will be repeated

Improved governance: As evident in set standards related to corporate governance, stakeholder relations, ESHS fields and/or energy conservation, and their implementation.

Project is designed to provide clean energy, consultation with government and other stakeholders aided implementation on schedule Certified GHG with UNFCCC CER program ESHS complies with ADB and government requirements CSR program benefits project area residents

S Commissioning completed on schedule No complaints received through dispute resolution mechanism CERs achieved

CSR is standard RPL practice Project design is replicable for Phase II CERs for future projects depend upon UNFCCC program continuation

L

Innovation: New or improved infrastructure design, technology, service delivery, ways to cover or contain cost, manage demand or optimize utilization, improved risk allocation between private company and government, financial structure, etc.

First utility-scale solar PV project in India; (56,165 MWh per year delivered) Early participant in CERC solar tariff regulatory scheme

S Plant is operating above expectations R-Infra payments received per contracted agreement

Phase II project L-M: market conditions for PPAs

Catalytic element: Mobilizing or inducing or local or foreign market financing or foreign direct investment in the company

ADB and US-EXIM financing achieved

S ADB and US-EXIM financing achieved

ADB and US-EXIM financing achieved for CSP project

L (already achieved)

12 Appendix

Results Area Actual Achievementsa Ratingb Justification Potential Future Achievements

Riskc

2. Beyond company PSD effects

Private sector expansion: Contribution by a pioneering or high-profile project that facilitates in its own right or paves the way for more private participation in the sector and economy at large

3.7 GW solar capacity in India in 2014 (2.0 GW solar capacity in India in 2014); 95% privately owned Rajasthan: 5x20 MW solar PV plants; Gujarat 1x40.11 MW, 8x25 MW, 3x20MW solar PV plants (at least 5 other utility scale solar PV plants installed by 2014, at least 3 in Rajasthan)

S Project viability contributes to demonstration of the enabling policy environment

Government targets revised from 20 GW to 100 GW by 2022

L: Solar PV is a national priority Continued policy support expected Sustainable tariffs expected in medium term Availability of financing Availability of equipment

Competition: Contribution of new competition pressure on public and/or other sector players to raise efficiency and improve access and service levels in the industry

Project has contributed to high private sector participation in the sector through successful demonstration of utility-scale solar PV

S Project viability contributes to demonstration of the enabling policy environment and solar PV proliferation

Government targets revised from 20 GW to 100 GW by 2022

L (as above)

Demonstration effects: Adoption of new skills, improved infrastructure assets and services, more efficient processes, maintenance regimes, improved standards, risk allocation, and mitigation beyond the project company

Project viability demonstrated Technology selection and module layout are specific to each site’s solar resource and earth composition (salinity, water, etc.); designs selected are proprietary Construction quality is dependent upon EPC contractor and management supervision

S Project viability contributes to demonstration of the enabling policy environment and solar PV proliferation

Linkages: Relative to investments, the project contributes notable upstream or downstream linkage effects to business clients, consumers, suppliers, key industries, etc., in support of growth

Project contributes to R-Infra’s compliance with MERC SPO Project increases power supply for Maharashtra

S Project is expected to continue to operate, delivering power supply

Project is expected to continue to operate, delivering power supply

L: CdTe technology has performed above expectations

Catalytic element: Mobilizing or inducing more local or foreign market financing or foreign direct investment in the sector (beyond the

ADB and US-EXIM financing allowed plant to proceed Sector growth has been beyond

S Solar PV installed capacity continues to grow

L: Continued policy support Sustainable tariffs Availability of

Results and Ratings for Project Contributions to Private Sector Development and ADB Strategic Development Objectives–Infrastructure

13

Results Area Actual Achievementsa Ratingb Justification Potential Future Achievements

Riskc

company) through pioneering or catalytic finance

expectations financing Availability of equipment

Affected laws, frameworks, regulation: Contributes to improved laws and sector regulation for public private partnerships, concessions, joint ventures, and build-operate-transfer projects; and liberalizing markets as applicable for improved sector efficiency

NA NA Project demonstrates success of policies; it is not intended to be the driver for future policies and/or policy changes, although RPL actively participates in MNRE and other sector stakeholder fora

3. Contribution to other ADB strategic objectives

Sector development (outputs): Contribution to other sector development outputs and outcomes not captured under point 2, such as capacity or network expansion, etc.

All captured under point 2

NA NA NA NA

Sector development (outcomes): Contribution to other sector development outputs and outcomes not captured under point 2, such as increased infrastructure utilization or consumption, improved in-country connectivity, improved energy security, etc.

All captured under point 2

NA NA NA NA

Inclusion: Improved access to, availability or affordability of infrastructure services for the poor and other disadvantaged groups

CSR program provides services to area residents Power supply is exported to Maharashtra grid supply

S CSR program provides needed services Project contributes to power supply

Programs expected to continue in consultation with local stakeholders Plant expected to continue to operate

L

Job creation: Create additional sustainable jobs or self-employment Distinguish between jobs created within and beyond the company

Direct to project: Jobs during construction: 2,050 (including 50 skilled) Operations: 20 (including 15 skilled) Beyond company: a) project-related: some to support operations

S Achievements as stated

Ongoing operations are stable

L

14 Appendix

Results Area Actual Achievementsa Ratingb Justification Potential Future Achievements

Riskc

(e.g., catering) and some to support CSR (e.g., traveling medical service); b) power supply adds to economic growth

Environmental sustainability: Project net impact on GHG emissions Any other contributions to environmental improvements

Documented GHG emissions abatement

S Documented GHG emissions abatement

Project is expected to continue to operate

L

Regional integration: Project contributions to regional cooperation and integration by facilitating trade, cross-border mobility, cross-border power supplies, etc.

Only solar PV project in India to export across states International cross border supply was not intended

S Demonstrates the ability of solar PV to contribute to national electricity supply

Project is expected to continue to operate

L

4. Overall Ratingd S

ADB = Asian Development Bank; CdTe = cadmium telluride; CER = certified emission reduction; CERC = Central Electricity Regulatory Commission; CSP = concentrated solar power; CSR = corporate service responsibility; DSPP = Dahanu Solar Power Project; EPC = engineer procure construct; ESHS = environmental, social, health, and safety; GHG = greenhouse gas; GW = gigawatt; MERC = Maharashtra Electricity Regulatory Commission; MNRE = Ministry of New and Renewable Energy; MW = megawatt; MWh = megawatt-hour; PLF = plant load factor; PPA = power purchase agreement; PSD = private sector development; PV = photovoltaic; R-Infra = Reliance Infrastructure Limited; RPL = Reliance Power Limited; SPO = solar purchase obligation; UNFCCC = United Nations Framework Convention on Climate Change; US-EXIM = Export-Import Bank of the United States. a Achievements assessed for all result areas. Bold achievements are specifically referred to as project outputs, outcomes, and impacts in the report and recommendation of the President. b Rating scale is excellent (E), satisfactory (S), less than satisfactory (LS), unsatisfactory (U), not applicable (NA). c Risk is the risk to further potential achievements on a scale of high, medium, low. d Rating scale for overall rating is excellent (E), satisfactory (S), less than satisfactory (LS), unsatisfactory (U).