summer internship report - national power … internship report ... helped me through the course of...

SUMMER INTERNSHIP REPORT

Competitive Analysis of Indian Solar Market – Policies, Business Models

and Stakeholders for an International Investor

&

Green Corporate Social Responsibility (CSR) Interventions

Under the guidance of

Mr. S. K. Chaudhary, Principal Director, CAMPS, NPTI

&

Mr Alok Tripathi, Director, Power Plus Consultants

At

Power Plus Consultants, New Delhi

Submitted By

Abhishek Amarnani

Roll No. 04

MBA (POWER MANAGEMENT)

(Under ministry of Power, Govt. of India)

Affiliated to

MAHARSHI DAYANAND UNIVERSITY, ROHTAK

AUGUST 2013

1

DECLARATION

I, Abhishek Amarnani, Roll No 04, student of MBA-Power Management (2012-14) at National Power Training

Institute, Faridabad hereby declare that the Summer Training Report entitled “Competitive Analysis of Indian

Solar Market – Policies, Business Models and Stakeholders for an International Investor & Green Corporate

Social Responsibility (CSR) Interventions” is an original work and the same has not been submitted to any

other Institute for the award of any other degree.

A Seminar presentation of the Training Report was made on 02/09/2013 and the suggestions as approved by

the faculty were duly incorporated.

Presentation In-Charge Signature of the Candidate

(Internal guide)

Countersigned

Director/Principal of the Institute

2

ACKNOWLEDGEMENT It is often said that life is a mixture of achievements, failures, experiences, exposures and efforts to make your

dream come true. There are people around you who help you realize your dream. I take this opportunity with

much pleasure to acknowledge the invaluable assistance of Power Plus Consultants and all the people who have

helped me through the course of my journey in successful completion of this project.

I wish to express my sincere gratitude to my Company Guide, Mr Alok Tripathi, Director, Power Plus

Consultants for his guidance, motivation and his help in understanding & formulating the project &

methodology, as well as helping me in acquitting to the Power Sector and clearing my concepts. Apart from the

subject of my study, I learnt a lot from him, which I am sure, will be useful to me in different stages of my life.

I express my thanks to Mr. S. K. Chaudhary, Faculty guide, NPTI for his kind co-operation during the

period of my summer internship.

I feel deep sense of gratitude towards, Mrs. Manju Mam, Director, NPTI and Mrs. Indu Maheshwari, Dy.

Director, NPTI for arranging my internship at Power Plus Consultants and being a constant source of

motivation and guidance throughout the course of my internship.

I am grateful to my friends who gave me the moral support in my times of difficulties. Last but not the least I

would like to express my special thanks to my family for their continuous motivation and support.

Regards,

Abhishek Amarnani

Roll No. 04

Class of 2012- 2014 (PM, NPTI)

3

EXECUTIVE SUMMARY The report is part of the projects which POWER PLUS CONSULTANTS has undertaken for one of its

European client. The first project is the exhaustive analysis of Indian Solar PV market’s complete value chain.

The Indian Solar PV market has an expected potential of around 4500MW by 2015, while the current installed

capacity is only 1800 MW. The market is supported by strong government policies of Renewable Purchase

Obligations, Feed in Tariffs and International Competitive Bidding, though these are not the only demand

drivers. The bidding’s of JNNSM Phase 1, Batch 1 & batch 2 had come under sever securitization when many

developers faced problems in attaining financial closure as the un-viable tariffs quoted made the projects un-

bankable. The learning’s from these have been incorporated in JNNSM Phase 2, where the concept of Viability

Gap Finding (VGF) is being introduced for the first time for solar in India. The analysis of solar polices clearly

shows that in the initial stage only states with higher solar potential like Gujarat and Rajasthan came up with

solar policies, while recently almost all major states have come up with their solar policies having ambitious

targets and most of them follow the broader guidelines of JNNSM. With state solar policies in place, a large

number of developers have forayed into the solar market which in turn has brought a number of EPC players

too. This increasing competition in the market has resulted in emergence of different forms of EPC contracts

with different EPC warranties. The growth has also brought competition for the Indian solar module

manufacturers and they are facing tough times as majority of modules are being imported due to quality and

price constraints. The Solar inverter space has also heated up with most of the global solar inverter supplier’s

competing for market share and some have set up their manufacturing facilities in India to gain local advantage.

The banks too have gained some experience of the solar market and have become relatively comfortable

lending for the projects; many developers are being financed by EXIM banks of various countries at low

interest rates further increasing the IRRs. The Indian Solar market is moving from incentive mechanisms to a

market where solar power makes economic sense even without incentives and has led to emergence of

innovative business models like ‘Pseudo Captive + REC’. With international bidding mechanism being

followed in most of the states, the tariffs have nosedived making some projects unviable. This low tariff regime

has led the stakeholders to look for greener pastures like commercial consumers having the highest tariffs. The

analysis of all policies, business models and stakeholders led to the final recommendation for the European

client for the business model of ‘Pseudo Captive + REC’.

The second project throws light on how after Indian Companies Bill, 2012, Corporate Social Responsibility

(CSR) has become mandatory and the same can be fulfilled by corporates in a ‘Greener way’ using Renewable

Energy. Amalgamation of Renewable Energy & CSR is possible with grid connected renewable energy plants,

solar-hybrid systems, voluntary RECs etc. Corporates can fulfil their CSR obligations by tapping the huge

untapped renewable energy potential for industries. Main industrial off-takers can be Information Technology

(IT) sector, Telecoms sector, FMCG sector and Real Estate sector. Finally the NGOs will play a pivotal role in

bridging the gap between white & black plans to actual ground work. With decreasing cost of Solar, seeing the

India’s energy requirement & to move forward in direction of energy security solar power is the need of the

hour for India. This makes it a hot market!

4

COMPANY PROFILE

POWER PLUS CONSULTANTS

Power Plus Consultants is a young and dynamic organisation promoted by alumni of National Power

Training Institute (Ministry of Power). Team Power Plus Consultants consists of young dynamic power

managers and retired government officials as mentors to support the vision of the company.

The core expertise of the team of Power Managers lies in Regulatory advisory and Market analysis. Services

offered by Power Plus Consultants include:

• Renewable Market Analysis

• Renewable Project Development

• Regulatory Advisory

• Power Sector Analysis

• Energy Portfolio Management

• Market Intelligence

• Strategic Alliances

Power Plus Consultants also maintains the website indianpowersector.com (IPS). In its three years of

operation, IPS has become India’s premier knowledge portal for 360 degree coverage of power sector getting

more than 2.0 million hits every month. The portal provides all knowledge for free, also reaching the

subscribers through daily newsletters.

Team IPS believes in educating, updating, promoting and creating awareness amongst all the stake holders in

the energy sector with the latest national and international news updates and market analysis. In the short

period of its existence, IPS has published numerous reports on a number of topics related to power sector. IPS

is leading media partner with all national energy sector conferences and exhibitions.

Power Plus Consultants continues to work for various national and international clients in energy sector

ranging from coal, renewable energy, generation, distribution and smart grid.

5

LIST OF ABBREVIATIONS

CUF Capacity Utilisation Factor

CSR Green Corporate Social Responsibility

JNNSM Jawaharlal Nehru National Solar Mission

NSM National Solar Mission

PV Photo Voltaic

CSP Concentrated Solar Power

EPS Energy Power Survey

RPO Renewable Power Obligation

CEA Central Electricity Authority

NAPCC National Action Plan for Climate Change

FiT Feed in Tariff

VGF Viability Gap Funding

MoU Memorandum of Understanding

PPA Power Purchase Agreement

NTPC Vidyut Vyapar Nigam Ltd. NTPC Vidyut Vyapar Nigam Ltd.

CERC Central Electricity Regulatory Commission

EPC Engineering, procurement & construction

LIST OF FIGURES

Figure 1: Irradiation level in India.

Figure 2: Increasing Demand Supply Gap

Figure 3: Installed Solar capacity in India

Figure 4: Cost of Solar PV & Solar thermal

Figure 5: Solar Tariff

Figure 6: Solar Power Capacity Requirement by 2022

Figure 7: State wise Solar Break up

Figure 8: Scope of EPC

Figure 9: Existing EPC Models

Figure 10: Preferred Solar technology

Figure 11: Module break up

6

PROBLEM STATEMENT

The Indian solar market is supported by strong government policies of Renewable Purchase Obligations,

Feed in Tariffs and International Competitive Bidding. But with international bidding mechanism being

followed in most of the states, the tariffs have nosedived making some projects unviable, thus the Indian

Solar developers are in search of innovative business models.

It is agreed in principle that all companies should pay back to the society for the resources used, in the form

of Corporate Social Responsibility (CSR), but very few companies actually practice it. This anomaly is

corrected with enactment of Companies Bill 2012, which mandated CSR for all profit making companies. In

view of the above act, companies are trying to find new ways and means to fulfil their CSR obligations and

align their CSR activities with their business strategies.

OBJECTIVES

The objective of the study includes preparing a comprehensive report to address the following:

1. Exhaustive analysis of Indian Solar PV market’s complete value chain which includes but not limited

to policies, stakeholders and business models for the international investor.

2. Suggesting ways on how the Corporate Social Responsibility (CSR) can be implemented in a greener

way and also as a business strategy.

7

Table of Contents

COMPETITIVE ANALYSIS OF INDIAN SOLAR MARKET – POLICIES,

BUSINESS MODELS AND STAKEHOLDERS FOR AN

INTERNATIONAL INVESTOR

Competitive Analysis of Indian Solar Market – Policies, Business Models and Stakeholders

for an International Investor ........................................................................................... 10

SOLAR SECTOR IN INDIA .................................................................................................. 11

Background ................................................................................................................................................................. 11

Evolution of solar sector ............................................................................................................................................. 14

NATIONAL SOLAR MISSION ............................................................................................. 17

Introduction ................................................................................................................................................................ 17

JNNSM Phase 1, Batch 1 ............................................................................................................................................. 17

JNNSM Phase 1, Batch 2 ............................................................................................................................................. 17

JNNSM Phase 2, Batch 1 – Draft ................................................................................................................................. 18

Solar policy analysis for target states ............................................................................... 19

Gujarat ........................................................................................................................................................................ 19

Rajasthan ..................................................................................................................................................................... 19

Andhra Pradesh ........................................................................................................................................................... 20

Maharashtra ................................................................................................................................................................ 20

Punjab ......................................................................................................................................................................... 20

Madhya Pradesh ......................................................................................................................................................... 21

STAKE HOLDER’S ANALYSIS.............................................................................................. 22

Key Developers ........................................................................................................................................................... 22

Private Equity in Indian Solar Domain ........................................................................................................................ 23

Leading EPCs ............................................................................................................................................................... 24

Leading EPC players .................................................................................................................................................... 26

EPC Warranties ........................................................................................................................................................... 30

Key Players in Solar domain ........................................................................................................................................ 30

Modules .................................................................................................................................................................. 30

Inverter Break Up in Indian Solar Domain .............................................................................................................. 32

Mounting Structures ............................................................................................................................................... 33

Financing available for Solar Projects in India ............................................................................................................ 34

Benchmark Solar PV Plant Cost Breakdown according to CERC ................................................................................. 35

DRAFTING SOLAR EPC CONTRACTS – Absolute clarity on the following required ..................................................... 36

Project Development cycle .............................................................................................. 37

8

Timelines ..................................................................................................................................................................... 37

Critical Challenges Posed to Solar EPC ........................................................................................................................ 40

Risks Faced-Pre Commissioning .................................................................................................................................. 41

Elements of Risks in a SPV plant ................................................................................................................................. 41

Post Commissioning: Losses ....................................................................................................................................... 42

Business models for solar plants: Financial Viability ........................................................ 44

APPC + REC .................................................................................................................................................................. 44

THIRD PARTY SALE + REC ............................................................................................................................................ 45

Financial Business Model -Third Party Sale + REC ...................................................................................................... 46

Pseudo Captive + REC Model ...................................................................................................................................... 50

Analysis and recommendations ....................................................................................... 53

The Way Forward ........................................................................................................................................................ 53

How to achieve better project economics in large solar projects? ............................................................................ 53

How to achieve better performance and manage risk in an SPV? ............................................................................. 54

Pseudo Captive Model: Win – Win situation for all .................................................................................................... 55

Open Access + REC ...................................................................................................................................................... 55

Projects under State policies - Opportunistic market for local developers ................................................................ 56

APPC+REC – Business model where viability depends on REC are not bankable ....................................................... 56

Viable National Policy turned un-viable with unrealistic low tariff at INR 5.45 per unit ............................................ 57

Final Recommendation ............................................................................................................................................... 57

GREEN CORPORATE SOCIAL RESPONSIBILITY (CSR) INTERVENTIONS

INTRODUCTION ............................................................................................................... 59

Organization spending on CSR activities ..................................................................................................................... 59

Segment wise CSR Spending ....................................................................................................................................... 60

Sectors Contributing in CSR Activities ......................................................................................................................... 60

Focussing on environment and sustainability............................................................................................................. 61

RENEWABLE ENERGY IN INDIAN ENERGY MIX ................................................................. 62

Amalgamation of Renewable Energy & CSR ............................................................................................................... 63

Grid connected: Renewable Energy is the future ....................................................................................................... 63

India powering ahead with solar ............................................................................................................................. 64

India retains 5th position in wind............................................................................................................................. 64

Off-grid solutions ........................................................................................................................................................ 65

Solar technologies - one of the best solutions to light up and electrify rural India ................................................ 65

Solar - hybrid systems ............................................................................................................................................. 65

Biomass potential.................................................................................................................................................... 66

9

RENEWABLE ENERGY CERTIFICATES (REC) .................................................................................................................. 66

About REC ............................................................................................................................................................... 66

Voluntary REC market ............................................................................................................................................. 67

Registered capacity under REC mechanism ............................................................................................................ 67

Market sizing ........................................................................................................................................................... 68

Issues and the way forward .................................................................................................................................... 69

Energy efficiency measures ........................................................................................................................................ 70

ROLE AND PERFORMANCE OF PSUS AND CORPORATE HOUSES ....................................... 71

Guidelines for public sector utilities ........................................................................................................................... 71

Directions for CPSES to undertake CSR projects ..................................................................................................... 71

Budgetary allocation by CPSES for CSR ................................................................................................................... 72

Sustainability Reporting and disclosure .................................................................................................................. 73

Salient features of Companies bill, 2012 ON CSR: ...................................................................................................... 75

Existing national and international guidelines ............................................................................................................ 75

FICCI Voluntary CSR Guidelines: .............................................................................................................................. 76

The Global Reporting Initiative (GRI) ...................................................................................................................... 77

OECD - A step by step approach to drafting a CSR policy: ...................................................................................... 78

Companies with highest Level CSR Rating .................................................................................................................. 80

INDUSTRY WISE BREAKUP: OPPORTUNITIES AND BOTTLENECKS ..................................... 81

Information Technology (IT) ....................................................................................................................................... 81

Opportunities: ......................................................................................................................................................... 82

Telecom ....................................................................................................................................................................... 83

Opportunities .......................................................................................................................................................... 84

Bottlenecks: ............................................................................................................................................................ 85

Real Estate................................................................................................................................................................... 86

Opportunities: ......................................................................................................................................................... 87

FMCG ........................................................................................................................................................................... 88

Opportunities: ......................................................................................................................................................... 88

Role of NGOs - Be the bridge ........................................................................................... 91

NGOs supporting green energy .................................................................................................................................. 91

Role of NGOs: .............................................................................................................................................................. 92

Traditional perceived roles ..................................................................................................................................... 92

Going forward in a greener way: Recommended ways for NGOs .......................................................................... 92

Suggested Model for Sustainable development ..................................................................................................... 93

Green energy CSR for sustainable development: Be green in every aspect............................................................... 93

Way Forward for Green Energy based CSR ....................................................................... 94

A new thought: Hassle free sustainable contribution ................................................................................................ 95

10

Competitive Analysis of Indian Solar Market –

Policies, Business Models and Stakeholders for

an International Investor

11

SOLAR SECTOR IN INDIA

Background

Why Solar Energy makes sense in India?

Irradiation: India has a high Solar Irradiation in most parts of the country – annual average Global

Horizontal Irradiation of 5.1, with large number of sunny days (approx. 330). In western Rajasthan, a

Capacity Utilisation Factor (CUF) of 21 % can be achieved. This means that a 1 MW solar power plant in

western Rajasthan can produce 1.85 million units of electricity per year.

Land Availability: Rajasthan has a waste land area of more than

25% of the total land, thus it has been a leading state in Jawaharlal

Nehru National Solar Mission (JNNSM) phase 1. Also, a 35000 km²

area of the Thar Dessert has been set aside for solar power projects

by the state.

The four states of Andhra Pradesh, Gujarat, Madhya Pradesh and

Maharashtra have wastelands in the range of 10% - 15%. These four

states are also amongst the high power consuming states.

SI.

No.

STATE NAME TOTAL

WL

1 Andhra Pradesh 38788.22

2 Gujarat 21350.38

3 Madhya Pradesh 40042.95

4 Maharashtra 38262.81

5 Punjab 1019.5

6 Rajasthan 93689.47

12

Power Shortage: India is a power deficit country

with current peak power shortage of around 9% and

this shortage is slated to reach to about 13%

according to Central Electricity Authority (CEA).

At the same time the price of commercial electricity

is rising and since the year 2000, we have seen an

average compounded tariff increase rate of 6% per

annum.

Total installed capacity of Solar Power in India is

only 1.8 GW, making up of just 0.78% of the total

installed capacity.

Regulatory Framework

Electricity Act

2003

“(e) promote co-generation and generation of electricity from renewable sources of energy by providing

suitable measures for connectivity with the grid and sale of electricity to any person, and also specify,

for purchase of electricity from such sources, a percentage of the total consumption of electricity in the

area of a distribution license;”

NAPCC 2008

3% RPO by 2022

3% RPO by 2022

3% RPO by 2022

Tariff Policy

2006

“6.4 Non-conventional and renewable sources of energy generation including cogeneration:

(1) Pursuant to provisions of section 86(l)(e) of the Act, the Appropriate Commission shall fix a

minimum percentage of the total consumption of electricity in the area of a distribution licensee for

purchase of energy from such sources, taking into account availability of such resources in the region

and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the

tariffs to be determined by the SERCs latest by April I, 2006.

(i) Within the percentage so made applicable, to start with, the SERCs shall also reserve a minimum

percentage for purchase of solar energy from the date of notification in the Official Gazette which will

go up to 0.25% by the end of 2012- 2013 and further up to 3% by 2022.”

Jawaharlal

Nehru National

Solar Mission ‘10

20 GW of solar power by 2022

Phase I : 1000 MW

Phase II : 9000 MW

Phase III: 10000 MW

CERC: REC

Mechanism 2010 Solar Specific RECs

Renewable

Regulatory Fund

Fund created for spreading the costs due to disparity in scheduled generation and actual generation of

Solar and Wind power

0

200

400

600

800

1000

1200

1400

1600

2005 2007 2009 2011 2013 2015(e) 2017(e)

BU

's

Increasing Demand Supply Gap

Supply Demand

Gap 13%

Source: CEA

13

Policies

Policy Target Off-taker Financial

Incentives Exemptions

Other key

benefits DCR

NSM 20GW till

2022 SECI

Viability Gap

Funding (VGF)

based on

reverse bidding

Will depend on

the state in

which the

project is being

executed

Will depend on

the state in which

the project is

being executed

DCR on 350

MW out of

the 750 MW

to be

allocated

Andhra

Pradesh

Solar Policy

Not driven

by target

Third-party

power

consumer,

Obligated

entities

None

Exemption on

wheeling/

transmission

charges

Banking of power

permitted with

fee.

None

Rajasthan

Solar Policy

750MW till

2017

State

distribution

companies

Preferential

tariff based on

reverse bidding

No exemption

Availability of

government land

at a low lease

price, cost of

transmission line

to be borne by the

government

None

Punjab

Solar Policy

1 GW till

2022

State

distribution

companies

Preferential

tariff based on

reverse bidding

No exemption Exemption on

land stamp duty None

Madhya

Pradesh

Solar Policy

800 MW

(timeline not

provided)

State

distribution

companies

Preferential

tariff based on

reverse bidding

No exemption

Solar parks to be

created for policy

allocations

None

Gujarat Target

exceeded

State

distribution

companies

Preferential

tariff No exemption

Solar park

infrastructure

provided

None

Technologies : Comparison

PV v/s CSP: Indian Scenario

Photo Voltaic Concentrated Solar Power

Technology Uses the light of the sun to generate electricity

Focuses the heat of the sun to generate

heat and uses liquids to transfer heat to

turbines to generate electricity

Commissioning

period Plant can be commissioned within 3-6 months

Plant commissioning anywhere from 6-36

months

Types PV, TF Fresnel, Parabolic Trough, Sterling, Tower

Storage Indirect – Grid, Battery Banks Direct – Molten Salt, Oil, Steam

Application Small to large scale Grid, Rooftops, Residential, Off-grid, Small installations Hybrids, Large Scale Grid, Industrial

Processes, Cooking, CHP

Advantages Easy to deploy, short installation time, low skill requirements, easily

maintainable, Lower costs, Minute installations, Ubiquitous and long life

Efficiency higher than PV, Improve

efficiencies of existing systems

Disadvantages Low efficiencies, Expensive direct storage, Unviable for residential power

Significant water requirement for cooling

and cleaning, Needs vast tracts of

contiguous land, High DNI requirement,

Specialized skills, High raw material

usage, Lengthy Installations for large scale

projects

14

Evolution of solar sector

Current Status of projects

Currently Indian Solar Market is the fastest growing solar market in the world as can be seen from the graph,

India solar capacity has leapfrogged from a meagre installed capacity of 35.15 MW in 2010-11 to 1839 MW

in 2013-17. This boom was started by the launch of Gujarat state’s Solar Policy in the year 2009 which

announced a Feed in Tariff (FiT) of more than Rs. 15/kWh during launch, keeping in line with this most of

India’s solar plants are located in the state of Gujarat.

2.11 2.12 2.12 10.28 35.15

941.24

1685.1 1839

0

500

1000

1500

2000

2500

3000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

MW

Installed Solar capacity in India

Inclination of solar market towards PV

India a relatively a new market

PV is a much simpler technology

Gestation period is less

Ease of installations

Ease of O & M

Key issues in CSP

Requirement of high DNI

Scarcity of water at high DNI areas

Long gestation period

Projects only viable for higher capacities as

compared to PV plants

15

Solar FiT dropping

The Indian solar boom may be largely attributed to the Solar policies be it the National Solar Mission of the

Central government or of different states. These policies provide different incentives like Viability Gap

Funding (VGF) in NSM, fixed Feed in Tariff (FiT) in Gujarat, Memorandum of Understanding (MoU) in

Madhya Pradesh attracting a wide variety of investors. But Introduction of competitive bidding has brought

down solar tariffs significantly, to below the Solar REC floor price.

This has resulted in benchmark tariffs as shown below:

0

5

10

15

20

2010-11 2011-12 2012-13 2013-14

Rs

Cr/

MW

Cost of Solar PV & Solar thermal

Solar PV Solar thermal

0

5

10

15

20

2010-11 2011-12 2012-13 2013-14

Rs/

kW

h

Solar Tariff

Solar PV Solar thermal

Rs Cr /MW

2010-11

2011-12

2012-13

2013-14

Solar PV

15.2 14.42 10 8

Solar thermal

14.2 15 13 12

Rs /kWh

2010-11

2011-12

2012-13

2013-14

Solar PV

17.91 15.34 10.39 8.75

Solar thermal

15.31 15.04 12.46 11.9

16

Solar Power Capacity Requirement by 2022

According to 18th

EPS survey of CEA, Energy Requirement in India will increase to about 1904 TU in the

year 2021-22 and for Solar RPO compliance of 3% by 2022 (as required in NAPCC), India will require 34

GW of solar power by year 2022 with a current installed capacity of only 1.8 GW

1505

34334

0

1000

2000

3000

4000

5000

6000

7000

0

5000

10000

15000

20000

25000

30000

35000

40000

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22

Solar Capacity Requirement (MW) at 19% CUF

Incremental Solar Capacity (MW)- YoY

~ 33,000 MW Additional

17

NATIONAL SOLAR MISSION

Introduction

Jawaharlal Nehru National Solar Mission

(JNNSM) was launched in the year 2011 by

the Central Government of India as a part of

the National Action Plan for Climate Change

(NAPCC) 2008, and is its used to promote

solar power development in India with a target

capacity addition of 20 GW grid connected

and 2 GW off-grid of solar power by 2022.

The overall target is based on capacity

installation under JNNSM and various state solar policies. This scheme provides the supply side driver for

Renewable Purchase Obligation (RPO) and has been a key driver of the downward trend of solar price in

India through competitive bidding. Also, Domestic Content Requirement (DCR) is applicable for projects

under it providing a boost to local manufacturing of solar cells.

JNNSM Phase 1, Batch 1

JNNSM Phase 1, Batch 1 was launched in the year

2011 with bids invited for 150 MW, which were

awarded by reverse bidding mechanism – where

developer provided discount on CERC benchmark

tariff. The project size was limited to 5 MW with DCR

for crystalline modules and tough time lines to adhere

with 12 months to commission from the date of signing

of Power Purchase Agreement (PPA).

The PPA signing authority was NTPC Vidyut Vyapar Nigam Ltd. (NVVN) – a subsidiary of NTPC ltd.

NVVN further sold power to Discoms at average cost of bundled power, bundling 1 unit of costly solar

power with 4 units of coal power. Finally during competitive bidding, bids for 1765 MW were received and

a total of 140 MW of capacity was allotted with 130 MW being finally commissioned.

The lessons learnt from this phase was that a size cap of 5 MW was unattractive for bigger players and the

project developers faced difficulties in financial closure with the timelines and high rate of interest. Also

bundling of power could work only due to availability of unallocated power with Ministry of Power and this

may not be the case in the future.

JNNSM Phase 1, Batch 2

JNNSM Phase 1, Batch 2 was launched in the year

2012 with bids invited for 350 MW, which were

awarded by reverse bidding mechanism – where

developer provided discount on revised CERC

benchmark tariff. The project size was increased to

maximum 50 MW with maximum 3 projects by one

Targets (Overall)

Connectivity Phase I Phase II Phase III

Grid 1.1GW by

2013

Initially – 3

GW by 2017 20 GW by

2022

(Cumulative) Currently –

9GW by 2017

Off - Grid 0.2 GW by

2013 1 GW by 2017 2GW

Tariff Discovered

Minimum Maximum Wt. Avg.

Tariff Discount Tariff Discount Tariff

10.95 6.96 12.76 5.15 12.15

CERC Benchmark Tariff is 17.91

Tariff Discovered


Tariff Discount Tariff Discount Tariff

7.49 7.82 9.44 5.87 8.77

CERC Benchmark Tariff is 15.31

18

developer subject to a maximum of 100 MW. DCR for phase 2 was restricted only to solar cells of

crystalline and time lines revised to commissioning in 180 days from the date of signing of Power Purchase

Agreement (PPA).

The PPA structure was same as Batch 1. Finally during competitive bidding, bids for 1915 MW were

received and a total of 340 MW of capacity was allotted with 300 MW commissioned till now. As tariff was

same irrespective of the location, most of the projects are concentrated in Rajasthan and tariff quoted by

Solar Direct INR – 7.49, first sub 8 tariff in India, initiated tariff war in India.

The lessons learnt from this phase was that experienced companies are interested in large size projects and

reduction in tariff is possible if capacity to be allotted is high. Also, equipments import is still very high

despite domestic content requirements i.e. Domestic manufacturing needs more support.

The thrust areas for JNNSM Phase 2 would be to scale up projects - Development of Solar Parks, efficient

RPO enforcement and monitoring from SERCs, financial health of State Discoms is hampering the growth

& increasing risks for Investors as also assurance of continuous and timely payment is very important from

lenders’ point of view.

JNNSM Phase 2, Batch 1 – Draft

JNNSM Phase 2, Batch 1 draft guidelines

were launched in Dec-2012, with target of

800 MW under bundling and 750 MW under

Viability Gap Funding (VGF) which are to be

awarded under reverse bidding under

bundling and for VGF – tariff will be fixed

for all developers and biddings will be done

on the requirements of VGF. The project size

has limitations of minimum 10 MW and

maximum of 50 MW with maximum 3

projects by one developer subject to a maximum of 100 MW.

The PPA signing authority has been changed to the newly incorporated Solar Energy Corporation of India

(SECI) - not an AAA rated company as NVVN, which in turn will sign PSA with interested state Discoms.

The time lines have been revised to

commissioning within 13 months from the

date of signing of Power Purchase Agreement

(PPA), with part commissioning of the

Project shall be accepted subject to the

condition that the minimum capacity for

acceptance of part commissioning shall be 10

MW and in multiples thereof. Also, SECI

shall set up a payment security mechanism in

order to ensure timely payment to the

developers and the fund will have a corpus to

cover 3 month payments and SECI will have right to claim assets equal to VGF paid if, during PPA duration of 25

years, the project fails to function at any time, or its assets are sold/dismantled.

VGF Mechanism

Tariff

With accelerated depreciation Rs. 5.45/kWh

Without accelerated depreciation Rs. 4.95/kWh

VGF to be paid: Upto 30% of the project cost, limited to Rs. 2.5

cr/MW, based on bid.

Developer’s equity to be minimum Rs. 1.5 cr/MW.

VGF to be released in three tranches:

First instalment: 25% at the time of delivery of at least 50%

of major equipments at site; weightage as follows –

Modules – 40 % PCUs – 20%

Switchgear & Transformer – 20

% Mounting Structure - 20 %

Second instalment: 50 % on successful commissioning.

Third instalment: balance 25% after 1 year of commissioning.

19

Solar policy analysis for target states

Gujarat

Gujarat was one of the first state of India

to have a Solar Policy, before NSM and

it was launched in the year FY 2009

applicable upto FY 2014 with policy

target of 500 MW by 2014, whereas

852.5 MW of solar projects have already

been installed in the state. The Policy

doesn’t give a commissioning timeline,

rather the tariff offered changes with date

of commissioning (see table). The policy

envisaged productive use of wastelands

and introduced the concept of ‘Solar

Parks’ – Charanka Solar Park, current

installed capacity of 214 MW.

The PPA signing authority is the state

distribution utility in their respective areas. A total of 872.5 MW projects have been allotted out of which

852.5 MW have been commissioned, these projects were allotted at a fixed two part tariff (see table) which

is front loaded on first come first serve basis.

The policy has incentive mechanisms like Waiver from paying Electricity duty, exemption from Demand

Cut to the extent of 50% of installed capacity, no Cross-Subsidy Surcharge applicable for Open-access and

solar based generation not to be covered under scheduling procedures.

No new allocation is expected in near future due to already achieved RPO targets and Gujarat being a energy

surplus state but implementation of RRF can attract new projects for sale of solar power to other state.

Rajasthan

Rajasthan Solar Policy was launched in the year 2011 with a policy target of 10000-12000 MW by the year

2022. The policy got delayed as initially bids were invited for 200 MW, which were suspended and finally

for Phase1 bids for 100 MW were invited which were to be awarded by L1 based competitive bidding

mechanism – where all developer were asked to match the lowest price. The project size has limitations of

minimum 5 MW and maximum of 10 MW.

The PPA signing authority and the Nodal Agency is the Rajasthan Renewable Energy Corporation Limited

(RRECL) but the project was needed to be first registered with RRECL with 20 lakh\MW fees. Finally

during competitive bidding, bids for 185 MW were received and a total of only 75 MW of capacity was

allotted, the low quantum of bids was attributed to the weak financial condition of the state Discoms.

The policy has incentive mechanisms like allotment of government land at 10 % of market rate, creation of

Rajasthan Renewable Energy Infrastructure Development Fund (RREIDF) for transmission network etc.

Feed in Tariff for Photovoltaic (PV) plants

Commissioned in

period

29th

Jan

‘10 to 28th

Jan ‘12

29th Jan

'12 to 31st

Mar '13

1 Apr '13

to 31st

Mar '14

1 Apr to

31st Mar

'15

With Accelerated Depreciation (AD) – Rs/Kwh

For first 12 years 15 9.98 9.13 8.35

For subsequent

13 years 5 7 7 7

Levelized tariff

for 25 years 12.54 9.28 8.63 8.03

Without Accelerated Depreciation (AD) – Rs/Kwh

For first 12 years - 11.25 10.3 9.42

For subsequent

13 years - 7.5 7.5 7.5

Levelized tariff

for 25 years - 10.37 9.64 8.97

20

Andhra Pradesh

Andhra Pradesh Solar Policy was launched in the year 2012,

applicable upto 2017 with a policy target of 1000 MW, which

were to be awarded by L1 based competitive bidding

mechanism. The project size was limited to a maximum of 200

MW for a bidder and tough time lines to adhere with financial

closure within 210 days & 12 months to commission from the

date of signing of Power Purchase Agreement (PPA). The

process also provided incentive for early commissioning of plant as shown in table.

The PPA signing authority was the state distribution utility for a period of 20 years. Finally during

competitive bidding, bids for 1712 MW were received and a total of 418 MW of bidders accepted the L1

price of INR 6.49 till 31st July ’13. The viability of projects at this tariff is highly dependent on CAPEX and

long term performance of plants but the strong balance sheet of the state distribution utility is a positive

factor.

The policy has incentive mechanisms like Banking of 100% of energy for one year with settlement of

banking to be done monthly, no penalty for under-generation, evacuation line to be laid by the

APTRANSCO at the cost of project developer. Also, the policy has other incentives for a period of seven

years from the date of implementation like – no Wheeling & Transmission charges for sale of power within

the state, no Cross-Subsidy surcharges for Open-Access, Waiver from Electricity duty for captive

consumption and third party sale within the state, refund of VAT (paid in AP) for all the goods used by

Solar Developers and refund of Stamp duty & Registration charges paid for land purchase.

Maharashtra

Maharashtra state has no state solar policy but the state utility MahaGenco has set up the largest PV solar

plant in India of 125 MW in Dhule district to fulfil its SPO with an Maharashtra Electricity Regulatory

Commission (MERC) approved cost of Rs 12 cr\MW, the plant uses crystalline technology for 75 MW

commissioned by Lanco & Juwi and thin film for 50 MW commissioned by Megha Engg & Aries Ingeneria

Sistemas. Similarly Reliance has developed a 40 MW plant in Gujarat to fulfil the SPO of its Mumbai

Discom and Tata Power if developing a 28 MW project in Maharashtra to fulfil SPO of its Mumbai Discom.

As of July, 2013 Maharashtra has an installed capacity of 184.5 MW of solar power and is further planning

to development of 500 MW of solar power at various locations in the state. Recently MERC has directed all

‘Obligated Entities’ to meet their obligation for buying renewable energy in the past four years and entities

failing to do so will have to pay a stiff penalty if the backlog is not cleared by March 2014. This decision

can propel use of solar power in the state.

Punjab

Punjab state has a ‘New and Renewable Sources of Energy Policy – 2012’ with a target of 1000 MW of new

solar capacity by 2022, which are to be awarded by competitive bidding mechanism - where developer

provided discount on recent CERC benchmark tariff, with tough time lines to adhere with financial closure

within 180 days & 13 months to commission from the date of signing of Power Purchase Agreement (PPA).

Incentives for early commissioning

Time Period

(months)

Per MW commissioned

9 to 10 Rs.3 lakh

10 to 11 Rs.2 lakh

11 to 12 Rs.1 lakh

21

In phase 1 bids for 300 MW were invited with 50 MW (Category 1) reserved for companies with no

experience in setting up solar projects and 250 (Category 2) to be allotted to experienced companies. Under

Category 1 the minimum capacity shall be 1 MW and the maximum capacity shall be 4 MW, while under

Category 2 the minimum capacity of the project shall be 5 MW and the maximum capacity shall be 30 MW.

The PPA signing authority is the Punjab state Power

Corporation Limited (PSPCL) for a period of 25 years.

Finally during competitive bidding, bids for only 270

MW were received and a total of 251 MW were finally

allotted. In comparison to other states bids at higher

prices were received and this was attributed to the high

cost of land and lower irradiation.

The policy has incentive mechanisms like exemption

from - 100% electricity duty, Value Added Tax (VAT) on equipment, Entry tax for equipment supplies,

Payment of fee and stamp duty for registration/lease deed charges for the project’s land requirement, Change

of land use (CLU) charges, External Development charges (EDC), NOC from pollution control board,

Domestic content requirement.

Madhya Pradesh

Madhya Pradesh Solar Policy was launched in the year 2012 and target under the policy will follow the

state’s declared RPO. MP has declared a solar RPO of 1% by 2016 and in order to fulfil its RPO; installation

of 360 MW will be required. The PPA signing authority will be the state distribution utility for a period of

25 years.

Before the policy the government invited bids for 200 MW and It received bids for 430 MW. But only

125MW was allocated; Welspun (105 MW), Alpha Infra (20 MW); While 100 MW was awarded at pre-

determined tariff of Rs. 8.05 per unit to four developers (25 MW each).

The policy has incentive mechanisms like Wheeling grant of 4% of energy injected, Electricity duty

exemption for 10 years, Banking of 100% of energy with 2% banking charges, VAT & entry tax exemption

for solar equipments purchased and For private land, exemption of 50% on stamp duty. Also, there are

special incentives for captive use or sale of power to third party like Project land use permission within 3

months etc.

Proposed Policy Planned Targets

UP Solar Policy 500 MW till 2017

TN Solar Policy 3000 MW till 2015

Chhattisgarh Solar Policy Total of 1000 MW by 2017

Kerala Solar Policy Total of 500 MW by 2017 and 1500 MW by 2030`

Karnataka Solar Policy 200MW till 2016

Tariff Discovered (Rs./kWh)


Category- I 7.2 8.71 8.27

Category- 2 7.67 8.74 8.34

Benchmark Tariff: Without AD – 8.75;

With AD – 7.87

22

STAKE HOLDER’S ANALYSIS

Key Developers

With 1800 MW of installed capacity,

India solar market has over 150

developers; the developers are largely

varied and diverse in nature ranging

from specialized solar developers to

breweries and jewelers. Around 1450

MW installed under state policies and

JNNSM and 1452 MW of projects are

concentrated in Gujarat and Rajasthan

only.

The developers can be broadly

segregated into two categories.

Large developers – dedicated to large

scale solar projects.

Small developers – One time investors.

Together 22 developers constitute to 802 MW of the total 1800 MW of solar installed capacity and have

more projects in the pipeline, some of these are shown in the table below.

Key Developers in India MWs Commissioned Pipeline Key States

Welspun 70 130 MW Madhya Pradesh

55 MW Rajasthan

100 MW Chhattisgarh

Mahagenco 125 Maharashtra

Azure 57 Rajasthan, Gujarat,

Punjab

Kiran Energy 40.6 Rajasthan, Gujarat

Mohan Breweries 100 Tamil Nadu

Malpani Group 51 Rajasthan

Adani 40 Gujarat

Reliance 40 Rajasthan

47% 33%

10%

2% 2% 1%

5%

State wise Break up Gujarat Rajasthan Maharashtra

AP Jharkhand Tamil Nadu

23

Private Equity in Indian Solar Domain

Tata Group

Balance Sheet financing through parent company

Also has a module manufacturing unit in India.

Did not go for any national/state policies where competitive bidding was applicable.

Developing a 28.5 MW project in Maharashtra for selling power to its own distribution utility company

backed by the parent company.

Welspun:

US $ 3 billion company with diversified businesses: Steel, Iron & engineering.

Aim to develop solar plants of 750 MW, and also invest in the wind sector

Aim to go for large scale projects to bring down cost.

Most of the projects are self funded

Azure Power:

Projects commissioned for 57 MW, and plan to grow further.

The company is mainly backed by 2 venture capital firms: Helion Venture partners (Mauritius),

Foundation Capital( US).

Also Azure has availed US Exim financing in some of the projects.

Mohan Breweries:

Equity brought in by the cash rich parent company, which is one of the oldest brewery in India.

They initially bided for 10 MW project under Tamil Nadu policy, which was later abruptly increased to

100 MW.

The details are yet to be disclosed.

Reliance Group:

The 40 MW Dahanu project was developed by the company to supply power to its Distribution utility

(group company)

The company has not developed any project under national / state policy.

Equity brought in by the parent company.

One of the first companies to secure EXIM bank financing through First Solar.

24

Fonroche - PR group:

Already commissioned a 15 MW project under JNNSM.

Have an aggressive strategy of expansion into Indian energy market with an investment target of INR

8,00,00,00,000

Renew Power:

An established giant with installed wind power portfolio of 200 MW worldwide.

Already entered in the Indian solar space, and are working on innovative models to capitalize on the

prevalent Solar wave in India.

Goldman Sachs have invested in Renew Wind , owning 99.97 % stake

Green Infra Limited:

Private equity arm of Infrastructure & Development Finance Corporation.

Mahindra Solar:

A dedicated solar company backed by the Mahindra Group.

Leading EPCs

There are several EPC companies in India both from India as well as international market. EPC companies

are ready to work in various models and arrangements with the developers. Also it is important to

understand that the industry benchmark is followed throughout, however the companies structure their

contracts in such a way that –

Limits their scope of work

Additional charges for additional services offered

Sometimes the warranties and performances may get compromised due to the financial

pressure from the developer.

The existing business model consists of various stake holders

Utilities

IPP’s

EPC contractors

Sub – contractors

Component suppliers

25

EPC with full scope

• Includes PV module

• BOS

• Generation warranty or Performance ratio

EPC w/o modules

• Modules/inverters excluded

• Plant performance guarantee

• Generation warranty is generally not accepted

Sub contractor

• Guarantees only supplier products and systems

• Inverters, String boxes, MV/LV switchgears, transformers and substation

• Ebop as one package

PV OEM as EPC

• Scope starts from land development upto power evacuation

• Sources the components from different players

Existing

EPC

Models

26

Leading EPC players

Mosebaer

Mosebaer EPC is the leading Indian EPC company with over 200 MWs of installed capacity in India alone

with experience with both Thin film & Crystalline technologies. The company is has presence in other

countries as well.

Performance guarantees Payment terms Additional expertise claimed

For Supply Initial Project Charges

Defect Liability duration : 1 Year 10% - against LOA/LOI - Site Visit and Analysis

Warranty 20% - against submission of

Detailed Engineering & Project

- Soil Testing

Module – Rated output 90% till

10years & 80% till 25years

Report - Preparation of DPR

Inverter- 5years 30% - against placement of

Modules and Inverter PO’s.

The service fees for the above will

be INR 15, 00, 000 plus Service

Tax, to be paid upfront.

Other BOM items – 1 Year. 30% - against dispatch for

Modules, Inverters and other

supplies.

Transmission Cost

10% - after Commissioning - INR 14.75 lakh per Km for 11

KV

For Service:

10% - against LOA/LOI

20% - against site survey O&M

30% - against contractor Separate contract for O&M will be

framed & signed

mobilization to site

20% - after foundations.

10% - after completion of civil

work

10% - after commissioning of SPV

plant

Primary Quote : INR 35, 45, 00,000

PD cycle claimed : -

27

L&T

L&T EPC is having commissioned projects of 155 MW. All its commissioned projects are in the states of

Gujarat and Rajasthan (1 MW in UP).


a) Performance Ratio : For Supply Order: •Land availability near

substation

The estimated PR shall be as

specified in the Technical Report.

1) 30% of the Contract Price as

interest free advance shall be

paid within 7 days from the date

Contract Signing.

•Transmission Line for

evacuation included in quote

b) Performance Warranty for PV

Modules :

2) 70% of the Contract Price

shall be released against the

dispatch document.*

•Liasioning included in the

quote

90% of the rated Power at the end

of first 10 years and 80% of the

rated Power at the end of 25 years.

For Service and Civil Works

Order:

c) Product Warranty : 1) 30% of the Contract Price as

interest free advance shall be

paid within 7 days from the date

of Contract Signing.

For Inverters - 5 years Product

warranty

2) 65% of the Contract Price

shall be paid on progressive

monthly basis depending on the

actual work done against each

completed erection activity.*

d) For all other electrical parts,

L&T offer a standard warranty of

12 months from the date of

Commissioning of the project.

3) The balance 5% of the

Contract Price shall be released

against successful completion of

the Testing and

Commissioning.*

*The payment shall be through

confirmed & irrevocable Letter

of Credit on pro rata basis within

7 days from the date of invoice.

Primary Quote : INR 8,10,00,000/MW

PD cycle claimed: 6 months

28

Sterling & Wilson

Sterling & Wilson is another leading Indian EPC.

Currently 83.5 MWs of projects have been commissioned.

They have employed crystalline technology majorly in MW projects.


All equipment supplied by us shall

carry original equipment warranty

terms.

For Indian supplies Can also offer complete solution

including Transmission Line,

local approval and clearances,

DPR

Inverter – 5 years • 30% of the Contract Price shall

be paid as advance, within 10

Days from the date of receipt of

Preparation, EMP Report etc.

PV Modules – 5 year Purchase Order/LOI.* Operations & Maintenance

Mechanical, 25 years performance

(back to back)

5% of the BOS Contract Price

shall be paid on submission of

engineering drawings to owner.

Per MW: INR 7.5 Lac. + Taxes

All Other Electrical items– 1 year 60% of the BOS Contract Price

shall be paid on receipt of material

at site of the Project.

Escalation 7% per annum

5% Retention against each invoice,

payable within 5 Days of

commercial operation date of the

project

Erection & Commissioning

30% of the Contract Price shall be

paid within 10 Days from the date

of issue of PO/LOI;*

65% on the Running Account Bill;

5% Retention against each invoice,

payable within 5 Days of

commercial operation date of

the Project.

*All other payments will be

through irrevocable Letter of

credit(the cost of opening the L/C

to be borne by the owner)



29

Waree

Waree is also an Indian EPC company having an experience of 5o MW of solar PV projects.

Performance guarantees Payment terms Additional expertise

claimed

Product Manufacturing Defect

Warranty

PV Modules : 5 years against

manufacturing defects and 90%

power at the end of 10th year and

80% power at the end of 25th year

Inverter : 5 years

Junction Box : 5 Years

SCADA and Weather

Monitoring Station : 2 years

Switch Yard and Transformer : 2

Years

Advance: 30% of Offer Price

Balance 70% through Letter of Credit (LC)

as per following schedule:

1) 10% against finalization of

drawings and design

2) 10% against delivery of structures

against perform invoice upon

readiness of material at suppliers’

end.

3) 35% against modules against

perform invoice upon readiness of

material at suppliers’ end.

4) 10% against SMBs, cables,

inverters and transformers against

Pro forma invoice upon readiness of

material at suppliers’ end.

5) 5% against connectivity to

grid/project completion LC Format

to be as per Waaree

format/approved by Waaree and the

cost of LC opening to be borne by

Customer

Land

Leveling/Compacting and

Land Clearing shall be

charged extra as per

actual.



30

EPC Warranties

Warranty Types and Requirements

Warranty Type Details

Defect warranty

The contractor warrants that the plant will be free

from defects in materials and workmanship, and

that the project will adhere to the qualities set out in

a technical specifications document

Module capacity warranty

The contractor may guarantee that the total peak

capacity of the project within a certain time period

after completion is not less than a certain value, and

may also certify that the degradation will not

exceed a given value during the warranty period

Performance ratio warranty

The contractor guarantees that the PR as measured

during a PR test will not be less than a given value,

and that the PR shall not reduce by more than a

given percentage during the warranty period

Structure warranty The contractor warrants the structural integrity of

elements of the works for a given period

Key Players in Solar domain

Modules

Right selection of modules:

The aim is to keep the levelized cost of electricity (LCOE) at a minimum. When choosing between high

efficiency-high cost modules and low efficiency low cost modules, the cost and availability of land and

plant components will have an impact. High efficiency modules require significantly less land, cabling

and support structures per MW installed than low efficiency modules.

When choosing between module technologies such as mono-crystalline silicon, multi crystalline silicon

and thin film amorphous silicon, it should be realized that each technology has examples of high quality

and low quality products from different manufacturers.

Different technologies have a differing spectral response and so will be better suited for use in certain

locations, depending on the local light conditions.

Amorphous silicon modules generally perform better under shaded conditions than crystalline silicon

modules. Many of them show a better response in low light levels

31

Comparison: Indian Perspective

Parameters Crystalline

(Fixed) Crystalline on Tracker Thin Film (Fixed) Thin Film on Tracker

Efficiency 14-18% 14-18% 9-12% 9-12%. Land

Requirement 4 to 5.5 5 to 6.5 6 to 8 7 to 9

Weight &

Flexibility Not Flexible and Heavier Flexible and Light Weight

Temperature Higher temperature coefficient and decreased

efficiencies as temperature increases Less temperature coefficient and largely

unaffected under higher temperatures

EPC Cost Low High Moderate Very High O & M Cost Low High Moderate Very High

Overall

Degradation 10% by the end of 10 years 20% by the end of 25 years

Preferred Technology

In the International solar domain crystalline silicon

(c-si) technology is the dominant PV technology.

The Indian market, however , has seen a 65 %

share of thin film technology(with the data

available).

A significant driver for thin-film technology in

India has been the performance of thin-film

technology under Indian climatic conditions.

Low-cost EXIM bank financing has shifted

developers towards American technology

which is primarily thin-film till now.

The cost advantage of thin films has tilted the Indian market in its favor

India v/s International Modules

Vikram Solar has supplied for more than 50 MWs of projects commissioned in India. The annual

installed capacity is 150 MW of Poly Crystalline modules.

Waaree : Installed capacity of 110 MW

Titan : Installed capacity of 100 MW

Surana : Installed capacity of 40 MW

Indosolar: Current manufacturing capacity is 160 MW. Production capacity will be expanded to 360

MW by FY 2013-14. It will have the capability to produce both multi and mono crystalline cells.

Thin Film, 764.17

Crystalline, 419.2

NSM(551 MW) + GUJARAT(627.37 MW)

32

Jupiter Solar: Current cell manufacturing capacity is 50 MW. Production capacity will be expanded to

150 MW in the next phase, also 50 MW

module manufacturing will be added

Websol : Installed capacity of 30

MW(cell and modules)

Solar Semiconductor: Multiple

manufacturing lines, overall annual

module capacity of 195 MW.

Moser Baer: 185.MW of crystalline cell

manufacturing capacity, also with a 200

MW crystalline module assembly line &

50 MW of thin film modules capacity.

HHV Solar : 100 MW Thin Film & 40

MW Crystalline Modules capacity

Sonthalia Solar: Initial manufacturing

capacity was of 25 MW & was scheduled to go up to 200 MW by now.

Tata BP Solar : 36 MW cell plant & 40 MW Solar Module assembly line

KL Solar: Total installed annual production capacity for solar cells is 27MW & 12MW for solar

modules.

Inverter Break Up in Indian Solar Domain

The Indian Solar Inverter market is dominated by the company SMA having a share of more than 400 MW,

followed by Bonfiglioli and Power One. While some of the leading players have manufacturing facilities in

India, others are following as domestic manufacturing helps them to adapt to typical Indian climatic

conditions and also enjoy other benefits as well. In India, as of January 2013 Central Inverters accounted for

95 % of the total installations. The inverter market share is as shown below.

SMA

Bonfiglioli

Power One

Schneider Electric

ABB

AEG

Ansaldo

RefuSol

Siemens

Statcon

Electronica Santerno

Others

0 100 200 300 400 500

SMA Bonfiglioli Power One Schneider

Electric ABB AEG Ansaldo RefuSol Siemens Statcon

Electronica Santerno

Others

Sales (MW) 452.26 259.5 220.41 105 94.8 92.43 55 50 30 25 21.3 33

Inverter Market share : 1439 MW

International Modules, 715

Indian Modules,

157

Module Break Up (872 MW)

33

Inverter Selection Criteria

Inverter Selection Criteria

Criterion Description

Incentive scheme Banding of financial incentive mechanisms may have an influence on the choice

of inverter. For example, feed-in tariff (FiT) schemes might be tiered for different

plant sizes which may, in turn, influence the inverter size.

Project size Size influences the inverter connection concept. Central inverters are commonly

used in large solar PV plants.

Performance High efficiency inverters should be sought. The additional yield usually more

than compensates for the higher initial cost. The way the efficiency has been

defined should be carefully considered.

Module technology The compatibility of thin-film modules with transformer-less inverters should be

confirmed with manufacturers.

Product reliability High inverter reliability ensures low downtime and maintenance and repair costs.

If available, inverter mean time between failures (MTBF) figures and track record

should be assessed.

Module supply If modules of different specifications are to be used, then string or multi-string

inverters are recommended, in order to minimise mismatch losses.

Maintainability and

serviceability

Ease of access to qualified service and maintenance personnel, and availability of

parts is an important dimension to consider during inverter selection. This may

favor string inverters in certain locations.

System availability If a fault arises with a string inverter, only a small proportion of the plant output is

lost. Spare inverters could be kept locally and replaced by a suitably trained

electrician. With central inverters, a large proportion of the plant output would be

lost (for example, 100 kW) until a replacement is obtained.

Modularity Ease of expanding the system capacity and flexibility of design should be

considered when selecting inverters.

Shading conditions For sites with different shading conditions or orientations, string inverters might

be more suitable.

Mounting Structures

Purchasing good quality structures from reputable manufacturers is generally a low-cost, low-risk option.

Some manufacturers provide soil testing and qualification in order to certify designs for a specific project

location. The topographic conditions of the site and information gathered during the geotechnical survey

will influence the choice of foundation type. This, in turn, will affect the choice of support system design as

some are more suited to a particular foundation type.

Now days the companies are offering package deals to bring down the cost: Sample of a leading Mounting

and construction company (200 MW experience) : Rs.4.4/Watt package; Activities involved:

1. Design of mounting structure and foundation. 2. Supply of mounting structure

3. Foundation works for mounting structure. 4. Erection of mounting structure.

5. Installation of modules. 6. Freight, taxes and duties extra

34

Financing available for Solar Projects in India

Banks show concerns over factors such as: bankability of PPAs, lack of experience in the sector, uncertainty

on implementation of regulatory mechanisms such as RPOs and the REC mechanism and absence of reliable

irradiation and plant performance data among other factors.

Requirement Timeline

PPA For most projects under the policies, a pre-development and bidding process takes up to eight

months. During this, developers need to discuss their projects with possible lenders to

understand the interest rates that can be made available through a single source or a

syndicated source (rupee loan, foreign currency loan or a combination). The interest rate will

have a significant impact on the feed-in tariff that can be proposed.

Land A clear holding of land is necessary for the loan to be processed. Typically, it takes up to three

months to get a free holding of the land. This can be faster if the land is in a solar park.

EPC letter of

intent (LOI)

The EPC needs to have assessed the land and signed an LOI that will be submitted to the

lender to begin the application process. During the course of the lending application process,

the EPC will need to submit the final drawings and plans. This takes at least another one

month. The lender’s counsel then scrutinizes all the documents, including the technical

drawings and plans. This can take up to another one month.

Project finance or non-recourse financing

Long-term financing of solar projects, based on their

projected cash flows.

It involves a number of equity investors, known as

sponsors, and a lender, a syndicate of lenders or

other lending institutions that provide loans to the

project.

Non-recourse loans are paid entirely from the cash

flow.

The decision to finance is largely dependent on the

risk assessment and expected cash flows of the

project.

Project lenders are given a right to dispose all the

project assets to secure debt and are able to assume

control of a project, if the project company cannot

comply with the loan terms.

Limited recourse financing

To provide debt to solar projects, lenders seek

additional collateral apart from the project assets.

The lender is further protected from default by the

existence of a co-signer, which is typically the

sponsor or the parent company with a healthy

balance sheet.

This puts the company balance sheets at risk and the

burden of the project failing or under-performing

falls on to the co-signer.

Almost all the projects in India so far have been

developed using limited recourse financing.

Many promoters already have strongly leveraged

balance sheets from expanding other business

activities.

35

Financing options

Prominent Banks Interest Rates Debt-equity ratio Loan

tenure

DSCR

expectation

Time-line

Indian commercial banks

SBI, ICICI Bank, Axis

Bank, Yes Bank, IDBI

Bank

10.25% (RBI Base)

+ 2.75 - 4.25%

(Margin)

30:70 9 – 12

years

Approx. 1.40 3 months

12.855

Non-banking financial companies

L&T Infrastructure

Finance Company,

PFC, SBICAPS,

IL&FS Financial

Services, Mahindra

Finance , IREDA

10.25% (RBI Base)

+ 2.50%-2.75%

(Margin) = 12.75-

13.00%

30:70 9 – 15

years

Approx. 1.35 2-3 months

1.2 for IREDA

Export Credit Agencies

US EXIM 3-5% (interest)+ 5-

6% (Hedging) = 8-

11%

Up to 80%

based on value of

import

9 – 16

years


Development Finance Institutions

IFC, ADB 3-5% (interest)+ 5-

6% (Hedging) = 8-

11%

25:75 9 – 16

years


Benchmark Solar PV Plant Cost Breakdown according to CERC

Sr.

No.

Particulars Weightage in

total cost (%)

Capital Cost Norm for

Solar PV project

(INR/MW)

Lowest quote till date :

Radiance

Energy(INR/MW)

1 PV Modules 42.12% 3,25,92,000 3,60,00,000

2 Additional module cost as

against degradation

9,79,000

3 Land Cost 2,1% 16,80,000 15,00,000

4 Civil and General Works 11.85% 94,50,000 47,00,000

5 Mounting Structures 13.17% 1,05,00,000 45,00,000

6 Power Conditioning

Unit/Inverters

7.52% 60,00,000 47,50,000

7 Evacuation Cost up to

Inter‐connection

13.17% 1,05,00,000 26,60,000

Point(Cables and Transformers)

8 Preliminary and Pre‐Operative

Expenses including IDC and

contingency

10.04% 80,00,000 19,00,000( without IDC)

Total Capital Cost 7,97,01,000 5,60,10,000

CERC has only considered the prices of modules to be in USD. Even inverters are considered in INR; with

thorough feedback from various EPCs about per MW cost of inverter in INR. This has caused a 14.14%

increase in the cost of modules, and an overall increase of 5.95% in the CERC benchmark cost.

36

Very low margin of error in project cost

calculation

Consequently, estimation of tax cost

involved in setting up, operation and

maintenance of the project becomes vital

A detailed analysis of tax costs associated

with setting up, operations and

maintenance of project ought to be

undertaken in order to ensure:

Maximum accuracy; and

No surprises at a later date

DRAFTING SOLAR EPC CONTRACTS – Absolute clarity on the following required

On taxes and Payment Side

What are the taxes to be borne by each party?

If the contract price is supposed to include all taxes, does it also

include taxes which are statutorily payable by the customer (like

service tax on reverse charge basis, customs duty etc)?

For taxes/cesses like entry tax and building cess which can be

the statutory liability of either the customer or the contractor

depending on various factors, who bears the responsibility?

For taxes that would be reimbursed by the customer, what would be the basis for such reimbursement?

What sort of documentary proof would be required?

If certain tax benefits have been factored which are contingent upon specific certification/documentation

requirements, who bears the risk of non-availability of such certification/ documentation? In general,

who bears the risk of the tax positions?

If ‘In-Transit sales’ and/or ‘High Sea Sales’ have been envisaged, is the transfer of ownership clause

consistent with such planning options?

Other Terms and Conditions

Time duration of the project execution along with contingency time should be explained in the contract

along with the penalty clause for the delays

Selected equipments should be clearly mentioned in the contract along with make , so to avoid any

confusion at later stages

Performance guarantees in form of generation envisaged and Performance ration claimed and penalty

clause for below par performances

Scope of work and its applicability for the project

Sub-contracting clause , if allowed

O&M clause if applicable , explaining the complete scope of work and yearly escalation in the contract

Force maezure clause for any accident or natural calamity

Payment terms , normally based on milestone method

Security of equipments during the construction period and

insurance coverage for the same

Termination clause in case of dispute or default and court of

jurisdiction

37

Project Development cycle

Timelines

Project Development – Feed in Tariff (FiT)

38

Project development – REC+ Open Access

Effectively minimizing the cycle

Consumer Identification is the key

Land selection & purchase time can be minimized by up to 2 months, with the engagement of local

dealers.

Applying in advance for duty exemption at MNRE, with the support of EPC player

Financial closures can be achieved early as it is completely based upon financial strength of the

developer and the relationship with the funding agency.

Construction time can be minimized by choosing the right EPC player and subcontractor.

Government liasoning important for open access approvals.

Past experience of developer/ EPC comes in handy.

39

Project development – Pseudo Captive

Effectively minimizing the cycle

Consumer Identification is the key

The model offers a unique one stop shop :

Consumer identification

PPA signing

Land/Roof top selection

Applying in advance for duty exemption at MNRE, with the support of EPC player

Financial closures can be achieved early as it is completely based upon financial strength of the

developer.

Construction time can be minimized by up to two months as claimed by various EPC players

Past experience of developer/ EPC comes in handy.

40

Critical Challenges Posed to Solar EPC

Broad Challenges

Availability of adequate data for

design

Difficulty in getting competent

engineering staff and workmen

Time schedule for completing

the job

Price and quantity variation

Foreign currency exposure

Delay in certification of bills

Variation in taxes and duties

Climate/ restriction on working

hours/ loss of productivity

Technology Risk

Political/ Environmental

Environmental clearance from

authorities

Land possession

State nodal and MNRE

approvals for duty exemptions

pertaining to imported and

locally procured items

Local state authority

clearance/inspections for supply

items such as metering CTs

Statutory clearances for

commissioning

Locality

Influence of Local Leader

Local Law and Order Problems

Theft of materials at Site

Use of local labor

Inadequate information on site

Site conditions, Space

inadequacy

Poor Infrastructure

Sub Contractor/ Vendor

Bad Workmanship/ Rework

Cost

Vendor/Sub-contractor

performance

Litigation by sub-contractors/

vendors

Manufacturing capacity of

vendors

Delivery and prices of standard

BOS items within substations

etc.

Choice of O&M agencies for

tie-ups

Technology Risk

41

Risks Faced-Pre Commissioning

Elements of Risks in a SPV plant

Module Inverters Cables & Connectors Junction Boxes Mounting

Structure

Glass Breakage Long-term Spares

Availability

Connectors Reliability

& UV Stability

Flame Arresting

Properties

Material Properties

Creepe / Warpage

etc

TEDLAR Peel

Off

Service Level

Agreement

Proper Cable Routing &

Labelling

Heat Withstanding

ability of

components

Alignment &

Vertically

White Spots Ease of “AT SITE”

Maintenance

AC DC Crossing/

Joining

Powering DCDC

Converters

Withstanding

Seismic Load

Corrosion POST (Power ON

Self test)

Communication Cables

Laying

Ease if opening /

closing the box

Segment

Replacement Ability

Delay in completion due to contract

claims

Faulty design

Cost overruns

Delay in gaining access to the site

Legislative/ regulatory changes

Land acquisition issues

Rehabilitation and resettlement of

people

Contractual liabilities of the related

parties (eg. Liquidated damages,

warranties)

Physical damage leading to a

delayed completion of projects

impacting revenue stream

Accidental Physical Damage/ Fire

Acts of God events like

Flood/storm/tempest/ earthquakes

and/or typical force majeure

Damage to critical

equipment/capital goods during

transit (while reaching the site)

Loss of revenue due to delay in

project completion because of

Physical and transit losses

Third party bodily injury &

property damage

Collapse due to faulty design and

bad workmanship

Losses at named suppliers premises

leading to delay in project

completion

Kidnap and ransom if project is at a

sensitive location

Damage due to terrorist activity

42

Post Commissioning: Losses

Losses in a PV Power Plant

Loss Description

Air

pollution

The solar resource can be reduced significantly in some locations due to air pollution from

industry and agriculture.

Shading Due to mountains or buildings on the far horizon, mutual shading between rows of modules and

near shading due to trees, buildings or overhead cabling.

Incident

angle

The incidence angle loss accounts for radiation reflected from the front glass when the light

striking it is not perpendicular.

Low

irradiance

The conversion efficiency of a PV module generally reduces at low light intensities. This

causes a loss in the output of a module compared with the standard conditions at which the

modules are tested (1,000W/m2). This 'low irradiance loss' depends on the characteristics of the

module and the intensity of the incident radiation.

Module

temperature

The characteristics of a PV module are determined at standard temperature conditions of 25°C.

For every degree rise in Celsius temperature above this standard, crystalline silicon modules

reduce in efficiency, generally by around 0.5%. In high ambient temperatures under strong

irradiance, module temperatures can rise appreciably.

Soiling Losses due to soiling (dust and bird droppings) depend on the environmental conditions,

rainfall frequency and on the cleaning strategy as defined in the O&M contract. This loss can

be relatively large compared to other loss factors but is usually less than 4%, unless there is

unusually high soiling or problems from snow settling on the modules for long periods of time.

The soiling loss may be expected to be lower for modules at a high tilt angle as inclined

modules will benefit more from the natural cleaning effect of rainwater.

Module

quality

Most PV modules do not match exactly the manufacturer’s nominal specifications. Modules are

sold with a nominal peak power and a guarantee of actual power within a given tolerance

range. The module quality loss quantifies the impact on the energy yield due to divergences in

actual module characteristics from the specifications.

Module

mismatch

Losses due to “mismatch” are related to the fact that the modules in a string do not all present

exactly the same current/voltage profiles; there is a statistical variation between them which

gives rise to a power loss.

DC cable

resistance

Electrical resistance in the cable between the modules and the input terminals of the inverter

give rise to ohmic losses (I2R). This loss increases with temperature. If the cable is correctly

sized, this loss should be less than 3% annually.

Inverter

performance

Inverters convert from DC into AC with an efficiency that varies with inverter load.

AC losses This includes transformer performance and ohmic losses in the cable leading to the substation.

43

Downtime Downtime is a period when the plant does not generate due to failure. The downtime periods

will depend on the quality of the plant components, design, environmental conditions,

diagnostic response time and the repair response time.

Grid

availability

and

disruption

The ability of a PV power plant to export power is dependent on the availability of the

distribution or transmission network. Typically, the owner of the PV power plant will not own

the distribution network. He, therefore, relies on the distribution network operator to maintain

service at high levels of availability. Unless detailed information is available, this loss is

typically based on an assumption that the local grid will not be operational for a given number

of hours/days in any one year, and that it will occur during periods of average production.

Degradation The performance of a PV module decreases with time. If no independent testing has been

conducted on the modules being used, then a generic degradation rate depending on the module

technology may be assumed. Alternatively, a maximum degradation rate that conforms to the

module performance warranty may be considered.

MPP

tracking

The inverters are constantly seeking the maximum power point (MPP) of the array by shifting

inverter voltage to the MPP voltage. Different inverters do this with varying efficiency.

Curtailment

7of tracking

Yield loss due to high winds enforcing the stow mode of tracking systems.

Auxiliary

power

Power may be required for electrical equipment within the plant. This may include security

systems, tracking motors, monitoring equipment and lighting. It is usually recommended to

meter this auxiliary power requirement separately.

Grid

Compliance

Loss

This parameter has been included to draw attention to the risk of a PV power plant losing

energy through complying with grid code requirements. These requirements vary on a country

to country basis.

44

Business models for solar plants: Financial Viability

APPC + REC

The power generated is sold to the Discom at Average Pooled Purchase Cost (APPC). The APPC tariffs

offered by various Discoms are relatively low and thus the viability of the project largely depends on the

revenue generated through REC sale.

Physical energy sale to local Discom at APPC

Redemption of REC at exchange

The APPC is normally rolling and for payment purpose previous year APPC is taken

Every Discom has its own way to calculate APPC

The main viability of project depends on REC revenue

The bankers are not interested in such projects due to high uncertainty of REC revenue

Requires links in Govt. & Discoms to sign PPA

No need to pay open access charges

Less losses as injection is at nearest substation

Analysis

Least attractive model nowadays in industry

Raising debt funding an issue

As based on REC revenue hence no financial projection can be done post 2017

As injection is at local Discom network for localised consumption, grid downtime can be high

More suitable for states with somewhat higher APPC & high % growth in APPC

45

THIRD PARTY SALE + REC

Physical sale of power to private consumers at mutually agreed price

Sale of REC through power exchanges

Viability of project depends on PPA with private party

Requires open access clearances

Sale of power outside state is difficult due to high losses and infirm nature of solar

Required to pay CSS and other wheeling and transmission charges which add up to the landing cost of

power

Such projects are already going in the wind sector

EMMVEE has done an open access project funded by IREDA

Analysis

Need extensive search for potential clients

Identification of consumer/Off taker is the key to success, but requires rigours background study.

Due diligence of consumers for financial strength and future of their industry

Open access clearances are not easy to get, as the Distribution companies are never willing to let go the

high paying industrial clients.

Open access might result in additional time consuming processes with added costs.

High returns can be achieved in states like Maharashtra and Andhra Pradesh where tariffs are on

higher side

The Viability of the project depends on cross subsidy surcharge, wheeling and transmission charges.

The project location should be near to consumer to save transmission and wheeling losses

The load curve of consumer should match solar generation

The size of solar project is limited to the minimum load of the consumer

A better option can be that consumer takes stake in project so that it qualifies under captive

46

Open Access Charges

The table gives the transmission, wheeling & CSS and the total effect on tariff for open access for target

states. The table shows that it is favourable to have open access in the states of Andhra Pradesh and Madhya

Pradesh.

Transmission Wheeling ( 22/33 KV and

above) CSS Total effect

on Tariff

Charges

(INR/unit) Losses

(%) Charges

(INR/Unit) Losses (%) INR/unit

Rajasthan 0.23 4.2 o.11 3.8 0.05 - 0.49 1.32

Gujarat 0.03 4.5 0.12 10 0.45 3.97

Andhra

Pradesh 0.08 4.02 0.02-0.04 3.39-4.00 0 0.66

Maharashtra 0.29 4.24 0.11 6 0.19 - 1.38 2.55

Punjab 0.27 2.5 1.19 2.26 1.07-1.14 2.89

Madhya

Pradesh 0.07 3.5 0.18 5.15 0 0.69

Financial Business Model -Third Party Sale + REC

49

Sensitivity analysis for factors affecting IRR

IRR is affected by various factors and this sensitivity analysis is based on Assumptions taken from Andhra

Pradesh. However the sensitivity analysis stands correct for any state and tariff as it gives a percentage

impact of various parameters on the total IRR.

-3%

-2%

-1%

0%

1%

2%

3%

4%

Tariff offered (+0.5 INR)

Tariff escalation (+0.5%)

Months REC (-9 months)

REC trade price (+500 INR/MW)

Post 2017 REC prices % (+5%)

Post 2017 REC prices (+500 …

CUF (+1%) CAPEX (+ 5 INR

millions)

Interest rate (+1%)

Grid availability (-1%)

Grid losses (+1%)

Wheeling charges (+0.1 INR/kW)

Cross subsidy surcharge (+0.1 …

Assumptions

CAPEX INR9,00,00,000

Tariff INR 6.80kWh

Tariff Escalation 3% p.a. For first

10 years

REC price 9300 per MWh

till 2017

CUF 19%

Debt : Equity 70 : 30

Interest Rate 13%

Repayment 12 years

Acc. Depreciation N.A.

Transmission &

distribution losses

and Charges

8.02%, INR

0.12 /kWh

CSS INR 0.45 kWh

Projected IRR 13.07%

50

Pseudo Captive + REC Model

What is a Captive Plant in India?

Qualifying Criteria according to ‘Electricity

Rules 2005’

not less than 26 % the ownership is held

by the captive user(s), and

not less than 51 % the aggregate

electricity generated in such plant,

determined on an annual basis, is

consumed for the captive use.

Interesting model to qualify under captive

The Power consumption criteria can be easily fulfilled as consumer will use almost 100% of the power.

The 26% stake criteria can be engineered as below, given all other conditions match the criteria of

investor and consumer.

This model is currently being implemented by ‘ReNew Power’ backed by Goldman Sachs for two 1 MW

projects in Haryana where they have signed a PPA of around Rs. 9.5/unit with ASAHI India & Coca Cola

India.

ReNew Psudo Captive Model – Insights

Key Fact – As per discussion with ReNew Officials

ReNew India is backed by Goldman Sachs with 99.97% share holding. The company has already

invested more than INR 1,000 Cr in the wind sector and looking forward to diversify in Solar sector

Signed PPA for 1 MW solar roof top plant with ASAHI India plant in Haryana @ INR 9.5 /kWh for 15

years

REC benefits to be shared equally between the developer & consumer.

Current tariff of ASAHI is approx. Rs. 10.5 /unit, with diesel power cost included with expected

escalation of more than 3% p.a.

The project will qualify under the category of Captive plants and will thus take all the benefits available

O&M to be looked after by ReNew for 15 years.

Important clause of payment in PPA, that if at any time - ‘ASAHI wants to withdraw from the PPA they

have to pay the NPV value of the remaining period of PPA.

Rooftop to be leased by Asahi India to ReNew, at a very nominal price with ROW.

The project is submitted to IREDA for debts funding and as claimed by the developers will be

constructed within 2 months of financial closure

Claims to have signed a MOU with Coca Cola India for developing 40 MW worth of plants on there

rooftops under same model.

Equity in SPV

99% preferential shares (held by the

investor) 1% common shares

26% held by the consumer

74% held by the investor

51

The Model makes sense in India

The shareholding structure suggested by ReNew , is already prevailing in wind sector thus an tested

model

As the project will be near to the consumer (on the same rooftop), the transmission losses will be

reduced to minimum and grid availability will be almost 100%.

No upfront investment by the consumer

Better utilization of roof-top space

NPV saving worth corers over a period of PPA and then option of transfer of assets to provide electricity

for another 10-15 years.

If successful the model will open a huge potential in small MW size rooftop projects

The solar power being a green source of energy , thus can also be shown as companies investment

towards sustainable

The customer identification is a tough task and will require top management level contacts by

developers

The future prospects of developers industrial sector will be a key risk area for the project.

Smart drafting of PPA and captive structure will be required to avoid any confrontation at the later stage.

ReNew Pseudo Captive Model – Successful in Wind finding its way in Solar market

52

Revenue Model

Key Facts

The project is called a captive power generating plant.

Investor will invest more than 99 % of the money.

Pseudo 26 % stake to consumer, with no rights over profits or liabilities towards losses.

PPA of SPV with developer is like repayment of long term loan.

Sale of Power

Analysis

Project most viable with high PPA revenue & REC as addon.

Identification of potential customer is difficult.

It requires good link with top management of the potential customer.

Need smart structuring of stakeholder pattern.

No need to pay CSS, adds to viability of projects.

Exit policy has two options – down sale or passing off to the developer.

All benefits to be checked as per rules.

53

Analysis and recommendations

The Way Forward

How to achieve better project economics in large solar projects?

Land bank with infrastructure

Create and gain access to land banks - In prospective solar rich states that are to announce capacities

(preferential tariff) in future like Madhya Pradesh, Karnataka, Gujarat, Rajasthan, Tamil Nadu.

Options of land lease or purchase can be explored.

Development costs, Evacuation & transmission costs can be controlled if early entrant.

Resource assessment

Reliable ground measurements / resource assessment are key to solar projects.

Projects in India largely rely on Meteonorm, NASA data for measurements. Recent CWET installations

have over 1 year data.

Establish solar monitoring stations on land banks and conduct independent assessment through 3rd

party

agencies to prepare for projects in future. This will help overcome financing hurdles.

EPC / Supply partnership for financing options

Strategic EPC / Supplier tie ups help access to forward pricing commitments and access to supplier

credit options (access to cheaper / alternate financing options to rupee term loan) that help projects

realize better returns.

EXIM lending support at 8.5% - 9.5% for 85% of the import value (~55% - 60% of project cost) has

funded over 40% of solar PV projects in India so far.

Project Economics &

Costing

Profitable Sales Models

Commercially Viable solar

Project

Well structured EPC cost

Low finance options for supply

and project

Land banks with good solar

irradiation and access to , grid

connectivity and infrastructure

Efficient project management

Well designed contracts and

agreements

Analysis of various

sales options

Selection of right

power purchase

agreements

Well designed

contracts and

agreements –

construction and plant

maintenance

Right mix of both

factors: costing &

sales model will

result in

commercially viable

projects, and

desired returns.

54

How to achieve better performance and manage risk in an SPV?

Key issues in REC based Solar Market

Non-compliance of RPO by states and lack of clarity of the compliance levels in past years

Absence of RPO monitoring framework

Distortionary floor price of solar RECs

Lack of clarity on the building and ownership of evacuation lines

Downward revision of APPC an issue

Lack of incentives for obligated entity for over achievement of RPO

• Actual Vs Estimated Energy Generation

• Downtime Risks

• Performance under Indian Conditions

Performance Risks

• Tough Timelines with BG Risks

• Supply Side Issues

• Erection and Equipment Handling Risks

• Construction Risks

Completion Risks

• Who will Finance

• What Interest Rate

• Non-Recourse Finance Possibilities

Financing Risks

• Plant Availability Risks

• Spare Parts Availability

• O & M Cost O & M Risks

Effective Contract with Supplier of

Technology

Insurance Cover

Risk Sharing between

Developer/EPC/Supplier

Performance Guarantee from EPC

Selecting EPC with prior

Experience/Strong Execution Team

Delay LD clause in Contract with BG

Early selection of EPC

Educating FIIs/Banks through Seminars

Projecting Risk Mitigation plans

Data Sharing

Starting the process early

Transfer to EPC

55

Pseudo Captive Model: Win – Win situation for all

Incentives Hurdles

Highest rate of return

Least number of government clearances

Minimal losses, as consumption near to generation

Optimal use of available space

Pre defined exist policy; with transfer of asset to

developer at the end of contract

Sharing of REC between developer and consumer

No upfront investment by consumer

Consumer adds value to its brand by going green.

o Consumer Identification is crucial

o Niche market segment

o Strength of PPA & contract

o Customer Industry performance and

forecast is a big risk

o In case of dispute/ week contract ;

change of off-taker not possible

Open Access + REC

Incentives Hurdles

Highest IRR in states where:

Tariff is high

T&D charges and losses are low

Cross Subsidy Surcharge is low

Can be a solution for energy deficit states

High potential and ease of installation near load centre

Green Corridor and RRF will support the mechanism

further

Improvement in overall structure of power sector will:

Reduce the losses further

Reduce the existing CSS

o Open Access clearances are a tough task

NOC from Discom; as due to

loss of high paying consumers

their revenue takes a beating

Grid connectivity is a

cumbersome process

Addition to capital cost

o Tough competition from thermal and wind

energy

o Inclusion of Open Access charges in the

financial model is difficult as they change

periodically

56

Projects under State policies - Opportunistic market for local developers

Incentives Hurdles

Long term bankable PPAs in comparison to Open access

projects

Less government clearances are required

State government provide single window clearances

through nodal agencies

No need to pay hefty CSS charges

Developer has to bear network losses only up to the point

of injection

Lucrative investment opportunity for local cash rich

investors to take benefits like A.D

Less competition than JNNSM

o Aggressive and un-realistic biddings by

local developers leading to crashing of

FiT market

o Financial strength of local DisCom is a

concern

o Fear of change of state policy like in

Andhra Pradesh where developers are

asked to match the very low L1 bid and

like Gujarat where State DisCom

approached regulatory commission for

lowering of existing tariffs.

o High net worth criteria and pre-expense

of bidding eligibility

o Risk of non-selection

APPC+REC – Business model where viability depends on REC are not bankable

Incentives Hurdles

Ease of getting PPA at APPC cost

No need to take cumbersome open access clearances

Payment of network charges and losses only up to the

point of injection

o Viability of projects completely depends

on the REC market which in turn depends

on RPO compliance

o Non-compliance of RPO by most of the

obligated entities in absence of any

penalty mechanism

o No clear picture of picture regarding

REC pricing post 2017

o Banks are pessimistic about financing

such projects

57

Viable National Policy turned un-viable with unrealistic low tariff at INR 5.45 per unit

Incentives Hurdles

Most bankable PPA in terms of contractual strength

Only policy with payment security mechanism with

central government guarantees

Supported by Viability Gap Funding (VGF)

o INR 5.45 per unit tariff is unviable for

any project costing more than INR 60

million (as per PPC analysis)

o The MNRE has yet to take clearances on

the VGF source leading to delays in

declaration of final request for proposal

by MNRE

o Nodal agency is the newly formed Solar

Energy Corporation of India

o The low tariff is expected to result in

low quality capacity addition which will

fail the true motive of NSM

Final Recommendation

Market Scenario:

The market is still nascent with more than 50% of developer belonging to pure investor category.

It will move towards Open Access & Captive based models from FiT based models as India

approach grid parity.

Developer should target FiT market in states on opportunistic basis.

Highly Recommended

Pseudo Captive model

Third Party Open Access

sale with highly bankable

PPAs

Viable Options

Projects under state

policies through

competitive bidding or

through direct

allocation

Opportunistic

NSM through Viability

Gap Funding

APPC + REC

58

Green Corporate Social Responsibility

(CSR) Interventions

59

INTRODUCTION

The rapid pace of industrialization has exposed the environment to higher levels of risk. Pollution,

greenhouse gas emissions, global warming and depletion of ground water level are serious issues which

cannot be addressed with the Government’s interventions alone. CSR (Corporate Social Responsibility) is

the buzzword and it’s time for the Corporates to do their bit for the environment which has been endangered

with the industrial activities.

“Corporate Social Responsibility is the continuing commitment by business to behave ethically and

contribute to economic development while improving the quality of life of the workforce and their

families as well as of the local community and society at large.”

Corporate Social Responsibility is broadly categorised by corporates under nine different segments as

highlighted in Figure 1.1.

Figure 1.1: Segmentation of Corporate Social Responsibility

Organization spending on CSR activities

Currently, it is very difficult to find information on CSR activity in India. This problem partially stems from

the fact that a lot of current CSR activity is donation‐based rather than project based, and as such there is

only a small amount of information on company websites and in financial reports. There are very few

project impact studies and long‐term studies detailing the kind of positive impact CSR activity has on a

given community. An additional problem appears to be that very few companies are spending anywhere near

2% of their average profit after tax (PAT).

1. Eradicating Extreme Hunger and Poverty

2. Promotion of Education

3. Promoting Gender Equality and Empowering Women

4. Reducing Child Mortality, Improving Maternal Health

5. Combating Diseases Such as AIDS, Malaria

6. Ensuring Environmental Sustainability

7. Employment Enhancing Vocational Skills

8. Social Business Projects

9. Funds For Socio-economic Development

60

45%

6%

1%

47%

Companies Spending less than

2% PAT

Companies Spending more

than 2% PAT

Companies Spending 2% PAT

Unknown CSR Spending

Among Top 100 Companies in India, 92% of them spend less than 2% of

According to a Forbes Study, the top 100 most

profitable companies (based on net sales in 2012)

are only spending a total of Rs. 1763 crore on

CSR activity, whereas 2% of PAT would be Rs.

5665 crore. This accounts for a difference of Rs.

3902 crore that should have been spent on CSR in

the fiscal year 2012. Important to note is that 47%

of companies surveyed either did not have CSR

data or were not profitable. Therefore, the actual

funds that should have been spent on CSR activity

could in fact be greater than the stated Rs. 5665

crore.

Source: Forbes India Survey

Segment wise CSR Spending

CSR in India has been slowly developing over the last forty years, but has taken a great leap forward in the

last five, and again has been increased with the mandatory stipulations in the Companies Bill 2011. As of

2010, approximately 49% of India's 500 largest

companies are reporting on CSR.

The majority of this CSR expenditure appears

to be donation‐based rather than project‐ based,

and unfortunately there is not much information

on the amounts being donated, nor measurable

impact of said donations.

Sectors Contributing in CSR Activities

Based on an ASSOCHAM study, there are clear

areas of improvement for corporations to invest in

CSR activities, as currently only half of the top 500

Indian corporations are reporting a measurable

amount of CSR activity. More reporting is clearly

necessary if adequate data is to be collected on the

state of CSR activity in India. If corporations can

partner with NGOs, there should be a measurable

increase in reporting of CSR activities, as well as

data collected regarding the success of CSR

projects.

FMCG, Chemicals & IT Sectors Contribute 35% of the Total Spending on CSR in 2012

In 2012 Spending on CSR, INR 1763 Crore, whereas 2% of PAT, INR 5655

Crore

18.83% 15.65%

12.72%

9.05%

5.16%

37.59%

Community Welfare

Education Environment Health Care Rural Development

Others

Most of CSR spending is Donation Based rather than Project Based

13.11% 11.71% 9.65% 8.82% 8.12%

48.59%

FMCG and Consumer Durables

Chemicals Software and ITES

Textiles Construction Other

61

However, without good reporting standards in place it becomes very difficult to measure both the scope and

the effect of CSR across the country. With partnership between corporations, NGOs and the government,

reporting standards should increase and become more transparent, and thus will result in greater

sustainability both of projects and of profits.

Focussing on environment and sustainability

Sustainability, climate change, energy and energy

efficiency, green consumption and urban sustainable

development are globally recognized challenges for

the 21st century. Tackling these challenges requires a

strong commitment from companies and private

sectors, governments and agencies, NGOs.

The managers and professionals of tomorrow will require knowledge to understand the interconnectedness

of economic, environmental and social dimensions, and competencies to manage and contribute the change

towards a more sustainable world. Corporate social responsibility (CSR) is the way to achieve a greener

world. CSR is not a new concept, but over the past decade its focus has shifted from labour issues and local

philanthropy toward environmental actions.

Numerous factors are driving this trend, including managerial altruism, cost-cutting efficiency

improvements, the emergence of a new generation of green consumers, and savvier business leaders who

take pro-active steps to avert political conflict rather than reacting to public pressure after the fact.

Corporations are becoming more and more aware that they should be more careful with the footprints we

leave behind. Huge corporations such as Wal-Mart are selling organic products because it promotes a

healthy lifestyle for its customers and provides a positive image for the company worldwide.

•A company's primary responsibility is to owners, shareholders etc. Conceptual

•A Company must not confuse its role with others Ideological

•A company has limited resources, expertise and reach Practical

•What was a boundry a few years ago is now a starting point Changing Boundries

Investment in Renewable Energy

Renewable Energy Procurment - Renewable Energy Certificates

Energy Efficiency Measures

62

RENEWABLE ENERGY IN INDIAN ENERGY MIX

At present, India has 27,541.71 MW of installed

renewable capacity excluding hydro power stations.

India plans to double its renewable energy capacity

to 55,000 MW by 2017 as part of efforts to increase

efficiency of its energy use. The contribution of

renewable energy to the total power generation is

estimated to be 4.7%, 5.5% and 6.4% during 2010-

11, 2011-12 and 2012-13 respectively. Renewable

power generation capacity of 14,657 MW has been

added in the country during the 11th Five Year Plan

period.

A potential of over 2, 45,000 MW from various renewable energy sources have been estimated in the

country. So far 28,067 MW renewable power generation capacities have been installed.

To encourage use of renewable energy sources, the Ministry encourages private sector investment and

offers incentives such as Capital Subsidy, Generation Based Incentive, and Accelerated Depreciation

for Renewable Energy Projects.

The National Action Plan on Climate Change (NAPCC) has taken into consideration the renewable energy

potential including wind power potential in outlining the approach for the development of renewable energy

in the country.

In keeping with the objectives and approach of NAPCC, the Ministry of New and Renewable Energy

has set a target of capacity addition of 29,800 MW from renewable energy sources during 12th Plan

period.

This includes 15,000 MW from wind, 10,000 MW from solar, 2,100 MW from small hydro and 2,700 MW

from biomass including waste to energy. A Gross Budgetary Support of Rs. 19,113 crore has been allocated

for the renewable energy activities for the 12th Plan period.

Source 2012-13 2013-14 2014-15 2015-16 2016-17 Total

Wind Power 2500 2750 3000 3250 3500 15,000

Small Hydro Power 350 400 400 450 500 2,100

Bio-Power

(including Waste to

Power)

400 400 520 550 830 2,700

Solar Power 1000 1000 2000 2500 3500 10,000

153188

4780

39623 27542

Thermal Nuclear Hydro Renewable Sources

Me

ga W

att

(MW

)

Installed Capacity

63

Amalgamation of Renewable Energy & CSR

Renewable energies, such as wind, solar, and geothermal energies, are no longer considered to be merely

complementary to thermal or nuclear power generation. Rather, they are widely recognized to have a core

role in fulfilling our energy needs. Renewable energies such as wind, geothermal, and hydraulic power emit

very little CO2, one of the causes of global warming. These energies, by definition, cannot be depleted and

help prevent the depletion of finite energy sources. Development and supply of these energies, therefore, is a

very rewarding activity that can greatly contribute to global environmental conservation.

Businesses can make a very positive intervention in the society by adding renewable energy projects to their

Corporate Social Responsibility (CSR) activities, which will help to improve the socioeconomic conditions

of the marginalized. Organization’s obligations are now extending beyond maximizing shareholder value

and now also include steps to improve the quality of life of surrounding community and people. As a part of

CSR a business can set up Renewable Energy Technologies like Solar, Biogas to serve energy needs.

Decentralized electricity generation using renewable and its distribution can become the new frontiers for

CSR activities. Such projects reduce load on the grid, bridge the growing electricity deficit, provide regular

electricity supply and generate local employment. As part of a CSR initiative in renewable space,

organizations can set up renewable energy systems in villages that will be maintained by villagers who have

undergone training. Installing a mix of solar panels, wind mills and biogas plants can make village energy

self-sufficient or can opt for procuring renewable energy for their self-consumption from Renewable Energy

Certificates of bilateral arrangements with Renewable energy developer. By adding renewable energy

projects to their CSR activities, businesses will make a very positive intervention that will go a long way in

improving the socioeconomic lot of disempowered.

Grid connected: Renewable Energy is the future

The growing energy needs of the emerging economics, specifically India, risks enhanced environmental

damage from conventional carbon based sources of energy. Renewable Energy technologies are deployed to

curb the growing gap between the demand and supply of power, which is due to increase in the per capita

energy consumption and importantly, the much hyped climate change concerns. The future of solar

photovoltaic development in India seems to be very bright. India’s solar mission envisages the promotion of

solar energy to harness and distribute environment-friendly power, available with high scalability, for

sustainable economic growth by empowering national energy security.

Green Energy

CSR

Grid Connected Solutions

Off-Grid Solutions

Renewable Energy

Certificates

Energy Effeciency

64

Accelerated growth is expected in renewable energy sector with favorable conditions in terms of potential,

technical support facilities, policy framework and regulatory environment, robust manufacturing base and

investor’s confidence in the country.

India powering ahead with solar

India is located within the equatorial belt and

receives plentiful solar radiation. Most parts of the

country receive 250 to 300 days of bright days in a

year. The government and private sectors are

currently busy with the development of a large

number of Solar Power Projects in India. Even

though the percentage of power generated through

solar energy in India is just a tiny fraction of its

overall power production, it shares the number one

spot in solar power generation capacity along with

the United States. One of the major Solar Power Projects in India is an ambitious project undertaken by the

government where it plans to generate 20 GW of power from solar energy by the year 2020. It further plans

to increase this production to 200 GW by the year 2050. This project plans to increase the installed solar

power capacity by a gigantic level by the year 2030 so as to significantly bring down the cost of electricity

generation from solar power, almost at par with the power generated from fossil fuels.

India retains 5th

position in wind

Historically, wind energy has met and often exceeded the targets set for it under both the 10th Plan (2002-

2007) and 11th Plan (2007-2012) periods. During the 10th Plan period the target set was of 1,500 M W

whereas the actual installations were 5,427 MW. Similarly during the 11th Plan period the revised target was

for 9,000 MW and the actual installations were much higher at 10,260 MW.

“Despite poor pace of capacity addition in the states like Tamil Nadu, Andhra Pradesh, Karnataka

and Maharashtra , India retained its position in top five world wind energy markets in 2012”

The country has potential to set up about 6, 00,000 MW of wind power. The current installed capacity is

18,000 MW. In 2011, the country added 2300 MW of wind power capacity. This had come down to about

1700 MW in 2012 and is likely to be in the same range this year. But next year it could go up to 3000 MW if

promised incentives (INR 8 billion allocated to Ministry of Non Renewable Energy for the purpose of

reintroduction of generation-based incentive for wind energy projects).

As per various estimates, the total potential for wind energy is around 46 - 70 GW. MNRE envisages wind

to constitute ~70% of overall renewable capacity translating to 2-3 GW of new capacity per year till 2020.

1000

10000

20000

0

5000

10000

15000

20000

25000

2013 2017 2022

Me

ga W

att

(MW

)

65

Off-grid solutions

Often remote areas or islands are not connected to the

national power grid. They generate their own power

from a diverse range of small local generators using

both fossil fuels (diesel, gas) and locally available

renewable energy technologies (solar PV, wind, small

hydro, biomass, etc.) with or without its own storage

(batteries) depending on the technologies. Such off-

grid solutions are customised according to need to

capacity of the people to pay.

Solar technologies - one of the best solutions to light up and electrify rural India

The rural solar off-grid market has so far been driven mainly by government and NGO efforts. Though there

has been increasing interest from corporates and investors (domestic and international) in exploring viable

business opportunities to serve India’s vast rural, unelectrified population.

In India, close to 70-75 million households in rural areas (approximately 400m people or 80,000- 90,000

villages) lack access to grid-connected electricity. Electrified households in the rural areas pay INR 106 a

month on an average for electricity. This is less than the INR150 which un-electrified households spend for

light from a kerosene lantern. Assuming such households are able and willing to pay the same as electrified

households, the market potential is in the range of INR 90-95 billion per year.

Around 250,000 grid-connected villages with frequent power outages further increase this potential. There

are three key options for providing rural, off-grid, solar PV-based electricity solutions: small applications

with integrated power generation capacity (e.g. solar lanterns and solar street lights), solar home systems

(SHS) and mini-grids.

Falling prices of photovoltaic cells in the last two years have increased the viability of solar energy projects.

Solar powered cell phone charging stations where the villagers can charge their cell phones for a certain

nominal payment will also help boost the off-grid solar PV market along with supporting the rural

enterprise.

“Babulal charges the cell phones of the villagers @ INR 5”

Solar - hybrid systems

With the advent of solar hybrid systems, urban India too is catching up. In these systems, solar PV modules

charge the battery during day time while WEGs charge the battery during monsoon. Although current

installed capacity of these systems is very low, it is expected that these systems will grow in areas with good

wind potential.

106

396

153

2

97

0

50

100

150

200

250

300

350

400

450

Me

ga W

att

(MW

)

Off-grid potential in India

66

Biomass potential

Most of rural India is dependent on biomass for fulfilling its energy needs. However, burning biomass

comes with several hazards to personal health and the environment. Off-grid renewable energy applications

present a viable alternative for mitigating the country’s energy risk in the face of fuel scarcity. In rural India,

energy is mainly required for cooking, lighting and agricultural activities. Biomass is the main source of

energy due to easy availability. Around 87% of the off-grid installed capacity in the country comes from

biomass (including Waste to Energy).

RENEWABLE ENERGY CERTIFICATES (REC)

About REC

Renewable Energy (RE) sources are not evenly spread across different parts of the country. On the one hand

there are States (like Delhi) where the potential of RE sources is not that significant. On the other hand there

are States (like Rajasthan and Tamil Nadu) where there is very high potential of RE sources. In such States

there are avenues for harnessing the RE potential. However, the high cost of generation from RE sources

discourages the local distribution licensees from purchasing RE generation beyond the mandated level.

It is in this context that the concept of Renewable Energy Certificates (REC) assumes significance. This

concept seeks to address the mismatch between availability of RE sources and the requirement of the

obligated entities to meet their RPO. It is also expected to encourage the RE capacity addition in the States

where there is potential for RE generation as the REC framework seeks to create a national level market for

such generators to recover their cost. Central Electricity Regulatory Commission (CERC) has notified

Regulation on Renewable Energy Certificate (REC) in fulfillment of its mandate to promote renewable

sources of energy and development of market in electricity. The framework of REC is expected to give push

to RE capacity addition in the country.

‘Voluntary buyers can purchase RECs from trading platform of Power Exchange of India Limited or

Indian Energy Exchange, as part of CSR activity or to market their product as Green Product.’

The Department of Public Enterprise (DPE) recently expanded the scope of the Energy management

Program of Public Sector Enterprises (PSEs) by including renewable energy as a specific activity to be

pursued by public enterprises. The Ministry of Heavy Industries and Public Enterprises has asked all Central

Public Sector Enterprises (CPSEs) to set up renewable energy projects or voluntarily purchase Renewable

Energy Certificates (RECs).

67

Voluntary REC market

RECs have been traded in India for 25 months now (since March 2011), and the market has grown in its

value and depth. However, one aspect of the REC market that is common internationally has largely

remained absents – the procurement of RECs on a voluntary basis to meet Corporate Social Responsibility

(CSR) / Green Marketing.

The procurement of RECs on a voluntary basis help corporates meet Corporate Social Responsibility (CSR)

or Green Marketing of their product without investing to the renewable energy power projects any

organization can use RECs to offset their carbon footprints created through the consumption of electrical

appliances, as these electricity is generated somewhere in thermal plants burning coal as a fuel. Following is

the list of Voluntary REC buyer in the country:

1. Rashtriya Ispat Nigam Limited

2. Security Printing & Minting Corporation of India Limited

3. POSOCO

4. IREDA

5. MMTC

6. Manikaran Power Trading

7. EKI Energy Services Limited

8. Neo Remark Marketing Services LLP (RE-Mark)

9. IndianPowerSector.com

10. Evolving Thought Leadership on GREEN CSR Interventions Conference

Registered capacity under REC mechanism

There is total of 3,615 MW (by 09 June 2013) of renewable energy capacity registered under REC

mechanism.

Recently, Neo Remark Marketing Services LLP

(RE-Mark), India’s first labelling program which

identify product, organizations and events which

utilize renewable energy in their operations. RE-

Mark assisted IndianPowerSector.com in

procuring RECs and provided label making them

India’s First Green Website utilizing 35% of

Renewable Energy.

2033 683

567

188

Registered Capacity (MW)

Wind Bio-Fuel Cogen Biomass Small Hydro

68

Market sizing

As per the latest amendments to the Companies Bill by the Union Cabinet, based on recommendations of the

Parliamentary Standing Committee on Finance and inter-ministerial discussions, CSR has been made

obligatory on part of companies. The qualifying criterion that would make the CSR mandatory is:

Companies having a minimum net worth of INR 500 crore or turnover of INR 1000 crore or a net profit of

INR 5 crore during any financial year. Regarding the amount of expenditure on CSR activities, it has been

stipulated that at least 2 percent of the average net profits of the company during three preceding financial

years shall be spent on CSR every year. Further, the companies have been mandated to formulate a CSR

policy and to disclose the activities undertaken and the related spending.

Model I

With the CSR budget as a driving factor for investment in voluntary renewable energy, average of last three

years profit of companies of top 500 Indian companies have been taken into account to estimate the market

potential. Consequently, average of last three year profits of companies has been calculated as INR 326637

crore (Economic Times, ET 500 List, 2009, 2010, 2011). Author believes 80 percent of the demand will

come from top 500 companies (having turnover of greater than 500 crore) and they would act as

sustainability leaders and would procure voluntary renewable energy for branding and to differentiate

themselves from competitors. This would be in line with the voluntary renewable energy market in USA

where the Environment Protection Agency (EPA) of US has a list of Fortune 500 partners, which contains

79 companies and which contributes to majority of voluntary renewable purchase. (United States

Environment Protection Agency Green Power Partnership, 2012)

Hence, considering 2 percent of the average profit of 500 companies as funding available for CSR budget, a

sum of INR 6532 crore is calculated. Further, owing to limitations of data, it is assumed that 10 percent of

the total CSR fund would be set aside for voluntary renewable energy purchase, which amounts to 653

crore.

Moreover, as mentioned earlier, 20 percent of voluntary renewable energy purchase would be through

corporates, which are not included in top 500 list, and with same percentage of allocation of fund for CSR,

the total amount that could come is INR 163 crore. Adding both the sum, a market potential for voluntary

REC purchase of INR 816 crore is estimated.

However, it is important to note that since no study has been done for estimating market potential for

voluntary renewable purchase market across the globe and given the fact of absence of its market in

India, due to various reasons like new market of renewable energy certificates lack of awareness among

corporates regarding benefits of voluntary purchase; the market size arrived in first paragraph is only a

preliminary estimate and is prone to errors.

Model II

Owing to the fact of a very preliminary estimate of voluntary renewable energy market size, one another

way of estimating the market size is devised through assuming a fixed percentage of a corporate expense on

RE requirement of its total revenue. As per a study by Bloomberg New Energy Finance and Vestas on

Global Corporate Renewable Energy Index (CREX) 2012, using data from the Bloomberg terminal, it has

been calculated that total cost of renewable energy is a small proportion of the publically listed companies’

revenue on average i.e. 0.02 percent. Hence estimating market potential of voluntary renewable purchase

69

through this figure, by assuming it as a standard and replicable for Indian market, a market size of INR 745

crore is obtained (excludes 20 percent component). Again utilizing 80:20 principle, an overall market size of

voluntary renewable purchase of INR 931 crore is obtained.

Market Potential Estimation of Unrestricted Voluntary REC Market in India (INR Crore)

Model 1. Lower Bound Market Size Estimation of Voluntary REC purchase

Profit After Tax

(PAT)

Average

PAT

CSR

Budget^

Expenditure on

REC Purchase

by ET 500^^

Expenditure by

Non ET 500 on

REC purchase^^^^

Market

Size

09 260298 326637 6532 653 163 816

10 308316

2011 411298

Source: RE-MARK Analysis

*PAT corresponds to sum of total

PAT of top 500 companies as per

ET list for a particular year

^ 2% of Average PAT

^^ 10% of CSR Budget

^^^ 0.02% of Average Revenue

^^^^ 20% of Expenditure on REC

Purchase by ET 500

#Revenue corresponds to sum of total revenue of top 500 companies as per ET list for a particular year

Issues and the way forward

The developing structure of the REC market is dependent on the policies and regulations that define it. The

current regulation on meeting yearly RPO compliance has resulted in a liquidity loss with active REC

trading being postponed to the last few months of the financial year. The compliance window thus needs to

be shortened to a quarter or half year to ensure continuous procurement by the obligated entities, leading to a

robust and vibrant REC market. Subsequently price discovery would be better with sellers receiving

sufficient bid prices across the year and buyers being able to purchase certificates at low prices.

The lack of long-term visibility on floor and forbearance prices beyond five years impacts the financial

planning of renewable energy developers. The double-sided closed auction design for RECs does not suit the

nature of the product as there is no fundamental cost basis for REC trading.

There is also a need to increase awareness about voluntary REC purchase among corporates, individuals and

non-governmental organizations. The declining REC market must be given a push by its mandatory

enforcement by the State Electricity Regulatory Commissions.

Model 2. Upper Bound Estimation of Voluntary REC Purchase

Revenues Average

Revenue

Expenditure

on REC

Purchase by

ET 500^^^

Expenditure

by Non ET

500 on REC

Purchase^^^^

Market

Size

2009 3329277 3726556 745 186 931

2010 3531540

2011 4318850

70

Energy efficiency measures

Energy efficiency is a way of managing and restraining the growth in energy consumption. Energy

efficiency offers a powerful and cost-effective tool for achieving a sustainable energy future.

Improvements in energy efficiency can reduce the need for investment in energy infrastructure, cut energy

bills, improve health, increase competitiveness and improve consumer welfare. Environmental benefits can

also be achieved by the reduction of greenhouse gases emissions and local air pollution.

Energy security – the uninterrupted availability of energy sources at an affordable price – can also profit

from improved energy efficiency by decreasing the reliance on imported fossil fuels.

Electrical Energy Savings In Terms of Equivalent Avoided Capacity in (MW)

It is estimated that National energy Conservation Award Scheme would help in motivating the other energy

consumers in joining and promotion of a nationwide energy conservation movement.

“1 unit energy saved = 1.5 units energy generated”

Energy Efficiency Measures

Standards and Labelling Programme

Demand Side Management

Energy Conservation Building Code

Bachat Lamp Yojana

State Energy Conservation

Fund

Energy Efficiency in Small and Medium

Enterprises

Professional Certification

School Education

Programme

Energy Conservation

Awards

45

100 90

122 103

155

252 245

308 325

359 357

0

50

100

150

200

250

300

350

400

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Meg

a W

att

(MW

)

71

ROLE AND PERFORMANCE OF PSUS AND CORPORATE HOUSES

Guidelines for public sector utilities

In the context of public sector enterprises Corporate Social Responsibility (CSR) should be viewed as a way

of conducting business, which enables the creation and distribution of wealth for the betterment of its

stakeholders, through the implementation and integration of ethical systems and sustainable management

practices.

Department of Public Enterprises (DPE) issued new ‘Guidelines on Corporate Social Responsibility and

Sustainability for Central Public Sector Enterprises’ on 12

th April 2013. In the revised guidelines, the thrust

of CSR and Sustainability is clearly on capacity building, empowerment of communities, inclusive socio-

economic growth, environment protection, promotion of green and energy efficient technologies,

development of backward regions, and up lifting of the marginalized and under-privileged sections of the

society.

Making it mandatory in the revised guidelines for CPSEs to take up at least one major project for

development of a backward district has the potential of contributing significantly in the long run to socio-

economic growth in all the backward regions of the country. The following are the major heads of

guidelines for CPSEs.

Directions for CPSES to undertake CSR projects

CPSEs are encouraged to take up long gestation, high impact projects from the budget allocated for

CSR and Sustainability activities.

In the selection or choice of CSR and Sustainability projects, companies should avoid taking up ad

hoc, one time, philanthropic activity, which does not contribute in any way to social value creation,

environment protection or sustainable development.

Priority should be accorded to activities pertaining to –

1. In the first category of activities mentioned above, CSR and Sustainability initiatives should focus on

capacity building, skill development and infrastructural development. Each CPSE will have to select

one such backward district for initiating CSR and Sustainability projects with a-prior assessment of

the expected level of beneficial impact on the largest number of stakeholders from the budget and

other resources at its disposal for such a project.

Development of weaker sections

of the society Environment sustainability

72

2. In the second category of activities mentioned above, CPSEs will have to plan for environmental

sustainability and take up projects for water, waste or energy management, promotion of

renewable sources of energy, biodiversity conservation, etc.

3. Reputed and recognised, not-for-profit institutions which have the expertise and professional

competence for conducting training, skill development and other capacity building activities that

promote inclusive growth and sustainable development can be supported by CPSEs through CSR and

Sustainability initiatives.

Budgetary allocation by CPSES for CSR

Every year, each CPSE shall with the approval of its Board of Directors make a budgetary allocation for

CSR and Sustainability activities / projects for the year. The budgetary allocation will be based on the

profitability of the company. More specifically, it will be determined by the Profit After Tax (PAT) of the

company in the previous year as shown here under:

PAT of CPSE’s (2012) Range of budgetary allocation (%PAT)

Less than Rs. 100 crore 3% - 5%

Rs. 100 crore to Rs. 500 crore. 2% - 3%

Rs. 500 crore and above 1% - 2%

The budget allocated for CSR and Sustainability activities / projects planned for each financial year

is expected to be spent within that year. If due to some reason, the budget of a year remains

unutilised, the same would not lapse, instead it would be carried forward to the next year.

At least 80% of the annual budget earmarked for CSR and Sustainability activities shall have to be

spent on implementation of activities in the project mode as explained earlier.

Up to 5% of the annual budget for CSR and Sustainability activities has to be earmarked for

Emergency needs, which would include relief work undertaken during natural calamities / disasters,

and contributions towards Prime Minister’s / Chief Minister’s Relief Funds and/or to the National

Disaster Management Authority.

Generally, the employees of a CPSE should not be the direct beneficiaries of the activities undertaken with

the budget allocated for CSR and Sustainability initiatives in any given year.

However, an exception can be made in case of schools, hospitals, training institutes etc provided they do not

constitute more than 25% of the total number of beneficiaries of such facilities.

73

Sustainability Reporting and disclosure

To begin with, Securities and Exchange Board of India (SEBI) has made mandatory for the top 100

companies in terms of market capitalisation to submit their Business Responsibility Reports. For the others,

it is still a voluntary disclosure and reporting at this stage.

For CPSEs, sustainability reporting and disclosure of all CSR and Sustainability activities undertaken by a

CPSE is mandatory and is to be reported annually, this reporting can be done by CPSEs, as per the Global

Reporting Initiative (GRI) guidelines.

By reporting transparently and with accountability, public sector companies can gain and reinforce the trust

of the stakeholders. This, in turn, would provide a powerful stimulus to their CSR and Sustainability policies

and agenda, and motivate them to pursue them with greater vigour.

CSR of ten largest PSUs

Wide Responsibility Gap

Funds spent

(Rs. Crore)

Funds allocated (Rs,

crore)

(2% PAT of FY ’11)

IOCL 82.70 148.9

BPCL 7.76 30.9

HPCL 26.50 30.8

Mandatory for CPSE's

One project for the development of any one backward district of the country

One project on Environmental Sustainability

One additional project for Maharatna companies

Amount Spend

Amount Allocated

82.7

148.9

7.76 30.9

26.5 30.8

74

SBI 71.20 82.0

ONGC 121.08 456.5

NTPC 49.40 182.4

CIL 82.00 217.3

SAIL 61.0 98.1

MMTC 3.00 2.4

BHEL NA 121.1

Source: IPS.com analysis

With the New Companies Bill 2012 almost certain to pass soon, the government is trying to coax private

companies to spend more money in fulfilling their corporate social responsibilities but public sector

undertakings remain laggards.

“Ten large PSUs, which were together mandated to spend Rs. 1,3703 crore in FY12, managed to

disburse only 504 Crore, 36% of the funds allocated for CSR”

As private companies transition to the new norms, PSUs are still struggling to live up to norms on CSR

spends laid out by Department of Public Enterprises (DPE).

Some PSUs struggle for want of dedicated CSR professionals who can direct the money well, others

for an insular mindset and lack of partnerships with the NGOs, yet others for inability to identify

good social projects or, simply put, lack of a top management vision for CSR.

71.2 82.0

121.08 456.5

49.4 182.4

82 217.3

61 98.1

75

Salient features of Companies bill, 2012 ON CSR:

As per the latest Companies Bill by the Union Cabinet, based on recommendations of the

Parliamentary Standing Committee on Finance and inter-ministerial discussions, CSR has been made

obligatory on part of companies.

Every company having:

1. Net worth of rupees five hundred crore or more, or

2. Turnover of rupees one thousand crore or more or

3. A net profit of rupees five crore or more during any financial year

Shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more

directors, out of which at least one director shall be an independent director.

The Board's report under sub-section (3) of section 134 shall disclose the composition of the

Corporate Social Responsibility Committee.

The Corporate Social Responsibility Committee shall:

a) Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall

indicate the activities to be undertaken by the company as specified in Schedule VII;

b) Recommend the amount of expenditure to be incurred on the activities

c) Monitor the Corporate Social Responsibility Policy of the company from time to time.

The Board of every company shall ensure that the company spends, in every financial year, at least two per

cent of the average net profits of the company made during the three immediately preceding financial years,

in pursuance of its Corporate Social Responsibility Policy.

The company shall give preference to the local area and areas around it where it operates, for spending the

amount earmarked for Corporate Social Responsibility activities.

Existing national and international guidelines

There exists various national and international guidelines on CSR for the Indian companies; almost all

guidelines are broadly based on Global Reporting Initiative (GRI). While some guidelines give step by step

procedures for implementation of CSR in the company others give broad, loose guidelines for CSR to be

based on.

Following given are one national CSR guideline - FICCI Voluntary CSR Guidelines and two international

CSR guidelines - Organisation for Economic Co-operation and Development (OECD).

76

FICCI Voluntary CSR Guidelines:

1. The company shall have CSR as an integral part of overall business policy driven by vision and

philosophy that includes definition of CSR and how it aligns it with its business goals.

2. The company shall formulate a CSR policy to guide its strategic planning and providing a roadmap

to its CSR initiatives.

3. The policy may broadly cover caring for employees, community , climate & environment, (including

skill development and livelihood, health, safety, education, minimizing carbon footprint, protection

of environment, inclusion of disadvantaged & vulnerable sections of the society), non-

discrimination, transparency, anti-corruption and human rights.

4. The company may have a CSR Advisory Committee led by a CSR expert and endeavour to involve

various levels of executive participation in formulation and integration of CSR Policy.

5. The company shall specify a time period after which the CSR policy shall be put up for strategic

review and gauge the impact, relevance of its components and fine tune/augment it in tandem with

the changing times/business/societal needs.

6. The company shall have a structure for the implementation of CSR policy and involvements of

external partnerships.

7. The company shall earmark specified resources or a proportion of their Post Tax Profit for activities

related to corporate social responsibility initiatives.

8. To ensure optimum utilization of resources and maximum impact the company shall set measurable

target, wherever possible and review the progress internally. Periodically the company may get

external evaluation as may be considered appropriate by it.

9. The company shall be producing and disseminating information on CSR policy and activities, as well

as progress to all their stakeholders and the public at large through their website, annual reports, and

other communication media.

10. The company shall endeavour to create a spirit of volunteerism among the employees and encourage

the employees to volunteer for community development initiatives.

11. The company shall endeavour to influence the supply chain in adopting and adhering to best CSR

practices.

12. The company shall have an explicit strategy to focus on CSR issues of immediate concern in the

areas that they operate in. The company may work through partnerships or leveraging Government's

schemes to undertake CSR activities. The company shall endeavour to partner and network with civil

society organizations to carry forward the agenda of CSR.

13. The company shall endeavour to build the image as a socially responsible company.

14. To share experiences and network with other organizations the company may engage with well

established and recognized programmes / platforms such as the FICCI-ADITYA BIRLA CSR

CENTRE FOR EXCELLENCE, UN Global Compact and the like, which encourage Responsible

Business Practices and CSR activities.

77

The Global Reporting Initiative (GRI)

The Global Reporting Initiative (GRI) is a non-profit organization that promotes economic sustainability.

It produces one of the world's most prevalent standards for sustainability reporting. The GRI aims to

harmonize reporting standards for all organizations, of whatever size and geographical origin, with the aim

of elevating the status of environmental reporting with that of, for example, financial

auditing. Environmental transparency is one of the main areas of business under the scope of the GRI.

GRI encourages participants to report on their environmental performance using specific criteria. The

standardized reporting guidelines concerning the environment are contained within the GRI Indicator

Protocol Set. The Performance Indicators (PI) includes criteria on energy, biodiversity and emissions. There

are 30 environmental indicators ranging from materials used by weight to total environmental expenditures

by type of investment. GRI also gives principles designed to be used in combination to define the

sustainability report content, the principles are:

1. STAKEHOLDER INCLUSIVENESS: The organization should identify its stakeholders, and

explain how it has responded to their reasonable expectations and interests. The reasonable

expectations and interests of these stakeholders should still be acknowledged in decisions about the

content of the report. It is important that the process of stakeholder engagement is capable of

identifying direct input from stakeholders as well as legitimately established societal expectations.

2. SUSTAINABILITY CONTEXT: The report should present the organization’s performance in the

wider context of sustainability. This concept is often most clearly articulated in the environmental

arena in terms of global limits on resource use and pollution levels. However, it may also be relevant

with respect to social and economic objectives such as national or international socio-economic and

sustainable development goals.

3. MATERIALITY: The report should cover Aspects that: Reflect the organization’s significant

economic, environmental and social impacts; or substantively influence the assessments and

decisions of stakeholders. Materiality for sustainability reporting is not limited only to those Aspects

that have a significant financial impact on the organization. Determining materiality for a

sustainability report also includes considering economic, environmental and social impacts that cross

a threshold in affecting the ability to meet the needs of the present without compromising the needs

of future generations.

4. COMPLETENESS: The report should include coverage of material Aspects and their Boundaries,

sufficient to reflect significant economic, environmental and social impacts, and to enable

stakeholders to assess the organization’s performance in the reporting period. For example, ensuring

that compiled data includes results from all entities within the organization and entities, groups of

entities, or elements outside the organization where significant.

78

OECD - A step by step approach to drafting a CSR policy:

Step 1: Explore your business opportunities: analysis of the business environment

a. In order to determine the business case of CSR for your company, it is important to first know what

your stakeholders expect from you in the field of CSR.

b. Subsequently link the stakeholder expectations to your core activities and translate this into as many

business opportunities as possible.

c. Ideally, do not do this alone and put together an internal CSR working group with which you go

through this together and jointly work on a widely supported policy plan.

Figure 3.5: OECD FRAMEWORK FOR CSR

Step 2: Scrutinise your company: how do I score on CSR?

Now that you have an idea of the opportunities CSR offers your company and how you can respond to CSR

stakeholder expectations, the next step for you is to scrutinise your company within the context of CSR. This

will give you an idea of what your CSR policy plan should be aimed at, but also what the company already

does and has already achieved. This is often more than you think.

a. Note down the strengths and improvement points of your company per OECD guideline.

b. Also examine the CSR risks, such as child labour or corruption, which are typical for the country in

which you do business.

Explore

Scrutnize

Set Goals Policy Plan

CSR Policy

79

Step 3: Set goals

Based on business opportunities (step 1), self-test and risk analysis (step 2), you can set CSR goals for your

company.

a. Select the business opportunities, improvement points and risks that you want to focus on.

b. Subsequently formulate the CSR goals for the selected business opportunities, improvement points and

risks, and determine which goals you want to achieve in the short and long term. This way you can show

your stakeholders where you stand in the process, what you will tackle next year and in subsequent

years.

c. Determine whether additional data and research are needed for the selected targets. The involvement of

others in the company or in the chain may also be necessary.

Step 4: Policy plan

Now that you have determined which CSR goals have priority, you can start integrating the CSR objectives

and activities into the current systems and processes.

a. Describe briefly per goal what activities you and your staff will take to achieve the goal. Also indicate

which external parties you will need for that.

b. Also indicate in the policy plan how and when you will be reporting on the progress of your CSR policy

to your stakeholders. For a credible CSR policy, your company must be able to prove that you actually

do what you say. While doing so, do not communicate how good you are, but how far you are. These

could be audits and certifications, but can also be stakeholder dialogue, publicity or transparent

reporting.

c. Your policy plan is now ready and you can take action. Do not forget to place your CSR policy plan on

your website and to update it regularly. Go through these steps again regularly.

d. Make sure your staff are sufficiently aware of the CSR policy plan and understand their role or task in

implementing it.

80

Companies with highest Level CSR Rating

With the enforcement of Companies Bill, 2012, corporate social responsibility spending to the tune of 2% of

profit will become compulsory but there are certain private companies that understand their responsibility

towards the society and already are doing their bit towards the society. Some prominent examples of private

companies in CSR are given below (in alphabetic order)

Company Name Industry Category

Three CSR Areas

Ballarpur Industries Ltd Paper Livelihood creation, Education,

Empowerment of women

Housing Development Finance

Corporation Ltd. Financial Services

Community welfare, Children,

Healthcare

Infosys Technologies Ltd. Information Technology,

Software and ITES

Social Rehabilitation and Rural

Upliftment, Learning and Education, Art

and Culture, Healthcare

Jubilant Life Sciences Ltd. Chemicals Environment, Community Welfare,

Water

Kansai Nerolac Paints Ltd. Paints Community Welfare, Healthcare,

Education

Larsen & Toubro Ltd. Engineering and Machinery Healthcare, Education, Vocational

Training

Mahindra & Mahindra Ltd. Automobiles Environment, Education, Girl Child

Moser Baer (India) Ltd. Engineering and Machinery Livelihoods and Training, Education,

Environment

Tata Consultancy Services Ltd. Information Technology,

Software and ITES Energy, Community welfare, Education

Tata Steel Ltd. Metals and Minerals Environment, Community welfare, Rural

development

Titan Industries Ltd. FMCG and Consumer

Durables

Education, Physically Challenged,

Women

Wipro Ltd. Information Technology,

Software and ITES Environment, Education, Energy

Source: Karamayog.org

81

INDUSTRY WISE BREAKUP: OPPORTUNITIES AND BOTTLENECKS

Information Technology (IT)

With the IT sector contributing 7.5 % towards India’s GDP in the financial year 20121, environmental

sustainability and climate change will present substantial opportunities and risks for all stakeholders in the

IT industry. In this reference, Green IT is defined as:

“Optimal use of information and communication technology (ICT) for managing the environmental

sustainability of enterprise operations and the supply chain, as well as that of its products, services, and

resources, throughout their life cycles”.

A report entitled “Green IT: The New Industry Shock Wave” released in 2007 by Gartner Inc, surprised all

across the IT circles as it was the first to reveal that the ICT industry accounted for 2% of worldwide carbon

dioxide emissions, equivalent to the airlines industry, which had long been perceived as the single largest

contributor. The emissions came primarily from data centres housing monitors, servers and other

components, which were integral to the operations of IT companies. The report estimating IT's total CO2

emissions to be approximately 600 mega tonnes.

Also, the report points out that the IT industry is strategically positioned as it could bring down 98% of CO2

emissions caused by non-IT industries. This could be possible as the influence of computing and

communications technologies that IT commands would help non-IT companies in myriad industries to bring

down their carbon footprints. For example, the non-IT companies could substitute travel with

teleconferencing, reduce employee commutes with telecommuting and minimise transactional delays with e-

governance. Green IT is thus not about IT industry alone, it is a lot about non-IT industries discovering ways

of sustainable business. At its simplest, Green IT helps IT companies reduce their own carbon footprint

while enabling them to reduce the carbon footprint of their clients.

According ‘India Green IT survey’2, close to 69% of

the respondents admitted that they were aware of the

Green IT. Not surprisingly the awareness levels were

higher in the MNCs with some 77% admitting to

know about the issue. Also a note worth taking is the

high awareness levels among the PSUs, some 76% of

them said that they were aware of Green IT. Also,

the awareness level was the highest among the

companies with annual revenues of Rs. 50-100 crore,

around 79%. Big companies, with annual revenues of

over Rs. 500 crore, came next.

1 NASSCOM, http://www.nasscom.in

2 By Continuity and Resilience (CORE) organisation in 2010; Continuityandresilience.com

77.40%

65.10%

76%

68.80%

22.60%

34.90%

24%

31.30%

MNC

Indian private ltd company

PSU

Overall

No

Yes

82

Opportunities:

Data centres: Data centres consume an enormous amount of energy, the energy consumed by data centres

represents a financial burden on the organizations that operate them, and an infrastructure burden on power

utilities. For example, the energy used by 10 mega watt data centre each year in India is equivalent to the

energy consumption of 73,000 typical Indian urban houses or equivalent to energy consumed by 17,520

typical Indian cars3. Due to such high energy consumption, we are starting to see many “green” data centres

powered (at least partially) by renewable sources of energy. These green data centres either draw directly

from a nearby renewable power plant or generate their own electricity. Among other advantages, these types

of ‘green’ data centre reduce the energy losses involved in power conversion and transmission over long

distances. Solar and wind are two of the most promising sources of green energy for data centres, as they are

clean and broadly available.

However, solar and wind has three main limitations today: the space they require, their capital costs and

location constraints. Fortunately, predicted improvements in efficiency and reductions in Cost/Watt will

alleviate these problems significantly in the future For example, improvements in photovoltaic (PV) solar

panels and new PV technologies are expected to triple today’s efficiencies until 20304. Over the same

period, the Cost/Watt of PV panels is expected to become less than half of what it is today. For example,

according to Central Electricity Regulatory Commission of India, the standard cost of 1 Mega watt solar

plant has come down from Rs. 12 crore/MW to Rs. 8 MW/crore and is sliding further.

In addition, governments currently provide incentives for green energy generation, for example, Ministry of

New & Renewable Energy (MNRE) Government of India, provides a capital subsidy of 30% on solar

thermal systems5. If these incentives continue, cost factor may not be a significant one in the future. These

trends suggest that solar and/or wind power will become increasingly attractive, especially for small and

medium data centre as they require smaller and cheaper installations. Moreover, solar panels and/or wind

turbines can be deployed in small increments for these data centre.

Services: Encompasses using information and communication technology (ICT) to improve the

environmental sustainability of the products, activities and processes of the enterprise and includes its

energy and material efficiency. This involves designing and providing stewardship of products and services

while managing and optimizing these resources in an environmentally sensitive way as well as considering

how ICT can be used to improve environmental sustainability.

Life cycle is particularly important in this, demanding consideration or stewardship from cradle to grave of

those things over which the enterprise could reasonably be considered to have influence or choice. That may

include managing the full life cycle of the enterprise products, and would certainly include considering the

life cycle of the IT equipment being procured.

Cooling: Cooling requirement in the IT industry is required for almost all process ranging from data centres,

products & services to air conditioning. Use of renewable energy for cooling purposes of the enterprise

utilising the CSR fund of the company has the potential to bring down costs as well as reducing CO2

emissions in a big way leading to sustainable business by the enterprise while also fulfilling its CSR

obligations.

3ECO3 project of BEE & USAID of 2009, http://www.eco3.org/downloads/equivalentmatrix.pdf

4 Technology Roadmap – Solar Photovoltaic Energy, International Energy Agency, 2010. http://www.iea.org.

5 http://mnre.gov.in/file-manager/UserFiles/subsidies_solar_thermal_systems_devices.pdf.

83

CO2 emissions reduction due to 5 % reduction in cooling requirements.

But the Indian data centres show lower chiller plant efficiency – higher MWh/ton (the lower the MWh/ton

the more the efficient is the cooling system), this may be caused by hot and humid conditions and greater

use of air cooled chillers rather than water cooled with a cooling tower. Thus improvements in cooling

systems for IT industry can potentially be a game changer.

Telecom

As per the Telecom Regulatory Authority of India’s (TRAI) around 1 % of the total GHG emissions in India

is from the telecom sector which is around 20 million tonnes of CO2 a year, in contrast the Global GHG

emissions from telecom sector is only 0.7 %. Also, the average CO2 emissions per subscriber is India is

around 21 Kg when compared to the global average of 8 Kg of CO2 emissions per subscriber.6

To reduce these emissions, TRAI and the Department of Telecommunications’ (DoT)have issued directives

on green telecom, that service providers must ensure at least 50 per cent of telecom towers in rural areas and

20 per cent in urban areas should run on hybrid power – a combination of renewable energy and grid power

– by 2015. This should increase to 75 per cent and 33 per cent respectively by 2020.

Also, telecom operators have to declare their carbon footprint adopting the formulae and procedures as

prescribed by TRAI. The formula is,

TRAI Formula for calculation of carbon footprint

P = consumption of power of the Network element, in KW, grid power is for ‘x’ hrs , the power from ‘z’

KVA Diesel Generator is for ‘y’ hrs and the efficiency of the generator is ‘η’.

The declaration of the carbon footprints is to be half yearly, with the first half yearly report to be submitted

by 15th

November and the succeeding half yearly report to be submitted by 15th

May each year.

6 http://www.itu-apt.org/gtas11/robert.pdf

C = 0.365 [0.84Px + (0.528 yz /η)] in Tonnes

Total Consumption

•30% of 10MW = 26280 MWh of electricity

for cooling

Reduction

•5 % reduction = 1314 MWh of electricity

saved

CO2 emmissions

•1024 tonnes of reduction in CO2

emissions

84

Also, based on the details of the carbon footprints

declared by all telecom operators, operators should aim

at carbon emission reduction targets for the mobile

network as shown in the graph.

Further, all products, equipment and services in the

telecom network should be energy and performance

assessed and certified “Green Passport” by 20157. TRAI

has stated that the Telecommunication Engineering

Centre will certify telecom products, equipment and

services on the basis of their energy consumption ratings.

The directions given by the telecom regulator and

approved by DoT have thus necessitated the use of green

energy by telecom operators.

Opportunities

1. Infrastructure Sharing:

a. Operators can jointly roll out telecom tower sites –both passive and active sharing – which

could typically achieve a 30% CAPEX saving accumulated over five years. This will also

reduce OPEX by 15% per year by the fifth year8.

b. Active sharing of network infrastructure, which involves the sharing of antennae systems,

backhaul transmission systems and base station equipment, will allow operators to save an

additional 40% on top of available savings from passive infrastructure sharing.

c. Sharing also results in reduction of number of generator sets and telecom masts installed,

which leads to reduction in noise, air and visual pollution.

d. For example, Indus Towers, which owns over 120,000 towers, is a three-way joint venture

between Vodafone India, Idea Cellular and Bharti Infratel that owns passive infrastructure

shared by the three partners in the 15 circles where the three firms have overlapping

operations.

7 http://dot.gov.in/sites/default/files/CSIII%20NLD%204%201%2012_0.pdf

8 http://www.itu-apt.org/gtas11/robert.pdf

5%

8%

12%

17%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2012-13 2014-15 2016-17 2018-19

Carbon emission Reduction targets for telecom operators

85

2. Use of Renewable sources of energy: The directives of TRAI and DoT make use of Renewable

energy eminent, but even without these directives it makes economic sense for telecom operators to

use Renewable energy as the following table illustrates.

Cost economics for use solar energy in telecom towers

Year of reference 2013 2016

Number of towers 480000 550000

Percentage of towers that are off-grid 33.3% 33.3%

Percentage of towers that are on-grid 66.6% 66.6%

Number of towers to be converted to hybrid systems 196800 341000

Number of tower that are on-grid 131069 227106

Number of tower that are off-grid 65534 113553

Prices to be compared (in INR)

Diesel remote 24.31 32.36

Solar without storage 9.81 7.15

Grid (30%) + Diesel remote (70%) 18.79 24.63

Grid (30%) + Solar with storage (70%) 14.38 8.98

Grid (60%) + Diesel remote (40%) 13.28 16.90

Grid (60%) + Solar with storage (40%) 10.75 7.96

Source: Bridge to India

Bottlenecks:

1. Regulatory issues: TRAI’s recommendation has defined hybrid power as “renewable energy

technology and grid”, with no mention of battery as backup, but no technology is sufficient to ensure

24x7 power supplies for telecom operations. Also, the formula used by TRAI for carbon footprint

calculations is complex and erratic. For example, the efficiency of a DG set changes over time, usage

and loading factor. There is no way to determine the change in efficiency of the DG set. However,

since the proposed formula uses the efficiency factor as constant, it would lead to erroneous carbon

footprint values.

2. Site constraints and natural resource availability: Not all locations make green power feasible or

economical. In most cases, some type of green power supply can be deployed. However, there are

areas where this is not an option or the ROI is too high to justify. Furthermore, seasonality variations

in temperature and changing meteorological conditions can make it difficult for operators to predict

performance and output.

3. Network needs: Renewable energy base stations are primarily deployed in areas where the grid is

inconsistent or nonexistent. Under these circumstances, it makes sense for operators to deploy green

86

base stations, as they are the only or most efficient way to provide service to consumers. However,

for larger sites in more populated areas where load requirements are high, renewable may not

perform as needed.

4. Lack of consistency and global standards: Since the topic of green telecom is broad and

encompasses all regions and numerous of ecosystem players, action is being taken on a variety of

fronts. While such diverse actions may be useful and may move the ball faster, they also create a

challenge in that there is no industry standard for all vendors and operators to meet.

5. Upgrade timeframe: Operators have invested in existing infrastructure, and although it will be

replaced over time, they want to get the most out of their investment. Therefore, while upgrading to

more efficient equipment may be appealing, it may not be immediately possible.

6. Absence of subsidies for solar telecom towers: MNRE does not grant subsidy to telecom sector for

solar installations, which needs to be addressed.

7. Distributed application/site locations hence the cost of installation goes high.

Real Estate

Internationally there are many examples of mandatory

green building standards being used to require a

compulsory minimum environmental standard that all

new development must meet. International evidence

suggests that a combination of regulation and

incentivizing best practice is the most effective way to

drive rapid improvement in the building sector.

Mandatory standards for green building usually set a

minimum standard and are not intended to outline best

practice. In most cases it is important to consider

mandatory standards for green building as a baseline

that raises the standard from normal practice whilst

also providing a platform that we must improve from.

In India, the building sector represents about 33% of

electricity consumption in Indian, with commercial

and residential sector accounting for 8% and 25%

respectively. Estimates based on computer simulation

models indicate that energy efficient buildings can use

40% to 60% less energy than conventional buildings. It is estimated that the nationwide mandatory

enforcement of building efficiency code will yield annual savings of approximately 1.7 billion kWh9. The

future trend of building sector in India can be seen in the graph and in line with this the electricity

consumption is expected to grow at 11-12 percent per annum10

.

9 ECO3 project of BEE & USAID of 2009.

10

“ Growth of Indian building sector”, 2010.

0

20000

40000

60000

80000

100000

120000

2005 2030

Ele

ctri

city

Co

nsu

mp

tio

n

Year

Future trends in Real Estate

Residential Commercial and office

Hospitality Retail

87

Keeping in mind the growth, Bureau of Energy Efficiency (BEE), India launched the Energy Conservation

Building Code (ECBC) to provide minimum requirements for energy-efficient design and construction of

buildings and their systems. The code is applicable to buildings or building complexes that have a connected

load of 500 kW or greater or a contract demand of 600 kVA or greater.

BEE has also developed a Star Rating program for buildings which is based on the actual performance of a

building in terms of its specific energy usage in kWh/sq m/year. This program rates office buildings on a 1-5

Star scale, with 5 Star labeled buildings being the most efficient. The scheme is propagated on a voluntary

basis and the label provided under it is applicable for a period of 5 years from the date of issue. However,

since the ratings are limited to only energy efficiency, it cannot be considered a comprehensive green rating

program.

Opportunities:

Sourcing: Green energy procurement should be mandated for all commercial buildings and large residential

complexes. For example, under ECBC it is mandatory for all upcoming new hotels, hospitals and large

residential complexes to have solar water heating for at least 1/5th

of their hot water requirements.

Heat recovery systems should also be encouraged for buildings using heating or cooling processes. For

example, heat is rejected from the air conditioners condenser to the atmosphere, this waste heat can be

recovered and utilized to heat water wherever feasible.

“Infosys has employed a mini-wind farm of 5 turbines of rating 5KW each at its Mangalore campus

and also has solar plant installations of 127 KW and 252 KW at its Trivandrum and Jaipur campuses

respectively”

Investor Demand: Investors are now recognizing the opportunity to profit from green building investments.

Pushing investors into this arena have been the same societal forces propelling socially conscious investing

– the desire among an increasing share of investors to feel good about the uses to which their capital are

devoted. The Responsible Property Investing (RPI) movement advocates “triple bottom line” accounting

that tracks environmental and social impacts, as well as the traditional financial returns. RPI is becoming

especially common with public pension funds, which account for a large share of real estate ownership in

the country.

Despite an ongoing debate as to whether green buildings should be viewed as a distinct investment product,

the rising prevalence of green real estate funds suggests that a specialized market does indeed exist – close

to $2 billion in announced plans worldwide already. Following are the few examples in India.

88

FMCG

The expected market size for FMCG in India will be 1.7 trillion by 2015 and the industry is expected to

grow at the rate of 12% to 17% until 202011

. The development of energy- efficient manufacturing,

environmentally conscious supply chain, ecologically safe products and green marketing are all part of

‘green’ growth for FMCG sector which also leads to sustainable development.

Opportunities:

Supply Chain: Competition in the global competitive environment has diverted the firms to shift from

traditional supply chain to a resourceful and environmental conscious supply chain to sustain effective

competitive edge. The sugar industry, for example, has great potential to contribute to our national power

grid through the burning of cane fibre, called bagasse, which is a renewable energy source. This industry has

a power-generation potential of 18 GW12

. Apart from its ability to generate electricity, this industry also

have the resources to produce ethanol, which can be used in conjunction with petrol to fuel vehicles and

locomotives in our transport and freight industries.

Also, a recent survey conducted by the Economist Intelligence Unit, showed the increased level of

awareness as well as the operational changes taking place as more companies go ‘green’. According to it,

52% of the companies report that they are implementing some form of green-minded supplier qualification.

An additional 39% say that they have plans in the near future.

Manufacturing: Manufacturing plants are certified to Environmental Management Systems (ISO 140001)

by independent registrars, upon meeting the requirements stated in the ISO Management System standard.

11

Schneider ElectricTM 12

MNRE, Government of India.

Green buildings in India

Project City Area Rating Hike in

cost (in

%)

Payback

period on cost

premium (in

years)

Sohrabji Godrej

GBC

Hyderabad 20,000 Platinum 18 7

ITC Green Centre Gurgaon 170,000 Platinum 15 6

Spectral Services Noida 15,000 Platinum 8 4

Wipro Gurgaon 175,000 Platinum 8 5

Technopolis Kolkata 72,000 Gold 6 3

Source: CII

89

Implementing an environmental management system (EMS) is a process by which an organization’s

management identifies regulated and unregulated environmental aspects and impacts of its operations,

assesses current performance, and develops targets and plans to achieve both significant and incremental

environmental improvements. Environmental aspects are human or industrial activities, products, or services

that can interact with the environment.

A green manufacturing model can be like –

Green Manufacturing model.

“ITC Ltd plans to invest Rs 100 crore in renewable energy over the next two years. Renewable

energy, which currently accounts for about 38 per cent of ITC’s total manufacturing consumption, is

estimated to meet up to 50 per cent of its total energy requirement in the next five years. The company

has installed close to 70 MW of wind power projects across India and a 90 tonne-per-hour biomass

fire boiler at a total investment of approximately Rs 400 crore.”

Marketing: Green marketing may refer to selling

product or rendering services based on environmental

benefit. Green Marketing begins with ‘green design’.

Most buyer decisions are influenced by the labelling,

(green labelling) that states all that makes the product

green compliant. Also, the price of green product has

to be affordable for the customer to encourage

purchase. Industrial differentiation works only when

products reduce client’s cost.

Most buyers are influenced by advertisement that

reflects a company’s commitment to environment.

Companies that do green advertisement that tend to

portray an image of environmental friendliness,

influences their customer purchase decisions.

Consumers love to associate themselves with

companies that are environmental stewards. When a company communicates this through their

Green

Manufacturing

•Use of Renewable energy.

•Environmental Management System.

•Years ISO14001 Certified.

Waste Reduction

Techniques

•Process & Product redesign

•Substitution

•Reduce & Recycling

•Remanufacturing

•Consume Internally

•Prolong Use

•Returnable Packaging

Results

•Low Costs

•Lead Times

•Hih Quality

•Reputation

•Product Design

•Process Waste

•Int’l Sales

68%

32%

65%

3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Purchased Green

Products

Never purchased

Green Products

Purchase Preen

Products regularly

Purchased a Green

Product only once

Product awareness survey

90

advertisements, promotions, publicity and corporate social responsibilities, they are sure to get many loyal

customers.

According to a study on perception of consumers towards Green FMCG Products, the following results

stated in the graph were obtained. Thus inference of the study is clearly in favour of going green for the

FMCG sector.

Green marketing should not be considered as just one more approach to marketing, but has to be pursued

with much greater vigour, as it has an environmental and social dimension to it. With the threat of global

warming looming large, it is extremely important that green marketing becomes the norm rather than an

exception or just a fad.

91

Role of NGOs - Be the bridge

NGOs have, in particular, played an important role in raising environmental concerns, developing awareness

of environmental issues and promoting sustainable development. The encouragement of public participation

in environmental management through legislation in recent years has also enhanced the role of NGOs and

Major Groups.

They now undertake a much wider range of activities than simply raising environmental awareness and/or

acting as pressure groups. Their activities now include environmental monitoring; promoting environmental

education, training and capacity-building; implementing demonstration projects; conducting advocacy work

in partnership with the government; and the promotion of regional and international cooperation on

environment.

NGOs supporting green energy

As per the latest data (2.7.2013) out of a total of 49342

NGOs/VOs only 6034 NGOs/VOs are supporting the cause

of Renewable energy.

“If the potential funds need to be channelized for

sustainable development of the nation, NGOs need to

evolve innovative ways to support the causes of CSR in a

greener way.”

As mentioned in the New Companies Bill 2012, it has

provision of mandatory spending of 2% of the profits of the

companies on Corporate Social Responsibility (CSR).

The procedure for this CSR spending makes the participation of NGOs vital. The New Companies

Bill 2012 stipulates all CSR funds to be channelized through a registered NGO.

NGOs to act as the facilitator to achieve the goals of CSR

12%

88%

NGOs BreakUp

New & Renewable energy NGOs All other NGOs

NGOs

Government Agencies

Corporates

Financing Institutions

92

Role of NGOs:

NGO describes a range of groups and organizations from watchdog activist groups and aid agencies to

development and policy organizations. Usually defined as organizations that pursue a public interest agenda,

rather than commercial interests

Traditional perceived roles

Going forward in a greener way: Recommended ways for NGOs

Going forward, to support the development of the nation in a sustainable way, the roles of NGOs need to be

modified and be integrated with the aim of Green Energy CSR.

Setting agendas

Negotiating outcomes

Conferring Legitimacy

Implementing solutions

Implementing Sustainable Solutions

Fascilitating adoption of greener solutions

Conferring Legitimacy

Exploring Regulatory Framework Alligning CSR goals with regulations

Negotiating Effective Outcomes

Funding needed Impact on society

Setting CSR Agenda

Green Energy Energy Effeciency

93

Suggested Model for Sustainable development

Green energy CSR for sustainable development: Be green in every aspect

1. Need to establish institutional framework/mechanism which will facilitate government agencies such

as MNRE, MCA, DPE, IICA and Industry Associations: to align with corporate entities which will to

define leadership role for NGOs/VOs

2. NGOs/VOs to enhance their skill and competency levels which include technical, financial and

regulatory understanding.

3. Sensitization for microfinance and other financial institutions such as SIDBI; towards evolving role

of NGOs

4. Ranking system/award to motivate the result oriented good practices of NGO’s

NGOs/VOs

Ministry/ Government

Agencies

Financing institutions

Foundations

Corporates

94

Way Forward for Green Energy based CSR

Build awareness among the CEOs and designated CSR Heads regarding best practices for Greener

approach to achieving the proposed CSR target.

Such sustainable approach should integrate renewable and energy efficiency based CSR

interventions with other specified sub-sectors for CSR such as Education; Heath; Rural Enterprise;

Employment etc.

Bringing together the CSR funds and funds from development partner agencies such as World Bank;

UNDP, UNDIO, ADB, JICA and others to make a substantial pool for green energy development for

the society

Government agencies like MNRE, BEE, EESL, MOCA, CERC, CEA , Renewable development

agencies to provide regulatory framework for green CSR projects to make them viable technically

and commercially.

Joint effort of renewable energy development companies to provide required services to build green

energy projects

NGOs and VOs from all fields for operation should integrate green energy technologies in their

agenda as solution to other verticals of CSR:

CSR Vertical Impact Need

Better Education Through E-classes, proper lit schools,

evening schools for working elderly

Need Electricity

Better health Hospitals and moving super specialty

hospitals, use of solar cookers to avoid

smoke, drinking water purifiers

Need Electricity

Employment Generation of local employment to stop

migrations, providing vocational training to

make semi-skilled and skilled workforce

Renewable energy projects are

labour intensive and can provide

very good local employment

opportunities

Socio-Economic

Development

Better irrigation facility, drainage systems,

street lighting, supply of power to

households, developing small scale business

in rural and semi-urban areas

Need Electricity: Off Grid

Solutions

Environment

sustainability

Save forest, reduce carbon foot print Usage of green power

Need of investment not only in the projects for green power, but also in the R&D of new technology

which are required for decentralized generation of quality green power

Understanding the fact that in electronic age, growth and prosperity of society in a sustainable way is

dependent on the source of energy we are using. The energy requirements should be fulfilled through

green technologies for better future and sustainable growth of society.

95

Green CSR will be the major driver for all the CSR activities as energy is the backbone of any

activity in this electronic age.

It is estimated by adopting greener ways of CSR the existing 12% of Green Energy NGOs can be

increased to as high as 70%

A new thought: Hassle free sustainable contribution

The REC model if flexible enough to give the option of investing any amount as low as INR 1500

RECs can be brought from power exchanges (like IEX) and in a way the buyer of REC is supporting

the developer based out in some remote area.

Hence REC is a readily available hassle free medium of going green and supporting the nation’s

sustainable development.

A new innovative idea is not required to find new things it can simply finding a way in the current system

and utilize it for benefit of all.

Promotion of Voluntary REC market:

CERC and SERC should allow off-grid small scale renewable projects to be considered eligible for

REC (should include 1 NGO, 1 corporate house under CSR and end users as stake holders). This will

make micro – grids more viable and self-sustainable

Promoting the voluntary REC market can provide the following social benefits to India

o The renewable sector growth will be fuelled by the demand , which somewhat slowed down

after failure of implementation of RPO

o If REC as a market becomes mature, this will provide a new sustainable model to provide

green power to people who need it most. The corporate can install renewable projects in rural

areas or where there is no availability of grid power at all or only for few hours a day as their

70%

30%

NGO break-up

Green Energy NGOs Other NGOs

96

CSR. The projects can be made sustainable by providing cheap power to the consumers and

claiming RECs on it.

o Projects done under CSR should be exempted from paying all kinds of taxes (even on REC

income). The profits from such projects should in turn be used for other 9 verticals of CSR.

o The REC mechanism already in place with few changes can be a game changer for both

corporates willing to do CSR more effectively and also for the society

o Allowing corporates to buy REC directly from Re-Generators, who are supplying power to

rural or under –privileged area at a subsidized rate. This will reduce the burden of

government from subsidy and also attract more private investment in rural and un-electrified

areas of country.

97

BIBLIOGRAPHY

Green Commercial Real Estate Corporate Social Responsibility ~ http://www.sauder.ubc.ca

A study on the acceptability of alternative energy sources for a book market in Karachi

~http://pubs.iied.org/

Stimulating quality investment in sustainable energy for all ~ http://pubs.iied.org/

CSR and developing countries - government action final ~ http://pubs.iied.org/

Sustainable Development using Renewable ~ http://www.energetica-india.net/

Mandatory Standards For Green Building ~ http://resources.ccc.govt.nz/

World Band Public Policy for CSR ~ http://info.worldbank.org/

OPPORTUNITIES AND OBSTACLES for CSR-Reporting ~ http://nature.berkeley.edu/

EnergyTourism2011_Vienna_Presentation_RES_in_Hospitality_Industry_SLOAN ~

http://www.energietourismus.at/

Hospitality_Case_Studies ~ http://www.teriin.org/

Salinger ~ http://isassociates.org/

Guidelines on Corporate Social Responsibility for Central Public Sector Enterprises ~

http://dpe.nic.in/

Report On National Mission On Sustainable Habitat ~ http://dpe.nic.in/

Green Telecom Networks ~ http://www.navigantresearch.com

Turning to Renewables Opportunities and challenges for telecom ~ http://www.tele.net.in/

Renewable Energy Kit for telecom towers ~ http://www.cleanenergystates.org/

Corporate Governance _Grading_Report_for_the_Year_2010-11 ~

http://dpe.nic.in/sites/upload_files

Waste Business - Indian Express ~ http://www.indianexpress.com/

An Examination of the Regional RE in USA upto 2015 ~ http://www.nrel.gov/

White_Paper_on_NAPCC ~ http://bcsd.teri.res.in

EAI Roadmaps ~ http://www.iea.org/publications/

Green entrepreneurs launch 'social waste management' ~ http://www.moneycontrol.com/

Social Entrepreneurship and Poverty Alleviation ~ http://www.smeworld.org

IRENA_CB_Strateg_Approach_Paper ~ http://www.irena.org/

UNEP_Energy_Handbook ~ http://www.unep.org/

2_Sh_Jaiveer_Srivastava_(Hindustan_Prefab_Ltd) ~ http://www.iica.in

Solar Panels for University Buildings _ The Eco Experts ~ http://www.theecoexperts.co.uk

summer internship report - national power … internship report ... helped me through the course of...

Documents