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Developing Solar Projects under REC Mechanism in India


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Instead of signing MoU, PPA, submitting performance bank guarantee etc for 25 years or participating in cut throat bidding process (project is viable only to module manufacturers for the rate it can be achieved), I suggest to develop the solar project under REC Mechanism, as for selling the power through average exchange rate and realizing the mean value of REC rate for first five years and half of the floor price for next 5 years, yields levellised rate of Rs.10.536*. [Solar Tariff in Gujarat: Rs. 9.28 for project commissioned up to 2013, Rs. 8.63 for project commissioned up to 2014 and Rs. 8.03 for project commissioned up to 2015].
Even if REC floor price is reduced by half for next 5 years and NIL thereafter, developing the project under REC and selling the power through Energy Exchange, would yield rate of Rs.9.647 which is more than maximum rate of NVVN against cost of generation not more than Rs.6.50. [NVVN is the nodal agency of NTPC for procuring solar power to meet their REC requirement. In the 1st phase NVVN finalized bid for 150 MW Solar Projects and in latest bid for 350 MW Solar Projects. In the latest NVVN bid the price offer for solar power projects were minimum Rs.7.49 and maximum Rs.9.44]

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Developing Solar Projects under REC Mechanism in India

  1. 1. Solar Power Projectsunder REC Mechanism in India
  2. 2. Power Scenario : India» India, for electricity generation is fifth in the world with 185496.62 MW installed capacity, and third largest for transmission & distribution network. However, increasing infrastructure activities, growing population and the rising needs of a rapidly growing consumer base has led to situation where the supply of energy falls short of the demand. We face a peck shortage of almost 12% and an average shortage of 9 to 10%.
  3. 3. Per Capita Consumption» The per capita consumption (gross electrical energy availability per population) in India is merely 681 units, against World Average of about 2596 unit. Per capita consumption is highest in Canada (17179 Kwh) followed by USA (13338 Kwh) & Australia (11126 Kwh). If we target to meet the world average, we need to increase our capacity by more than 4 times, i.e. by 850,000 MW.» This means India deserves to be one of the most attractive investment destinations for power in the world. May be in that perspective out of fortune 500 companies, around 200 have set up there base in India.
  4. 4. Targets : Capacity Addition» There is track record in world history that India is maintaining its natural environment while contributing for the development and welfare of the human kind. So while achieving 9% GDP growth, Govt. of India has adopted and also pursuing a Low Carbon Growth Strategy for the Indian Power Sector. Accordingly 78,700 MW capacity addition is targeted for the 11th Five Year Plan (2007-12) and 82,200 MW capacity addition for the 12th Five Year Plan (2012-17) as recommended by working group committee.
  5. 5. Low Carbon Growth Strategy» Amongst the many elements of Low Carbon Growth Strategy, adoption of super critical technology in thermal power plants, rapid induction of clean coal technology, sharper focus on generation from wind, solar, biomass & hydro etc, reforestation plan, fly ash utilization plan, clean development mechanism (CDM) and introduction of ISO 14001 are the main. For reducing the CO2 emission from new coal fired capacity, it is envisaged that more than 50-60% of capacity addition of thermal plants during 11th & 12th Five Year Plans period would be based on super critical technology keeping proper fuel mixture to
  6. 6. Low Carbon Growth Strategy» Supercritical and ultra-supercritical plants can achieve efficiencies of ~ 40 and ~ 45% respectively, compared to about 35% achieved by subcritical plants. For every 1 % rise in efficiency, there is a 2% decrease in CO2 release. Besides, there is a substantial reduction in NOx emissions.» International major like Mitsubishi, Toshiba, Hitachi, Alstom and Ansaldo have already started the process of partnering with Indian companies to set up super critical technology based manufacturing facilities in India.
  7. 7. Nuclear Power Program» To achieve the capacity addition target while following Low Carbon Growth Strategy, Govt. of India has launched flourishing & largely indigenous nuclear power program to have 20,000 MW nuclear capacities by 2020 and to supply 25% of electricity from nuclear power by 2050.
  8. 8. Clean Coal Technology» Gasification is the first step towards a clean coal technology: Carbon to capture from the syn-gas produced and sequestered in the mine or pump back in oil or gas fields to enhance oil or gas recovery. In-situ coal gasification with or without carbon sequestration could be eligible for carbon credit. ONGC trials to establish the feasibility & economics of in situ gasification technology for Indian coal & lignite in collaboration with Russia. Neyveli has tied up with an Australian Group to pursue in-situ gasification of Lignite. However, in-situ gasification has not been deployed commercially anywhere in the world.
  9. 9. Jawaharlal Nehru National Solar Mission» Under the Low Carbon Growth Strategy Govt. of India has launched Jawaharlal Nehru National Solar Mission to create a capacity of over 20,000 MW based on solar energy by the pear 2020 with the target of setting up 1,000 MW grid connected (33 KV and above) solar plants, 100 MW of roof top and small solar plants connected to LT/11 KV grid, 200 MW capacity equivalent off grid solar applications and 7 million sq. meters of solar thermal collector area during the first phase till March, 2013.
  10. 10. Renewable Energy Sources : Potential» National Electricity Policy envisages “Power for all by 2012” and per capita availability of power to be increased to over 1,000 units by 2011-12. Our country has significant potential for generation of power from Non- Conventional Energy Sources such as Wind, Small Hydro, Bio mass and Solar Energy. The total estimated medium-term potential (2032) for power generation from renewable energy sources such as wind, small hydro, solar, waste to energy and biomass in the country is about 1,83,000 MW.
  11. 11. Renewable Energy Sources : PotentialEstimated Mid-Term (2032) PotentialSources / Systems MWWind Power 45000Bio Power (Agro Residues & Plantations) 61000Co-generation Baggasse 5000Small Hydro (Up to 25 MW) 15000Waste to Energy 7000Solar Photovoltaic 50000Total 183000
  12. 12. Renewable Energy Sources : Optimization» In June 2008 Hon’ble Prime Minister of India announced National Action Plan for Climate Change (NAPCC) to outline its strategy to meet the challenge of Climate Change. NAPCC envisages several measures to address global warming. One of the measure is increasing the share of renewable energy in total electricity consumption in the country.» The National Action Plan of Climate Change (NAPCC) has set the target of 5% renewable energy purchase for FY 2009-10 which will increase by 1% for next 10 years. The NAPCC further recommends strong regulatory measures to fulfill these targets.
  13. 13. REC : The Concept» The NAPCC provided a roadmap for increasing the share of renewable in the total generation capacity in the country, but there are constraints in terms of availability of RE sources evenly across different parts of the country.» The concept of Renewable Energy Certificate (REC) assumes significance to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their renewable purchase obligation.
  14. 14. REC : The Concept» REC would be exchanged within the forbearance price and floor price. The forbearance and floor price would be determined by CERC in consultation with Central agency and FOR from time to time.» In case of default SERC may direct obligated entity to deposit into a separate fund to purchase the shortfall of REC at forbearance price.» However, in case of genuine difficulty in complying with the renewable purchase obligation because of non-availability of certificates, the obligated entity can approach the Commission for carry forward of compliance requirement to the next year.
  15. 15. Regulatory Commission : Role» The Electricity Act, 2003 entrusts on the appropriate commission the responsibility of promotion of co-generation and generation based on renewable energy sources.“86. (1) The State Commission shall discharge the following functions, namely: -» (a) …….» (e) promote cogeneration 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 licensee;» (f) ………”
  16. 16. RPO : Quantum of purchase Year Total Wind Solar » Against the % MW MW2010-11 5% 20000 1000 requirement of REC2011-12 6% 22000 2000 Certificate of 200002012-13 7% 24500 4500 MW from Wind and2013-14 8% 26500 6500 2000 MW from Solar2014-15 9% 29000 90002015-16 10% 31000 11000 Projects, the available2016-17 11% 33500 13500 is 14158 MW from2017-18 12% 35500 15500 Wind and only 1832018-19 13% 37500 175002019-20 14% 40000 20000 MW from Solar.
  17. 17. REC : Forbearance and Floor Price» Under section 66 and 178 of the Electricity Act, 2003 the CERC has notified the Terms and Conditions for recognition and issuance of Renewable Energy Certificate (REC) for Renewable Energy Generation Regulations, 2010Period : Non Solar REC Solar REC1st June 2010 – 31st March 2012 Rs/MWh Rs/MWhForbearance Price 3900 17000Floor Price 1500 120001st April 2012 – 31st March 2017Forbearance Price 3300 13400Floor Price 1500 9300
  18. 18. Sensitivity Analysis: Revenue RealizationScenario REC Rate Period of For Exchange For DISCOM’s REC Average Sale Average Rs./ Kwh Years Rate: Purchase Rs.3.5/ Kwh Cost: Rs.2.7/ Kwh 1 Floor Price 5 8.437 7.430 2 9.30 10 9.647 8.640 3 15 9.886 9.433 4 Mean Price 5 9.326 8.318 5 11.35 10 10.802 9.795 6 15 11.628 11.175 7 Forbearance 5 10.214 9.207 8 Price 10 11.958 10.950 9 13.40 15 13.370 12.917
  19. 19. Finance for Solar Project:» Investments from NGO,REC India, Green Energy funds» Export-Import Bank » Approved $75 million for four solar projects in India » a $16 million, 16.5 - year loan to Azure Power Rajasthan Pvt. Ltd. for 5 MW » a $9.2 million, 18 - year loan to Punj Lloyd Solar Power Ltd. for 5 MW » $500 million for solar projects in the pipeline that will generate an estimated 315 MW of solar power.» European Investment Bank (EIB) has granted a EUR 200 million loan to ICICI Bank for renewable energy projects supporting climate change mitigation under the EUR 4.5bn Energy Sustainability and Security of Supply Facility (ESF).
  20. 20. Global Annual Installation: Germany is the Market Leader
  21. 21. Solar Market India:
  22. 22. Levellised Cost Comparison: Utility Scale PV & Conventional Power at Grid Parity
  23. 23. Thank You? Query : mail to – or call 9909904332