This document provides an overview of key considerations for evaluating the project costing, economics, and developing a good business case for solar PV rooftop projects. It discusses various project investment models and how they affect components like warranties, taxes, and revenue sources. The document also outlines the major cost components, factors that influence costs, and approaches to determining tariffs and the levelized cost of energy. Sample calculations and scenarios are presented to compare different projects based on variables like tariffs, incentives, and loan terms. The conclusion emphasizes the importance of long-term energy generation, quality components, financing costs, and tariff patterns over the lifetime of the project.

1. Partnership To Advance Clean Energy-Deployment (PACE-D)
Technical Assistance Program
Presented by
USAID PACE-D TA Program
Apr-18
Solar PV Rooftop Training Program For Entrepreneurs
Session:
Project Costing & Economics

2. Contents
Project Variations
Project cost components
Project Financing and Revenues
Tariff Determination by the Regulators
Conclusions – Keys make a good business case

3. Project Variations – Investment Models (1/2)
Capex Opex (BOO / BOOT)
‘Sale’ of system to customer Sale of energy over lifetime
Investment as working capital till
commissioning
Long term investment till transfer of
system or withdrawal of system
O&M chargeable basis O&M own costs
Warranties of components in customer’s
name
Warranties in own name
No possibility of claiming Accelerated
Depreciation Benefit – customer can avail
avail it
Possible to avail Accelerated Benefit

4. Project Variations – Investment Models (2/2)
Gross metering Net metering
Capacity limited by investment and
available area
Capacity limited (additionally) by
contract demand and transformer
capacity
Revenue depends on PPA rate and
probably would be constant over a
period
Revenue is from saved energy and
depends on consumer tariff and
probably would be increasing
continuously
Bankability based on utility financial
strength
Bankability based on own business
growth and energy requirement
Dependence also on overall state / utility
energy requirement in future
Dependence on own energy
requirement projections and tariff rates
in future

5. Project Cost Components
Project Cost Components
Fixed Component
 System equipment capital cost
 Site related cost – roof rent / strengthening /
new roofing
 O&M costs over a period
 Fixed charges for project approval /
registration / sanction
 Utility charges – based on units of electricity –
over a period
 Debt / loan related upfront charges –
processing
 Pre-operative costs – interest, marketing costs
Variable Component
 Structure – Aluminium / GI
 Surface – flat / sloping RCC / sloping tinned
roof / super structure
 Interconnection voltage level – 230V / 415V /
11KV / 33KV
 Interconnection point distance from inverter
 String inverters / central inverters
 Fixed structure / tracking (single axis / double
axis)

6. Project Capital Cost (Rs./KWp)
Components
For about
500 KWp
and
above
For about
100 kWp
For about
50 kWp
For about
10 kWp
For about
1 kWp
Solar Modules 24,000 24,000 25,000 26,000 28,000
Module mounting
structure
3,000 3,000 4,000 5,000 5,000
Inverters 7,000 8,000 10,000 13,000 18,000
Electrical Balance of
system components
6,000 8,000 10,000 12,000 13,000
Civil Structures 3,000 3,000 3,000 4,000 5,000
I&C and Transportation 3,000 3,000 4,000 5,000 5,000
Total 46,000 49,000 56,000 65,000 74,000 Above are tentative cost estimates, of course will change in different scenarios
 These are costs. Taxes, profit and other contingencies not considered

7. Basis for Effects on System Capital Costs
Sr No Components For about 500
kWp and above
For about
100 kWp
Share in
Cost
Share in
Cost
1 Solar Modules 24,000 24,000 52% 49%
2 Module mounting 3,000 3,000 7% 6%
3 Inverters 7,000 8,000 15% 16%
4 Electrical Components 6,000 8,000 13% 16%
5 Miscellaneous 3,000 3,000 7% 6%
6 I&C and allied 3,000 3,000 7% 6%
Total 46,000 49,000

8. Factors affecting System Capital Costs
Deviation Original
assumption
Change Original cost
per kWp
New Cost
per kWp
Percentage
Effect on
46,000/-
Sloping roof GI structure
on flat roof
Al structure
on sloping
roof
Rs. 3,000/- Rs. 2,500/- 1.1%
reduction
Super structure
structure
Flat RCC roof
roof
mounted
Raised
structure of
10’
Rs. 3,000/- Rs. 9,000/- 13% increase
Interconnectio
n voltage
230 V 1
Phase or 415
415 V 3
Phase
11 / 33 KV 3
Phase
Rs. 0/- Rs. 20,000/-
Rs. 4,000/-
42% increase
8% increase
Inverter type String
inverters
Central
inverter
Rs. 7,500/- Rs. 4,500/- 6% reduction

9. Factors affecting System Capital Costs
Deviation Original
assumption
Change Original
cost per
kWp
New Cost
per kWp
Percentage
Effect on
46,000/-
Distance between
array and inverter
Less than 10
M
About 50
M
Rs. 2,000/- Rs. 6,000/- 8% increase
Distance between
inverter and
interconnection
Less than 25
M
About
100 M
Rs. 1,000/- Rs. 4,000/- 6% increase
Net Meter Net meter not
included
Net
included
Rs. 0/- Rs. 150/- 0.3% increase
increase

10. Project Financing & Revenues
Options
 Debt : Equity = 70:30 / 75:25 – normal
financing norms for banks
 Equity – own / own land and private
equity / own and community sourcing
 Debt – public sector banks / private
banks / NBFCs / IREDA / foreign
institutional / foreign individual
Variables
 Tariff and its pattern – constant /
increasing
 Energy generation
 Location
 Azimuth – clear or angular (direction
of array face)
 Shadowing objects
 Grid outages / quality of grid
 Debt (term loan) interest rate
 Repayment period of debt and
moratorium
 Possibility of availing Accelerated
Depreciation benefit

11. TARIFF DETERMINATION BY THE REGULATORS

12. Tariff Determination by the Regulators
Tariff Determination
Tariff Determination
 CERC publishes order for Renewable Energy
tariffs and is either adopted by SERCs or
some changes are made based state
specific conditions
 Normally announced for a control period of
five years, but may change on annual basis
 Based on certain defined assumptions
 Tariff designed to provide the investors a
market based motivational Return of
Investment
Observations
 Auxiliary consumption is taken as NIL
 No de-rating considered in solar modules
 Capacity Utilization Factor (CUF) considered
on limited experience in India or within a
state
 Interest rate on loan (debt) considered
based on State Bank of India
 Charges to utilities not considered

13. Arriving at Levelized Cost of Energy
S.
No.
Assumption
Head
Sub - Head Sub – Head (2) Assumptions Unit
1 Power
Generation
Capacity Installed Power generation
capacity
Auxiliary Consumption
CUF
Useful Life
1
0.00
19.0
25
MW
%
%
Years
2 Project Cost Capital
Cost/ MW
Power Plant Cost 530.02 Rs Lacs/MW
3 Financial
Assumptions
Debt: Equity
Tariff Period
Debt
Equity
Total Debt Amount
Total Equity Amount
25
70%
30%
371.02
159.01
Years
%
%
Rs Lacs
Rs Lacs

14. Arriving at Levelized Cost of Energy
S.
No
Assumption
Head
Sub - Head Sub – Head (2) Assumptions Unit
4 Financial
Assumptions
Debt Component
Equity
Component
Fiscal
Assumptions
Loan Amount
Moratorium Period
Repayment Period
Interest Rate
Equity Amount
Return on Equity (RoE) for
first 10 years
RoE after 10th year
Weighted average RoE
Discount Rate
Income Tax
MAT for first 10 years
371.02
0
12
12.76
159.01
20
24
22.40
10.64
34.61
21.34
Rs Lacs
Years
Years
%
Rs Lacs
% p.a.
% p.a.
%
%
%

15. Arriving at Levelized Cost of Energy
S.
No
Assumption
Head
Sub - Head Sub – Head (2) Assumptions Unit
5 Financial
Assumptions
Depreciation Depreciation for 12 years
Depreciation after 13th
year
5.83
1.54
%
%
6 Working Capital Fixed charges
Variable charges
O&M charges
Maintenance spare
Receivables for Debtors
Working capital Int.
1
15
2
13.26
Month
%
Months
%
7 Operation &
Maintenance
O&M expenses (2016-17)
O&M expn. escalation
O&M expn. (2012-13)
7.00
5.72
11.00
Rs Lacs
%
Rs Lacs

16. Arriving at Levelized Cost of Energy

17. Arriving at Levelized Cost of Energy –
with AD (not the latest Rate – 40%)

18. CREATING BUSINESS CASE FOR A PROJECT

19.  Building blocks of project financials – common for most of the models
 Models
 On premises Captive
 Net metering
 Open access – Third party sale
 Open access – Captive consumption
 Effect of varying parameters
Creating Business Case for a Project

20. Please see Excel file for detailed working
Creating Business Case for a Project

21. Creating Business Case for a Project
Year Basis 1 2 3
Units Generated (in Lakh kWH) 16.00 15.84 15.68
Utility Grid Losses (Wheeling) 0.96 0.95 0.94
Net Units sold 15.04 14.89 14.74
Tariff of sold units (Rs.) with inflation 5% 6.50 6.83 7.17
Revenue from sale of energy 97.76 101.62 105.64
Operational Cost 0.00 10.27 10.78
Operational Charges to Utility 29.96 29.66 29.36
Inverter replacement cost (12th year) 0.00 0.00 0.00
Total expenses 29.96 39.93 40.14
Gross Earnings (510.50) 67.80 61.70 65.49
Repayment of Term Loan 19.40 21.92 24.77
EBIDTA 48.40 39.77 40.72
Cumulative EBIDTA 510.50 48.40 88.17 128.89
Interest on Term Loan 46.46 43.93 41.08
Total expenses and repayments 95.82 105.78 106.00
Open Access Third Party Sale 1MW

22. Creating Business Case for a Project
Scenarios Case 1 Case 2 Case 3 Case 4 Case 5 Case 6
Tariff of sold energy in the First
year
11.00 9.00 11.00 10.00 10.00 8.00
Increment in tariff every year 4% 4% 0% 3% 0% 5%
Total Revenue in first year 330.88 270.72 330.88 300.80 300.80 240.64
Total Expenses in first year 59.92 59.92 59.92 59.92 59.92 59.92
Gross in hand in first year 270.96 210.80 270.96 240.88 240.88 180.72
Repayment of Debt in first year 151.76 151.76 151.76 151.76 151.76 151.76
Net in hand in first year before
taxes
119.20 59.04 119.20 89.12 89.12 28.96
Equity Payback Estimate
Equity Payback (years) 3 5 3 4 5 8
Equity IRR 37% 25% 28% 28% 21% 22%
Project Payback Estimate
Project Payback (years) 5 8 7 7 10 10
Project IRR 24% 19% 19% 20% 16% 18%
Different scenario comparison

23. Keys to a Good Business Case
Conclusion
 Many DISCOMS and SNAs also have empanelment or registration processes for
some components like inverters, meters etc.
 Reducing capital cost only one of the factors affecting economics
 Energy generation probably most important factor
 Quality of components, workmanship and performance over life
 Term loan interest rate and period another important factor
 Low interest loans or increased self contribution
 Focus on tariff in the first year in itself not as important as its pattern over the
years

24. Keys to a Good Business Case
Conclusion
 Solar is long term investment project
 Expect continued returns over 25 years, but at lower rates than some other
businesses
 Modules have output warranty of 25 years but continue to generate
electricity even after that
 Inverters may require one replacement within 25 years
 Other components may not require any replacement within 25 years
 Low maintenance requirement; washing of modules is the only regular activity

25. 25
Anurag Mishra
Senior Clean Energy Specialist
USAID/India
Email: amishra@usaid.gov
Disclaimer:
This training material is made possible by the support of the American
People through the United States Agency for International
Development (USAID). The contents of this material are the sole
responsibility of Nexant, Inc. and do not necessarily reflect the views of
USAID or the United States Government. This material was prepared
under Contract Number AID-386-C-12-00001.