Summer Internship Report

Summer Project Report-2016 India Ratings and Research
A Fitch Group Company
1 | P a g e B y : S o m o b r a t a B a l l a b h
“Viability Analysis of Solar Rooftop Business Model in India
and Credit Rating Assessment of Solar PV Project”
Submitted by
Somobrata Ballabh
(PGDMB16-145)
In partial fulfillment for the award of the degree of
POST GRADUATE DIPLOMA IN MANAGEMENT
INSTITUTE FOR FINANCIAL MANAGEMENT AND RESEARCH
5655, Central Express Way, Sector 24, Sri City, Andhra Pradesh
(2016)

Learning experience is like no other, but to learn one seeks a teacher, a guide, a mentor and I
found all of these in Mr. Siva Subramanian, (Associate Director-Project Finance) who was
my project guide during my internship at India Ratings and Research-Fitch Group. His
guidance and support made the learning easy and enjoyable. Thank you for all things.
I also express gratitude toward Ms. Divya Charen, Analyst-India Ratings and Research Ltd.
for guiding and grooming me in the way of completing my project successfully
I thank Mr. Bhupendra Yadav, Analyst-India Ratings and Research Ltd. for giving me his
valuable insight throughout the tenure of my internship.
I am grateful to Prof. Shanmugam , my internal project guide at Institute for Financial
Management and Research for imparting useful knowledge and helping me refine this report.
The help and support given by you has made my understanding better and can never be
repaid.
The guidance given by entire team of India Ratings and Research was priceless &
instrumental and I thank them for providing the necessary guidance and support.
I found out numerous resources from all state-level regulatory agencies in the way of doing
state level and central level solar policy reviewing, as well as figuring out the cost structure
and their various incentives. Particularly Delhi Electricity Regulatory Commission,
Karnataka Renewable Energy Development Agency, Gujarat Energy Development Agency,
Tamil Nadu Electricity Regulatory Commission.
I gratefully acknowledge the support of resources that I have found from websites of various
solar developers like Azure Power, Sun-Edison and Tata Power Solar.
Mr. Somobrata Ballabh
Roll No.: PGDMB16-145

The Indian solar industry has been maturing at a rapid clip, growing more than hundredfold
in four years to reach over 2.6 Gigawatts (GW) of installed capacity in 2014. Coupled with
successful state-level policies in Gujarat and Rajasthan, the Jawaharlal Nehru National Solar
Mission (Mission or NSM) has played a pivotal role in making the industry successful.
Abundant policy instruments, such as feed-in tariffs (FiTs) and accelerated depreciation
(AD), have been deployed to encourage solar energy penetration. These instruments have
been vital to the rapid scale-up achieved by this industry so far and are now ready for
adoption on a wider scale. Further, India‘s new government has announced nationwide
targets to harness solar power and enable every Indian home to run at least one light bulb by
the year 2019.
During the first phase of the NSM from 2010 to 2013, project proponents had to rely on self-
financing to kick start projects as they grappled with a lack of experience in financing solar
technology on the part of domestic banks. International lenders, with greater exposure to
solar technology, led the industry in supporting capacity addition. These lenders were also
able to provide financing at rates lower than those offered by domestic banks.
Coupled with the falling cost of solar modules, this low-cost financing strengthened the
industry by contributing to an impressive drop in the cost of solar energy even as new
capacity was added. The viability gap funding (VGF) mechanism employed in the first batch
of NSM Phase 2 projects in 2014 allows developers to bid for additional upfront capital
required to make the project financially viable at a tariff of Rs 5.45/ kWh, at which the
produced solar power can be sold.
Utilizing a reverse auction to select projects and bundling solar power with the sale of
traditional power to lower prices considered successful during Phase 1—have recently been
proposed to be readopted for the second batch of Phase 2 projects.
This report focuses on their impact on capacity addition, risk mitigation, and reduction in the
cost of finance while leveraging existing policies and the viability of solar rooftop investment
as well as the methodology of assessing the credit structure of solar thermal power projects
while assigning the credit rating on the other hand. The framework presents policymakers and
industry leaders a set of tools to use while addressing a range of barriers to industry growth.

Page
No.
Page
No.
List of Abbreviation 5 1.11 Financials 29
1.1 Introduction 7 1.11.1 Assumptions 29
1.2 Background
8
1.11.2 Calculation for Total Generation
Unit
29
1.3 Solar Energy in India 9 1.11.3 Cost Components 30
1.4 Performance of Indian Solar Sector
10
1.11.4 Project IRR Analysis for State Taken
Under Considerations
31
1.4.1 National Solar Mission 10 1.11.4.1 Internal Rate of Return 31
1.4.2 Rooftop Solar 10 1.11.4.2 Debt-Equity 31
1.4.3 Technology Evolution 10 1.11.4.3 Equity IRR and Project IRR 31
1.5 Key Drivers 11 1.11.4.4 Factors Affecting IRR 31
1.5.1 Innovative Solar Rooftop Financing
Model
11
1.11.5 Status of Policy/Regulations in
various States
34
1.5.1.1 RESCO Model 11 1.11.6 Risk Analysis 35
1.5.1.2 CAPEX Model 12 1.12 Recommendations 37
1.5.1.3 Micro Utility Model
13
1.12.1 Commoditization of Solar Rooftop
Market
37
1.5.2 Feed-in-Tariff
14
1.12.2 Encourage to Use Renewable
Energy Devices/System
37
1.5.3 Viability Gap Funding (VGF)
15
1.12.3 Provide Transparent Support for
grid-connectivity of rooftop solar
38
1.5.4 Subsidies
15
1.12.4 Conduct Stakeholder Meetings and
More Detailed Analysis
38
1.5.5 Net Metering
15
1.12.5 Strengthen Load Forecasting by
DISCOMS 39
1.5.6 RPO and REC
15
1.12.6 Emphasize on R&D to Support the
Managing of Solar Power Intermittency
39
1.5.7 Initiatives Taken By Govt.
16
1.12.7 Increase Public Awareness
39
1.5.8 Uday (Ujjwal DISCOM Assurance
Yojana)
16
1.13. Conclusion and Outlook
40
1.6 Key Issues in Rooftop SPV Market
19
2.1 Understanding of Credit Rating
41
1.6.1 Stiff Competition from Foreign
Manufacturer and Domestic Low Capacity
Utilization
19
2.1.1 Rating Assessment Service
41
1.6.1.1 Research and Development
19
2.1.2 Rating Categories and Credit Rating
Analysis 41
1.6.1.2 Manufacturing 19 2.1.3 General Limitations of Credit Rating 42
1.6.2 Policy Framework 20 2.2 Project Objective 43
1.6.3 Price Reduction of Solar PV Module
Mfg. Cost
21
2.3 Project Overview 43
1.6.3.1 EPC and O&M 21 2.4 Ownership and Sponsor Structure 44

1.6.4 Lack of Low Cost Financing 22 2.5 Rating Evaluation Framework 45
1.6.5 Issues Related to Net-Metering 22 2.6 Financials 46
1.6.6 Resource Assessment 22 2.7 Scenario Analysis 50
1.6.7 Coordination between Centre and
States
23
2.8 Risk Factors Under
Consideration 51
1.7 Several Benefits of Roof Top Solar
Market
23
2.9 Key Rating Driver and Rating
Assignment 54
1.7.1 Easy Installation 23
1.7.2 Energy Savings 23
1.7.3 Low Space Requirement 23
1.8 Primary Survey and Market
Research
24
1.9 Market Players in Indian Solar
Rooftop Market
24
1.10 State Wise Policy Comparison 26
Gujarat 26
Karnataka 26
Tamil Nadu 27
Delhi 27
Andhra Pradesh 28
Haryana 28
Abbreviation List of Figures and Tables
ARR Annual Revenue Requirement AD Accelerated Depreciation
CAPEX Capital Expenditure Fig 1 Break Up of Gross Electricity Generation in
India during 2014-15
CEA Central Electricity Authority Fig 2
Yearly Solar Irradiation Data in India
(w/m2/Day)
DERC
Delhi Electricity Regulatory
Commission
Fig 3 RESCO Model Block Diagram
DISCOM Distribution Company Fig 4 Growth of Solar Power in India
EPC
Engineering Procurement and
Construction
Fig 5
State-wise proposed target of 40 GW rooftop
solar project
PLF Plant Load Factor Fig 6 Trend in Levellised tariffs for Solar PV Plants
GERC
Gujarat Electricity Regulatory
Commission
Fig 7
Target-State of Govt. To Achieve Maximum
Solar Capacity
GoI Government Of India Fig 8
CERC Year Wise Solar Rooftop Capacity
Target (in MW)

JNNSM
Jawaharlal Nehru National Solar
Mission
Fig 9 Solar PV Price Trend (in USD)
MNRE
Ministry of New and Renewable
Energy
Fig 10 Solar Capacity Addition Trend (in GW)
IREDA
Indian Renewable Energy
Development Agency Ltd.
Fig 11
Sector Wise Sanctioned and Commissioned
Small Scale Solar Project
MW Mega Watt Fig 12 Yearly Solar Irradiation Rate Gujarat
KWh Kilo Watt Hour Fig 13 Yearly Solar Irradiation Rate Karnataka
KWp Kilo Watt Peak Fig 14 Yearly Solar Irradiation Rate Tamil Nadu
SPV Solar Photovoltaic Cell Fig 15 Yearly Solar Irradiation Rate Delhi
REC Renewable Energy Certificate Fig 16 Yearly Solar Irradiation Rate Andhra Pradesh
GBI Generation Based Incentive Fig 17 Yearly Solar Irradiation Rate Haryana
RPO Renewable Purchase Obligation Fig 18
State Wise Various DISCOM’s Tariff Rate and
Their Calculated IRR
CUF Capacity Utilization Factor Fig 19 State wise Analysis of CUF and IRR
SNA State Nodal Agency Fig 20 Solar Tariff Rate Towards Grid Parity
IRR Internal Rate of Return Fig 21 Forecasted Analysis of Financial Trend
DCR Domestic Content Requirement Fig 22 Debt Repayment Schedule Trend
CUF Capacity Utilization Factor Table 1 Financial Assumptions
RESCO
Renewable Energy Service
Company
Table 2 Operational and Technical Details
CAPEX Capital Expenditure Model Table 3 5 MW Rooftop Solar Panel Deployment Cost
COD Commencement of Development Table 4 Risk Analysis For Investors or Financers
PPA Power Purchase Agreement Table 5 Risk Analysis for Utility
PV Photo Voltaic Table 6 Risk Analysis for Consumers
O&M Operation and Maintenance Table 7 Rating Scale Classification
DSCR Debt Service Coverage Ratio Table 8 Scenario Analysis
CFADS
Cash Flow Available After Debt
Service
INR Indian Rupees
SPP Special Purpose Project
SPV Special Project Vehicle
EPC
Engineering , Procurement and
Contract

1.1 Introduction
India‘s solar market, especially solar photovoltaic
(Solar PV) has significant growth after the launch
of Jawaharlal Nehru National Solar Mission in
2010, with an installed capacity of more than 3
GW in just four years. The Government of India
is determined towards achieving 100 GW of grid
connected solar power capacity by 2020, of which
40 GW would be deployed through decentralized
and roof-top solar projects.
Rooftop solar PV would play a prominent role in
meeting energy demands across segments. It has
already achieved grid parity for commercial and
industrial consumers, and fast becoming attractive
for residential consumers as well. As a result,
multiple state governments have taken necessary
steps to kick-start implementation of rooftop solar
PV projects.
Policies formulated by Central Electricity
Regulatory Commission (CERC) and State
Electricity Regulatory Commission (SERC) have
enabled adoption of renewable energy. In this
report we will analyze and see the regarding the
business model viability of Rooftop Solar PV
across various states in India.

1.2 Background
Currently with a GDP growth of over 7%, India is one of the fastest growing economies in
the world. Ensuring adequate viability of energy is a crucial requirement for sustaining
economic growth. The growth in total energy requirement of the Nation is expected to be at
the rate of 5.7% and 5.4% per year in the 13th
year plan.
However the country is not able to meet its electricity demand in the recent several years,
thereby constraining the economic growth. Despite the significant investments in power
sector, India‘s energy shortage projected at 2.1% in 2015-16 (Source: Business Standard).
Even per capital electricity consumption in the country is less than half of the world average.
As efforts are made to improve the living standards and to make electricity available to the
entire population, the energy requirements are expected to rise further. While it is important
to increase the electricity generation in line with the increased demand, it is also important to
consider the means for increasing such generation. In 2014-15 renewable energy sources
contributed to only 5% in the total electricity generation.
76%
5%
1%
3% 10%
5%
Fig:1 Break Up of Gross Electricity
Generation in India during 2014-15
Coal Gas Diesel
Nuclear Hydro Renewable
Growth of Renewable Energy
With climate change concerns taking the
center stage in the domestic and international
policy arena, renewable
energy has become an important agenda of
India‘s energy planning process. To this
effect the government has set aggressive
targets, and has put in place several incentives
and policy initiatives at the Central and State
levels for both grid-connected and off-grid
renewable energy.
The installed capacity mix for electricity
generation has undergone significant capacity
change in the recent years with the share of
renewable energy capacity reaching at 13% in
FY15.Source: Bridge to India

1.3 Solar Energy in India
Utilization of Huge Potential
With 250-300 sunny days in a year, about 5000 trillion KWh of energy is incident on an
annual basis over India‘s land area with most parts receiving 4-7 kWh per sq. m per day.
Recently a study carried by National Institute of Solar Energy (NISE) estimated that the
country has a total solar power generation potential of 748.9 GW. In comparison, the total
installed capacity of solar energy at the end of June 2015 is 4061 MW-a mere 0.5% of the
overall potential.
0
1
2
3
4
5
6
7
8
Rate(w/m2/Day)
Months
Fig: 2 Yearly Solar Irradiation Data India (w/m2/Day)
Gujarat
Karnataka
Tamilnadu
Delhi
Andhra
Pradesh
Haryana
Source: NASA RET Screen Data

1.4 Performance of the Indian Solar Sector
1.4.1 National Solar Mission
To tap the solar potential in the country, India has embarked on an ambitious plan under the
Jawaharlal Nehru National Solar Mission (JNNSM), targeting to achieve an installed capacity
of 20,000 MW of solar power by 2022. However after realizing the vast potential and fast
technology growth, this target was revised to 100,000 MW to be achieved by 2022.
Under JNNSM phase I, a total of 960 MW of solar projects were awarded Apart from these
grid connected large scale plants, small scale and rooftop plants of capacity less than 2 MW
each were also allotted under GBI scheme under the Rooftop PV and small Solar Power
Generation Program (RPSSGP). Under Phase II (Batch I), a total of 750MW of capacity was
allocated, which was equally divided between projects with domestic content requirement
and open category projects. Under the State policy framework, Gujarat has been the key state
which has developed around 1000 MW of solar power since the announcement of Gujarat has
been the key state which has developed around 1000 MW of solar power since the
announcement of Gujarat Solar Policy in July 2009.
1.4.2 Rooftop Solar
Spaces that are yet to be utilized on rooftop and around buildings are carrying the huge
potential for generating the solar power. Small quantities of power generated by each
individual household, industry building, commercial buildings or any other type of building
can be used to fully or partially fulfill the requirement of the building occupants and surplus,
if any, can be fed into the grid.
1.4.3 Technology Evolution
Crystalline Silicon (c-Si) has been the preferred technology for manufacturing Solar PV
across the globe. The thin film technology, which initially emerged as a low cost option has
been steadily losing market share over the years due to decline in prices of crystalline
silicon, and accounted for only 11% of the global PV market at the end of 20117. On the
contrary, in India, during phase I of JNNSM, nearly 70% of the PV installations were based
on thin film technology.

This was mainly due to the following reasons:
a) Absence of mandatory domestic content requirement (DCR) for thin film viz-a-viz
crystalline silicon
b) Availability of low-cost, long tenor debt from the EXIM bank of the United States
(US) for purchase of thin film cells and modules from US
Domestic manufacturers in the country have struggled to be competitive in a volatile and
rapidly declining price environment led by foreign suppliers. However, in line with the
global trends, the crystalline silicon technology is now regaining prominence in the Indian
market too. Setting aside a fixed quantum of projects to be compulsorily under domestic
content requirement category by the Govt. has been a major influential factor behind this
change.
1.5 Key Drivers
1.5.1 Innovative Solar Rooftop Financing Model
To promote the solar financing activities, recently there was a proposal of one financing
model for Rural Energy /Electricity namely RESCO model. On the other hand for the
domestic or small scale consumer of the solar energy the model that is being followed is
CAPEX model. A new Local Micro Utility Model is also being followed by the domestic
consumers now-a- days.
1.5.1.1 RESCO Model
The inherent business model of a RESCO is different from a solar component manufacturer
or a system integrator and the framework herein captures the same. A RESCO would set up
the solar power project and then monetize the energy produced as compared to a system
integrator, who would install the project and be involved in the execution and implementation
of the project for another RESCO. The framework proposed for assessing RESCOs is given
below:
Promoter Track Record Project Management Capability
Demand-Side Risk Financial Strength

Fig: 3 RESCO Model Block Diagram
Benefits of RESCO Model:
 RESCO designs, builds, finances and operates the equipment and takes on the
performance risk of the project.
 Various solar park Agency signs PPA with the Renewable Energy Service Company
(RESCO) and PSA with DISCOM
 RESCO with experience and good balance sheet can easily get funding, not a burden
on Solar Park Agency
 Technical expertise of RESCO and better O&M of project.
1.5.1.2 CAPEX Model
In CAPEX model the entire system is owned by the rooftop owners. Responsibility of O&M
for the system life time (usually 25 years) is also with the rooftop owner. Developer is
responsible for installing the system and initial 2 years of O&M. In this case the developers
are selected through a system-cost based reverse bidding. Selected bidders are offered 30%
subsidy on the system cost (exclusive of taxes).
Solar PV Supplier
Renewable
Energy Service
Company
IREDA / FIs
Solar Module De
MNRE
DISCOM
Local Govt.Supply &
Install
Agreement
PPA
Loan
Application
Subsidy

For consumers having adequate manpower/expertise for O&M, rooftop access concerns,
availability of funds upfront, CAPEX model is better. Consumer in states that have net
metering regulations can take the benefit of the same in case they have substantial excess
generation.
It is the most common business model for solar deployment. However this model is a
continuous improvement model where by developing specific, standardized solar kits for
specific customer types. Furthermore consumers can purchase these kits from suppliers and
get them installed by the local community installer.
1.5.1.3 Micro Utility Model
Third-party solar developers could rent roof space from building owners in a designated area,
install PV systems and sell the power generated to the rooftop owners or the DISCOMs at a
pre-negotiated tariff. The project developers would particularly target those consumers who
might not have the resources or would be unwilling to invest in rooftop solar. Developers can
offer building owners a lease income on their rooftop space.
This model allows project developers to bundle rooftop space in community and thereby
minimizing the legal, commercial and technical cost by increasing the size of individual
plants. This makes the model especially useful for deployment of solar residential consumers.
2 14 38 506
1,6862,180
3,744
0
2000
4000
6000
8000
10000
FY09
FY10
FY11
FY12
FY13
FY14
FY15
MW
Year
Fig:4 Growth of Solar Power in India
Source: MNRE Website
These innovative financing
measures in solar rooftop
promulgate the capacity that is
proposed to be achieved through
deployment of 40GW of rooftop
solar projects and 60GW through
large and medium scale projects.
According to estimates of MNRE,
the total investment in setting up
100 GW will be around Rs.
6,00,000 crore. In the first phase,
the Government of India is
providing Rs. 15,050 crore as
capital subsidy to promote solar
capacity addition in the country.

1.5.2 Feed-in-Tariff
Almost all the states have notified feed in tariff for solar power plants. This paved the way for
utilities to procure electricity through solar power projects and also formed the basis for
having tariff based competitive bidding.
2000
1000
700
1100
3200
1600
320 450
800
2300
800
2200
4700
1000
2000
2300
3500
2000
350
4300
2100
600 608
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
MW
States
Fig:5 State-wise proposed target of 40 GW rooftop solar project
18.44 17.91
15.39
10.39
8.75 7.72
7.04
17.14
14.95
12.94
9.35
7.87
6.95 6.35
0
2
4
6
8
10
12
14
16
18
20
INR/Unit
Fig: 6 Trend in Levellised tariffs for Solar PV Plants
Without AD
With AD
Source: CERC Tariff Data
Source: MNRE Website

1.5.3 Viability Gap Funding (VGF)
The capital cost subsidy is offered in the form of VGF by the Government. It is provided to
the project developers in order to help them reach a viability threshold at a pre-fixed tariff.
1.5.4 Subsidies
In addition to incentives for utility scale projects, the NSM has set a target of allocating 40
GW of grid-connected rooftop solar projects by offering subsidies. The Ministry of New and
Renewable Energy (MNRE) provides up to 15% capital subsidy for roof top systems (off-
grid) and for projects up to 500 kW. A few states in India such as Kerala, Tamil Nadu and
Uttarakhand have announced an additional state subsidy of 20% on top of the MNRE
subsidy. This can be significant financial driver for smaller projects.
1.5.5 Net Metering
To support distributed generation of solar energy, several state governments are incentivizing
rooftop solar systems through net metering schemes. Several states such as Andhra Pradesh,
Uttarakhand, Tamil Nadu, Karnataka and West Bengal have finalized net metering policies.
Net-metering based rooftop solar projects would facilitate self-consumption of electricity
generated and allow for feeding the surplus into the network of the distribution licensee.
1.5.6 RPO and REC
In the interest of long term development of renewable energy sector, the Central & State
Electricity Regulatory Commissions have taken the initiative to promote renewable energy by
specifying minimum renewable energy procurement obligations as per the provisions of
Electricity Act 2003 and other policies. In addition, Central Electricity Regulatory
Commission has introduced a market for tradable Renewable Energy Certificates (RECs) as
an alternative mechanism for fulfilling RPO. It is aimed at addressing the mismatch between
availability of RE resources in a state and the (Renewable Purchase Obligation) RPO. Under
the REC mechanism, developers are eligible to receive one certificate for every 1,000 kWh of
renewable electricity fed into the grid. Obligated entities can buy these certificates to fulfill
their obligation.

1.5.7 Initiatives taken by Govt.
Much of the India‘s installed solar capacity is ground mounted, with rooftops accounting for
only a little over 7% of the total. However, the government is making concerted efforts to
promote the segment. A number of states have come forward to support the center‘s plan and
are encouraging rooftop solar plants based on solar net metering policy.
 Uttar Pradesh and Odisha each plan to install 20 MW of roof top solar projects
by 2017 and 2018 respectively.
 Meanwhile Karnataka and Tamil Nadu have set ambitious targets of achieving
400 MW and 300 MW of rooftop capacity respectively.
 In addition, Haryana has made it mandatory for buildings with an area of over
500 square yards to install rooftop solar systems.
 Madhya Pradesh and Punjab have allocated 5 MW and 65 MW of rooftop
projects respectively to various developers.
 The government has also finalized amendments to the Electricity Act, 2003, as
per which the cross subsidy surcharge on open access renewable energy consumers
will be waived. The concept of renewable generation obligations for coal-based
power generators is being introduced as well.
 Moreover the cumulative solar purchase obligations on an all-India level will
be increased from 3% to 10.5%. Meanwhile, the floor and forbearance prices for
solar renewable energy certificates were revised downwards to drive up their
demands.
1.5.8 UDAY (Ujwal DISCOM Assurance Yojana)
The Union Cabinet chaired by the Hon‘ble Prime Minister Shri Narendra Modi, has given its
approval to a new scheme moved by the Ministry of Power - Ujwal DISCOM Assurance
Yojna or UDAY. UDAY provides for the financial turnaround and revival of Power
Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent
solution to the problem.
UDAY is a path breaking reform for realizing the Hon‘ble Prime Minister‘s vision of
affordable and accessible 24x7 Power for All. It is another decisive step furthering the
landmark strides made in the Power sector over the past one and a half years, with the sector

witnessing a series of historic improvements across the entire value chain, from fuel supply
(highest coal production growth in over 2 decades), to generation (highest ever capacity
addition), transmission (highest ever increase in transmission lines) and consumption (over
2.3 crore LED bulbs distributed).
The weakest link in the value chain is distribution, wherein DISCOMs in the country have
accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of
approximately Rs. 4.3 lakh crore (as on March, 2015). Financially stressed DISCOMs are not
able to supply adequate power at affordable rates, which hampers quality of life and overall
economic growth and development. Efforts towards 100% village electrification, 24X7 power
supply and clean energy cannot be achieved without performing DISCOMs. Power outages
also adversely affect national priorities like ―Make in India‖ and ―Digital India‖. In addition,
default on bank loans by financially stressed DISCOMs has the potential to seriously impact
the banking sector and the economy at large.
Salient Features
 States shall take over 75% of DISCOM debt as on 30 September 2015 over
two years, 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17.
 Government of India will not include the debt taken over by the States as per
the above scheme in the calculation of fiscal deficit of respective States in the
financial years 2015-16 and 2016-17.
 States will issue non-SLR including SDL bonds in the market or directly to the
respective banks / Financial Institutions (FIs) holding the DISCOM debt to the
appropriate extent.
 DISCOM debt not taken over by the State shall be converted by the Banks /
FIs into loans or bonds with interest rate not more than the bank‘s base rate plus 0.1%.
Alternately, this debt may be fully or partly issued by the DISCOM as State
guaranteed DISCOM bonds at the prevailing market rates which shall be equal to or
less than bank base rate plus 0.1%.

200
4800 5000
6000
7000
8000
9000
0
2000
4000
6000
8000
10000
Capacity
Year
Fig: 8 CERC Year Wise Rooftop Solar Capacity Target (in MW)
Source: KPMG “The Rising Sun” 2015 Report and JNNSM Data
Fig: 7 Target-State of Govt. to Achieve Maximum Solar Capacity

1.6 Key Issues in Rooftop SPV Market
1.6.1 Stiff Competition from Foreign Manufacturer and
Domestic Low Capacity Utilization
1.6.1.1 Research and Development
MNRE has issued policy guidelines for ‗Research, Design, Development, Demonstration
(RDD&D) and Manufacture of New and Renewable Energy‘ in 2010 to make the industry
competitive and to make renewable energy generation supply self-sustainable and profitable.
MNRE has raised budgetary support of Rs.920 core for R&D during the 12th Plan Period with
continued emphasis on cost reduction and efficiency improvement.
1.6.1.2 Manufacturing
One of the objectives of JNNSM is to take a global leadership role in manufacturing in solar
sector (across the value chain) with a target of 4-5 GW equivalent of installed capacity by
2020. The mission objectives included setting up of dedicated manufacturing capacities for
poly silicon material to annually manufacture about 2 GW of solar cells. As per MNRE, the
country had 52 PV manufacturers as of June, 2014. While the installed cell manufacturing
capacity stood at 1216 MW, the operational capacity is only 240 MW. Similarly, the
nameplate PV module manufacturing capacity is 2348 MW, whereas the operational capacity
is only 661 MW11. In case of solar cells, although the domestic C-Si PV cell capacity of 1.2
GW is comparable to overall PV installations during FY2014, the cell manufacturers also
experienced low capacity utilization. This is because module manufacturers prefer imported
PV cells on account of their low costs.

1.6.2 Policy Framework
Along with several other policy frameworks, one of the key initiatives taken by Govt. is to
take a clear stance against the anti-dumping (ADD) duty in August 2014. The Ministry of
Finance did not act on the recommendations made by the Ministry of Commerce for imposing
ADD on the import of solar cells and modules. That said, the government is clearly committed
to support the domestic PV manufacturing industry.
Under JNNSM Phase II Batch I, 50% of the allocated capacity was reserved under the
Domestic Content Requirement (DCR) category. The strategy worked well for local
manufacturers since it created demand for their output.
The government announced other tenders and schemes as well, especially for DCR based
projects. Earlier this year, NTPC Limited reportedly issued three tenders to set up a total
capacity of 750 MW. This capacity will be developed in batches of 250 MW in three states.
As per the tender specifications, the companies selected to develop the projects following the
completion of the bidding process will have to use the solar PV modules manufactures in
India.
At the macro level, the Union Budget 2014-15 resolved a long-pending issue related to the
inverted duty structure for solar component imports. Under the indirect tax proposal, the
government extended a concessional basic customs duty of 5% for the machinery and
equipment required for setting up solar energy projects. Further Union-Budget 2015-16
announced as excise duty cut on round copper wires and tin alloys used in the manufacturer of
solar PV ribbon (used in solar cells), subject to the certification by the Department of
Electronics and Information Technology.
The availability of a financial incentive up to 25% of the capital cost of the module
manufacturing facilities under the Modified Special Incentive Package Scheme is also likely
to attract manufacturing investments in the solar PV space.

1.6.3 Price Reduction of Solar PV Module Mfg. Cost
The continued panel price reduction and the volatility of legislative policies make it difficult
to predict the future price movements of solar PV module. Nonetheless this actually leads to
the lifting of customer sentiment regarding the solar rooftop PV deployment irrespective of
domestic or commercial purpose.
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
1-Jan-11
1-May-11
1-Sep-11
1-Jan-12
1-May-12
1-Sep-12
1-Jan-13
1-May-13
1-Sep-13
1-Jan-14
1-May-14
1-Sep-14
1-Jan-15
1-May-15
1-Sep-15
Price
Months
Fig: 9 Solar PV Price Trend (in USD)
0
50
100
150
200
250
Capacity
Year
Fig: 10 Solar Capacity Addition Trend
(in GW)
Source (Fig: 7 & 8) Bloomberg New Energy Finance
1.6.3.1 EPC and O&M
Amid the volatility in prices, most
players globally have expanded their
presence in the value chain and have
geographically diversified their
sales. In line with global trends India
is witnessing increasing participation
from players having both
manufacturing and project
development capability. The
domestic market has increasingly
witnessed greater participation from
firms having EPC as well as in-
house solar module manufacturing
capability. A number of module
manufacturers are active in
downstream segments i.e. both as
EPC services and O&M. Solar EPC
contractors have gained prominence
in the emerging solar energy market
as project developers with limited
experience in solar segment have
relied heavily on their EPC
contractors to support their projects.

1.6.4 Lack of Low Cost Financing
India is one of the most costly countries in the work for RE financing. The country suffers
from high interest rates and banks are still skeptical about financing solar projects,
particularly in the absence of any risk-reducing mechanisms. Export credit agencies,
multilateral financial institutions and some non-banking financial institutions accounted for
the bulk of debt financing over Phase I of JNNSM. The continuing risk aversion of Scheduled
Commercial Banks remains one of the key hurdles for successful implementation and scale-
up of JNNSM. Further, the crowding out effect of concessional sources of financing in the
form of supplier‘s credit and direct lending by development banks, without the availability of
any concessional lines of credit for SCBs, poses a problem.
1.6.5 Issues Related to Net-Metering
A clear regulatory and policy framework is an important element for promotion of rooftop
solar PV under the net metering arrangement. Currently, many states provided clarity on the
regulatory & policy framework for installing rooftop solar systems under net-metering, which
creates a major bottleneck for promotion of net-metering. However, the rooftop solar segment
faces challenges in the form of:
o Capacity limit for rooftop installations under net-metering regulations
o Local grid integration restrictions under net-metering arrangements
o Treatment of surplus energy at the end of settlement period as per the
regulation/policy
o Limited incentives/subsidy for rooftop installations
o Lack of consumer awareness about installation procedures and incentives
1.6.6 Resource Assessment
Project structuring and feasibility assessment is dependent on information about resource
viability. Limited availability of data on solar irradiation level, land availability, water
availability, grid loading and availability, etc. create a major hurdle in mapping the project
feasibility.

1.6.7 Co-ordination between Centre and States
Increasing the adoption of solar power will depend upon the ability of different RE focused
institutions together with state and central governments to overcome various issues &
challenged and to undertake/facilitate implementation of renewable energy projects.
In absence of an established framework for coordination between the state agencies and
MNRE administered institutions (Solar Energy Corporation of India (SECI), Solar Energy
Center(SEC) and Indian Renewable Energy Development Agency (IREDA) etc.), a clear
mapping of responsibilities between the various agencies does not exist in the public domain.
This has caused confusion amongst other stakeholders and consequently, delays.
1.7 Several Benefits of Rooftop Solar Market
1.7.1 Easy Installation
Rooftop solar PV systems can be installed and permitted faster than any ground mounted
system as inter connection and site eligibility norms for rooftop systems are easier to execute.
These systems provide a clean, quiet visually unobtrusive power source and also improve the
reliability of power supply without the need to establish long-distance transmission lines
associated with large-scale solar generation plants.
1.7.2 Energy Savings
Rooftop solar PV systems on unused roof tops can also lead to potential savings on grid
electricity consumption and income generation. In some models, third-party developers lease
rooftops from building owners, which provides long-term rental income.
1.7.3 Low Space Requirement
Large projects face significant hurdles and delays due to land acquisition as well as
clearances and approvals from various authorities. In India, for example, several authorities
across village and State levels need to be consulted for land-related approvals. In comparison,
rooftop solar PV projects require relatively few clearances; projects are usually permitted
through automatic standard provisions in most countries. Site selection and related clearances
under building by-laws can also be standard rather than project specific. Clearly, rooftop
solar projects are easier to permit and simpler to develop.

1.8 Primary Survey and Market Research
Six different states (Gujarat, Tamil Nadu, Karnataka, Delhi, Andhra Pradesh, Haryana ) were
selected for primary survey and market research on the basis of city characteristics, state
preparedness for solar implementation, regional representation etc. Market research
conducted to assess the characteristics for power supply, power outages and propensity for
adoption of rooftop SPV in the residential, commercial and industrial sectors revealed that:
 Power outage for about 1 to 2 hours and voltage fluctuation are experienced by all
consumer categories in all cites except Gandhinagar.
 Commercial and industrial consumers use generator set and residential consumers
use inverter-battery set for power backup.
 Power cut problem is predominant in residential and institutional segments.
Inverters are used as back up. This results in wastage of grid electricity due to inefficient
invertors and batteries, and losses in storage and conversion. It also reduces the available
electricity for productive use.
 Consumers intuitively expect rooftop solar PV systems to reduce expenses on
electricity and to assure reliable power supply even in case grid power outage. This however,
is not being addressed in the current schemes.
1.9 Market Players in Indian Solar Rooftop Market
The companies that are into EPC and installation of solar projects in Indian market are Lanco,
Welspun, CEL, Juwi etc. Apart from only solar plant installation these companies are also
engaged in multiple business verticals. Furthermore below figure will illustrate the major
players in Indian Solar Rooftop market that are extensively following the solar RESCO and
CAPEX model for the deployment of solar rooftop system.

List of Companies:
Tata Power Solar System Ltd.
 Vikram Solar Pvt. Ltd.
 Moser Baer Solar Group
 Emvee Group
 First Solar
 Adani Solar Power
In the recent years companies like these built numerous rooftop solar projects across India and across
different sectors and that actually helps to boost the solar rooftop capacity addition plan taken up and
promoted by the government. Below fig 10 illustrates the sector wise sanctioned and commissioned
solar rooftop projects till year 2015. These projects are segregated into brad categories like projects
assisted by states and SECI (Solar Energy Council of India).
0
5
10
15
20
25
30
MW
Sector Wise Commissioned
Capacity
Fig: 11 Sector Wise Sanctioned and Commissioned Small Scale Solar
Projects
Installed by States (MW)
Installed by SECI (MW)
Source: Bridge to India Analysis

1.10 State Wise Comparison
Gujarat
It has been decided through competitive
bidding
The net-metering system is expected to
make solar rooftop projects more
attractive to individual households,
especially in the new towns and cities in
Gujarat where the project is yet to pick
up. As per the Census 2011, there are
about 16,000 households in Gujarat that
use solar energy as a primary source to
illuminate their homes.
Type: Grid-Connected
Metering Policy: Gross Metering
Tariff Rate: 4.98 INR/Unit*
* As the tariff rate is less than 5.55
INR/Unit we escalated the GBI for
Gujarat @ 3% on Y-o-Y basis.
Furthermore to reach at a standard tariff
rate we took the average of tariff rate
maintained by three DISCOMs in the
state.
Incentive: Incentives linked to rooftop
solar power Generation
Incentive for the Developers. Generation
based incentive will be payable to the
utilities equivalent to CERC tariff less Rs.
5.50 per kwh (Base Rate) with 3% annual
escalation.
Fig: 12 Yearly Solar Irradiation Rate
(Avg. 5.32 w/m2
/Day)_Gujarat
Karnataka
KERC has proposed that any distribution
licensee or other consumers failing to meet
the RPO for any year within the time
specified, shall purchase RECs to the
extent of 110% of quantum of shortfall in
meeting RPO, by 30th June of the
immediately following year, failing which
action under Section 142 of Electricity
Act, 2003 shall be initiated.
The increase in RPO targets is important
but at the same time targets without proper
enforcement would not yield great result
which needs focus as many states are still
being lenient over the RPO compliance by
state utilities.
Metering Policy: Net Metering
Tariff Rate: 6.4 INR/Unit
(Avg. 5.3 w/m2
/Day)_Karnataka

Tamil Nadu
Solar power projects would be developed through competitive bidding. Investments through
joint ventures by state undertakings will also encouraged through competitive bidding.
Delhi
Tariff Rate: 8.75 INR/ Unit
DISCOM: Tata Power Delhi Distribution Ltd.
Incentive: All solar panels, inverters, energy meters, and other devices purchased for the
installation of solar plants in Delhi shall be exempted from VAT and entry tax during the
Operative Period.
Incentive: According to the Tamil Nadu
Government Solar Policy, domestic
consumers are eligible for a GBI of INR
2.00/kWh for first two years, INR 1.00/kWh
for next two years, INR 0.50/kWh for the
subsequent two years. It is not clear if both
incentives will be simultaneously applicable
or not. Nevertheless, the proposition seems
attractive enough to incentivize residential
consumers to set up their own power plants.
(Avg. 5.23w/m2
/Day)_Tamil Nadu
(Avg. 5.05 w/m2
/Day)_Delhi

Andhra Pradesh
AP State government is keen to tap the immense solar potential and promote this clean source
of energy to meet the rising energy requirements of the State. The following factors make
Andhra Pradesh an ideal location for setting up Solar Power Projects:
 The state has the best performing power distributing companies in India
(APEPDCL and APSPDCL)
 An efficient and strong evacuation infrastructure that can facilitate distributed
generation
Haryana
Initiatives Planned: The rooftop space available in the
Government institutions can be provided on lease/rent
for setting solar projects Development of solar parks through
Saur Urja Nigam Haryana Ltd. (SUN Haryana).
Type: Grid Connected
Tariff Rate: 6.75 INR/unit
Mandate: Mandated installation of solar power plant of 3% to 5% of connected load for
residential buildings above 500 Square Yards size, all private and government institutions
Rooftop having connected load of 30 kW and industrial establishments above 50 kW load.
(Avg. 5.02 w/m2
/Day)
Type: Grid Connected,
Incentives: The will promote and develop
solar parks and solar rooftop projects on a
gross and met metering basis. A
maximum of 1Mwp will be allowed at a
single location.
Power producers will be encouraged to set
up SPP's for captive use within the state or
third party sale within and outside the
state of Andhra Pradesh.
(Avg. 5.01 w/m2
/Day)

1.11 Financials
Cost Analysis of a 5KWp Rooftop Solar PV Module*
(*Here in the report we illustrated the model for Delhi only. Calculation for other states is
done on the basis of same model and assumptions)
1.11.1 Assumptions
Table:1 Assumption Amount Unit
Rooftop Space Available 60 Sq. Mt.
Estimated Annual Energy Consumption 15000 Kwh
O&M Cost 10000 INR
Capacity
Based on the maximum system capacity on the basis of shade free top
Formula: Capacity=shade-free rooftop area divided by 12
5 -
Based on the system capacity on annual energy consumption
Formula: Capacity=90% of annual energy consumption (in Kwh)
divided by 1500
9 -
For 350Kwp we need 400 rooftop SPV, so for 5 Kwp we need approx.
6 rooftop SPV
- -
We are assuming that whatever is the generation it will be utilized - -
For States having tariff rate below 5.5 INR/ Unit the annual GBI
incentive is 3% on a y-o-y basis
3% -
1.11.2 Calculations of Total Unit Generation
Table:2 Operational and Technical Details
Capacity 5 KW
Gross PLF 16% For Rooftop Solar
Generation
Formula=(Capacity*Gross
PLF*365*24)
7008 Per Unit
Auxiliary Consumption @ 2% 6867.84
VC Escalation Rate 2%
Plant Load Factor
Plant Load Factor (PLF) is the ratio between the actual energy generated by the plant to the
maximum possible energy that can be generated with the plant working at its rated power for
the duration.

1.11.3 Cost Components
Table:3 5 Mw Rooftop Solar Panel Deployment Cost
Cost Calculation (Solar Panel Without Battery)
Maximum Solar Capacity 5
Particulars Qty Amount (INR)
1. SPV Cost with subsidy - -
Cost of 1 Kwp roof top SPV 1 100000
Cost of 5 Kwp roof top SPV 6 600000
Subsidy @ 30% 0.3 180000
Net Cost After Subsidy - 420000
Accelerated Depreciation @80% 0.8 84000
Tax Rate @35% 0.35 54600
2. Cost of 3 Phase Inverters (Rs/Watt) - 25
Size of Inverter - 200
Total Cost for 3 Phase Inverter - 5000
3. Cost of 3 Phase Transformer (Rs/Watt) 20
Size of Transformer 200
Total Cost for 3 Phase Transformer 4000
Cost of System without line battery
Net Cost After Subsidy (SPV-PANELS) - 420000
Total Cost for 3 Phase Inverter - 5000
Total Cost for 3 Phase Transformer - 4000
Net Cost for Whole Set Up 429000
Fixed Cost Component 429000
O&M Cost 10000
Insurance as a percentage of O&M @ 2% 0.02 200
Variable Cost Component 10200

1.11.4 Project IRR Analysis for States Taken Under Considerations
1.11.4.1 Internal Rate of Return
Before going into Internal Rate of Return of a solar rooftop project, we need to understand
the concept of Net Present Value (NPV). NPV negates the problem of having to compare
cash flows in different time periods. The value of a rupee now wouldn‘t be the same five
years down the lane. NPV brings the future cash flow to its value today (present value) by
estimating how much value money loses over time.
Internal Rate of Return (IRR) also considers the time-value of money and is aptly called
time-adjusted rate of return. The IRR is defined as the discount rate that makes the present
value of the cash inflows equal to the present value of the cash outflows in a capital
budgeting analysis. Effectively it is the factor that makes the NPV of cash flows as zero. It is
always expressed in percentage. Naturally, a higher IRR is better than a lower one.
1.11.4.2 Debt-Equity
MW scale solar plants in India are financed through a mixture of debt and equity.
Debt is the money that is borrowed and has to be repaid with interest periodically. For
example, using a credit card or getting a home loan is a form of debt financing.
Equity involves the presence of investors, which means, having a share in the business you
are trying to invest in.
1.11.4.3 Equity IRR and Project IRR
When a project is financed by means of equity as well as debt, we have to take into
consideration equity IRR as well as project IRR.
Calculation of the internal rate of return considering only the project cash flows (excluding
the financing cash flows) gives us the project IRR whereas calculation of the internal rate of
return considering the cash flows net of financing gives us the equity IRR.
Equity IRR represents the degree of returns of a project to the providers of equity capital. For
profitable investments, equity IRR is always higher than project IRR. Equity IRR will reduce
if equity portion is increased as leverage provided by debt reduces. If there is no debt, then
equity IRR is same as project IRR.
1.11.4.4 Factors Affecting IRR
Tariff Rates, Accelerated Depreciation, Capacity Utilization Factor, Escalation of O&M Cost.

Based on various regulatory policies and incentives we have considered Accelerated
Depreciation (AD) as 80% on the subsidized capital cost. In this report we have taken under
considerations 10 states namely Delhi, Tamil Nadu, Gujarat, Karnataka, Andhra Pradesh,
Madhya Pradesh, Rajasthan, Maharashtra, Haryana, Uttarakhand to find out the immediate
and longer term viability of solar roof top business model.
Under our assumptions we have considered Escalation of O&M Cost as 2%. Furthermore as
far as small scale solar rooftop unit is concerned we can ignore the auxiliary consumption
because the amount of efficiency loss due to generation and other cause is highly negligible.
Below is the diagram where we can see the relation between tariff rate charged by the various
DISCOMs and the IRR of the investment they may make in near term across the states that
are mentioned earlier.
Therefore it can be concluded from the above figure that places having higher tariff rate is
likely to have higher IRR rate. Therefore states having higher IRR will definitely attract the
market players in solar rooftop market to utilize the opportunity and take up the maximum
out of this.
Furthermore it is also seen from the analysis that states having higher solar irradiation rate
and higher PLF is likely to carry out higher IRR for the investors. Refer the below figure
8.756.284.986.408.805.706.409.5011.806.754.00
15.70%
4.16%
17.00%
4.73%
15.94%
1.40%
4.73%
19.33%
31.57%
6.37%
10.13%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
IRRRate(in%)
DISCOMTariffRate
INR/Unit
States or Cities
Fig: 18 State Wise Various DISCOM's Tariff Rate and Their Calculated IRR
Tariff Rate
IRR
*Tariff rates for the states have been taken from policy guidelines of distribution companies across
states and rates are considered for the highest level of consumption

where we can find out this illustration.
Despite the higher tariff rates‘ alluring the investors to move towards the states where they
will find the higher opportunity cost of capital it will also has some drawbacks as well. States
where the tariff rates of conventional energy is at lower end will make the consumers rethink
before installing the solar roof top panel.
However in the recent years as the conventional grid tariff achieves the parity of solar energy
tariff it is highly likely that domestic consumers and small & medium scale commercial
consumers will choose the solar roof top system thinking about the long term benefit of
energy savings and other incentives provided by Government.
In such a scenario states having solar tariff rates closer to the conventional grid tariff rates
will offer the best possible opportunity to the solar panel manufacturer and DISCOMs to
enter and tap in the market potential.
19.00% 18.00%
20.00%
19.00% 19.00%
15.70%
17.00%
15.94%
19.33%
10.13%
0%
5%
10%
15%
20%
25%
Delhi Gujarat Andhra
Pradesh
Maharashtra Uttarakhand
M
e
a
s
u
r
e
s
States or Cities
Fig:19 Statewise Analysis of CUF and IRR
CUF
IRR
9
8.7 8.2 7.8 7.5
7 6.7 6.4
5.5 5.7 5.9 6.2 6.4 6.7 7 7.2
0
1
2
3
4
5
6
7
8
9
10
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Rates in INR/Unit
Years
Fig:20 Solar Tariff Rate Towards Grid Parity
Solar
Rooftop
Power Tariff
Grid Tariff
Source: KPMG’s Rising Sun Report 2015

Hence from the combined analysis it seems that Delhi, Gujarat, Andhra Pradesh, Tamil Nadu,
Kerala, Maharashtra, Punjab are the states which hold the huge potential for the solar roof top
business in the near term.
1.11.5 Status of Policy/Regulations in Various States
Delhi Karnataka Tamil Nadu Kerala Madhya Pradesh
Surplus
Generation to be
accounted as if it
has occurred
during off-peak
time block
Solar Rooftop PV
systems connected
to LT grid of a
distribution
company, the
concept of net
metering shall be
adopted and the
net energy pumped
into the grid shall
be billed
Net Metering
Mechanism has
been extended to
LT (as
recommended in
policy) and HT
Consumers
The quantum of electricity
banked shall be settled
first in the corresponding
normal period and
the balance in the peak
period and in the off peak
period in succession in
subsequent billing period.
Excess electricity
generated by the solar
energy system installed in
one premises and to use
such
excess electricity in other
premises owned by the
consumer is permitted
within the area of supply
of the licensee.
Net Metering
Regulations &
Policy at public
consultation stage

1.11.6 Risk Analysis
Table:4 Risk Analysis For Investors or Financers
Consumer Type Risk Perception
Risk Category
High Level (H)/
Medium Level (M)/
Low Level (L)
Likelihood of
Ocurance
(H/M/L)
Risk Mitigation
Strategy
Residential
Loan Default H L
Linking Solar Loan
with Property Loan
Electricity
Generation Revenue
is
lower than expected
M L
Quality control and
design
standardization
Sale of Capacity H M
Linking solar
system with
the property. The
owner of
the property also
owns the
system
Commercial/Industrial
Loan Default H L
Linking solar loan
with existing loan
of comercial
/industrial entity
Electricity
generation revenue
lower than expected
M L
Quality control and
design
standardization
Sale of commercial/
industrial
establishments
H M
Linking solar
system with
the Commercial
/ industrial
establishment. The
owner of the
commercial/
industrial
establishment
also owns the
system

Table:5 Risk Analysis for Utility
Client Type
Risk
Perception
Risk Category
High Level (H)/ Medium
Level (M)/ Low Level (L)
Likelihood of
Ocurance
(H/M/L)
Risk
Mitigation
Strategy
Residential/
Commercial/Industrial
Revenue loss
due
to generation
by
consumer
M M
Utility may
enter into the
business in
third party
ownership
mode
Loss for power
surplus
utilities
M L
Sale of
electricity to
power deficit
regions
and industries
Payment for
surplus
electricity
fed to the grid
L L
Cap on system
size for
individuals
Choose energy
settlement
mode instead
of paying for
surplus
Table:6 Risk Analysis for Consumers
Client Type Risk Perception
Risk
Category
High Level
(H)/ Medium
Level (M)/
Low Level (L)
Likelihood of
Ocurance
(H/M/L) Risk Mitigation
Strategy
Residential/ Commercial/
Industrial/ Institutional
Lower
generation
from solar than
expected
M L
Quality control and
design
standardization
Grid
unavailability
M to H M
Sale of electricity to
power deficit regions
and industries

1.12 Recommendations
1.12.1 Commoditization of Solar Rooftop Market
For large scale deployment of rooftop solar PV, even after having various central and state
government schemes, many challenges still exist on the policy, technology, and consumer
awareness fronts. These include regulations for metering arrangements, technical
standards/rules for grid interconnection, tariff determination and accounting, monitoring,
control and verification, and financing schemes.
The deployment of rooftop SPV can be accelerated further if:
1) Solar technology solutions are easily available and accessible as a complete product
or as a package in the market.
2) Easy finance schemes are available for procurement of SPV systems through banks.
3) Consumers are fully aware of the service levels and actual economic benefits.
4) Well established solar service networks exist just like those for other high-end
commodities.
5) Thus, a need was felt to evaluate market preparedness and policy status in
India for commoditizing solar energy based power solutions for various categories of
consumers.
Given this context, The Energy and Resources Institute (TERI) carried out a detailed market
research to identify drivers and barriers for commoditization of roof top SPV systems.
1.12.2 Encourage to Use Renewable Energy Devices/System
Solar Water Heater
A domestic solar water heater, with a capacity of 100 liters per day, is sufficient for a family
of four or five members. It can easily replace a 2- Kw electric geyser and can save up to 1500
units of electricity per year. It pays back the cost in three to five years depending on the
electricity tariff and hot water use in a year. After this the hot water is available almost free of
cost during the remaining lifespan of the system, which is about 15-20 years.

Solar Cooker
A solar cooker is a device that uses heat energy from the sun to cook food. Two types of solar
cookers are available in the market box type and dish type. A box solar cooker, suitable for a
family of four or five, can cook food in two to three hours. The cooker has to be kept outside
in the sun and can cook up to four items at once. It is available with electrical backup, so it
can be used even in non-sunshine hours. It costs Rs 1500–2500 depending on its features, and
can save up to four LPG cylinders a year. Food cannot be fried in the box solar cooker.
A subsidy of 30% is available on these cookers through State Nodal Agencies. Currently
there are about 35 manufacturers/ supplier of solar cookers.
Solar Lantern
It is a portable device for lighting. It is available with a 10 W SPV (solar photovoltaic)
module, 7W CFL, maintenance-free lead acid battery, and electronics. The lantern can
provide light for a minimum of three hours daily and covers a range of 360°. Solar lanterns
that follow MNRE specifications cost Rs 2500–3000.
1.12.3 Provide Transparent Support for Grid-Connectivity
of Rooftop Solar
Owners of rooftop PV systems will want to feed power into the grid during those times when
their captive power consumption is low (e.g. on public holidays and weekends). Feeding
power into the grid would allow for a more generous system sizing and would significantly
reduce the per kWh cost of solar as no power is wasted – thus making it viable more quickly.
The government would need to facilitate metering (either gross or net).
1.12.4 Conduct Stakeholder Meetings and More Detailed
Analysis
Government should bring together the affected stakeholders of such a power shift to solar in
regular stakeholder meetings. These would include the various regulatory bodies (e.g. DERC,
CEA, etc.), the Delhi utilities, the utilities of the adjoining states Haryana and UP (who will
be affected, too), civil society representatives (e.g. Greenpeace, academic and research
institutes, Resident Welfare Associations, other customer groups), solution providing

companies and financiers.
In addition and perhaps steered by the stakeholder meetings, the government should
commission a detailed analysis of the technical challenges and solutions of interconnecting
large amounts of PV with Delhi‘s grid. This would prepare Delhi for the later stages of PV
development (2016 onwards), but such a study should not be a pretext for slowing-down or
stopping initial PV growth.
1.12.5 Strengthen Load Forecasting by DISCOMS
As per the roadmap for solar adoption in this report, 2 GW of solar by 2020 will be within the
limits of the grid. However, the impact of Solar Rooftop PV on the grid in India is not
entirely understood. There is a need for government policy to prepare DISCOMS for the
expected ramp-up of PV capacity. Government policy needs to ensure that rooftop PV‘s
contribution is included in the power planning process of the DISCOMS. DISCOMS need to
include solar into the city‘s energy growth forecasts. The government can support DISCOMs
in developing more sophisticated weather forecasting, which would enable DISCOMs to
better manage solar power scheduling.
1.12.6 Emphasize on R&D to Support the Managing of Solar
Power Intermittency
Despite having over or average 5 w/m2
/day solar irradiation rate across India throughout the
year, India suffers from the low level solar power generation because of other environmental
factors like low solar insolation rate during monsoon and winter etc. Therefore in order to
bridge this gap, utility companies should mix their product portfolio with advanced hi-tech
inverter as a part of solar PV module. In a way of achieving that they should focus more on
the Research and Development activities.
1.12.7 Increase Public Awareness
It is important for the government to communicate the potential, the viability and the
opportunities of rooftop solar to all the stakeholders in the city: to consumers, DISCOMS and
government administrators. The government could articulate an official Solar 2020 vision
document with a roadmap for each state and major city to become a leading solar generation
hub globally.

Solar is still widely perceived to be an expensive source of power and there is too little
knowledge about the amount of power a PV system can provide and where it can be
procured. There is a need to demystify solar costs and prove to the stakeholders that it is
viable. Consumer‘s electricity bills are a good platform to relate electricity prices with solar
costs to show their viability. The government could mandate all the state DISCOMS to
include viability analyses on consumers‘ power bills to raise awareness about solar.
1.13 Conclusions and Outlook
Globally, major PV installations have been on rooftops in countries like Germany, Japan and
USA. Given the global trend, high solar irradiation, growing energy demand & power deficit
issue and abundance of rooftops for SPV systems installation, SPV rooftop system seems a
logical alternative choice to meet India‘s energy requirements.
Solar power has already achieved parity with commercial power tariffs for industrial and
commercial segment in many states in India. However, SPV rooftop installations are at very
nascent stage in India as against targeted SPV rooftop installations of 40 GW by 2022 and
hence, capital subsidy alone may not be the solution to achieve targeted installations but
comprehensive solar solutions is the need of the hour.
Implementation of SPV rooftop systems can be accelerated if solar solutions are easily
available and accessible as a complete package; easy financial assistance is available and
there is increasing awareness amongst consumers about its economic/environmental benefits.
Promoting SPV rooftop for self-consumption could be the most important step towards
popularizing SPV rooftop. Large participation across the consumer segment may be achieved
through creating awareness about benefits supported by synchronization between
stakeholders i.e. Government nodal agencies, consumers and system integrators.
Furthermore, government policies should also put emphasis on encouraging power generation
through decentralized SPV rooftop systems at the point of consumption rather than only
providing capital subsidy. One of the ways could be through providing generation based
incentives for end-users including the house hold segment which can drive growth of SPV
rooftop systems without putting any additional burden on distribution and transmission
infrastructure while at the same time achieving targets for renewable energy installations.

2.1 Understanding of Credit Rating
Credit Rating is the measure of evaluating one‘s stability of financial position and it
specifically measures the likelihood becoming defaulter of one borrower. Ratings are relative
measures of risk. . Credit ratings, as opinions on relative ranking of vulnerability to default,
do not imply or convey a specific statistical probability of default, notwithstanding the
agencies‘ published default histories that may be measured against ratings at the time of
default. Credit ratings are opinions on relative credit quality and not a predictive measure of
specific default probability.
In issuing and maintaining its ratings, companies rely on factual information it receive from
issuers and underwriters and from other sources that companies believe to be credible. Rating
agencies conduct a reasonable investigation of the factual information relied upon by it in
accordance with its rating methodology, and obtains reasonable verification of that
information from several independent sources; to the extent such sources are available for a
given security or in a given jurisdiction.
2.1.1 Rating Assessment Service
Credit Rating Assessment Service (CRAS) is nothing but regular monitoring of one entities
performance and assessment of its‘ performance in short term or long term basis. Rating
Assessment Service includes revision of previous rating activity i.e. rating upgrade, rating
downgrade, rating outlook assignment, rating watch assignment.
2.1.2 Rating Categories and Credit Rating Analysis
Rating agencies provide an opinion on the relative ability of an entity to meet financial
commitments, such as interest, preferred dividends, repayment of principal, insurance claims
or counterparty obligations. Credit ratings are used by investors as indications of the
likelihood of receiving the money owed to them in accordance with the terms on which they
invested. The agency‘s credit ratings cover the global spectrum of corporate, sovereign
(including supranational and sub-national), financial, bank, insurance, municipal and other
public finance entities and the securities or other obligations they issue, as well as structured
finance securities backed by receivables or other financial assets.
The terms ―investment grade‖ and ―speculative grade‖ have established themselves over time
as shorthand to describe the categories ‗AAA‘ to ‗BBB‘ (investment grade) and ‗BB‘ to ‗D‘
(speculative grade). The terms ―investment grade‖ and ―speculative grade‖ are market
conventions, and do not imply any recommendation or endorsement of a specific security for

investment purposes. ―Investment grade‖ categories indicate relatively low to moderate credit
risk, while ratings in the ―speculative‖ categories either signal a higher level of credit risk or
that a default has already occurred.
Common Group of Rating Scales Referred by Rating Agencies:
Table:7 Rating Scale Classification
Long Term Issuer Financial Strength Rating Short Term Issuer Financial Strength Rating
Rating Scales Significance Rating Scales Significance
AAA Exceptionally Strong F1 Exceptionally Strong
AA Very Strong F2 Good
A Strong F3 Adequately Strong
BBB Good B Weak
BB Moderately Weak C Very Weak
B Weak
CCC Very Weak
CC Extremely Weak
C Distressed
Notes:
“+” or “-” may be appended to a rating to indicate the relative position of a credit within the rating
category. Such suffixes are not added to ratings in the ‘AAA’ category or to ratings below the ‘B’
category.
Source: India Ratings and Research-Fitch Group Company Website
2.1.3 General Limitations of Credit Rating
Specific limitations relevant to the issuer credit rating scale include:
edict a specific percentage of default likelihood over any given
time period.
likelihood that this value may change.
the issuer‘s securities or stock.
financial profile other than the agency‘s opinion on its relative vulnerability to default.

2.2 Project Objective
The basic purpose of Credit Rating Provision or Credit Rating Assessment of any project is to
identify and let the investors know whether the cash flow on debt instruments is stable
enough for the borrowers to meet its‘ short term or long term debt obligation.
Additionally, the assets and operation of the project should be within a project vehicle or it
should achieve an equivalent project entity to ensure strong project cash flows such as a
separate fund within a governmental entity-in either case referred to as a Single Purpose
Project (SPP).
2.3 Project Overview
The solar thermal project* that we assessed has a particular project vehicle structure under
which they have the holding company, ultimate project sponsor and the developer of the
project.
The Government of Gujarat had selected the company* to set up a 15 MW solar photovoltaic
power project under the Gujarat Solar Policy with an off taker entity for entire power
generated from the project.
The project was implemented in two phases i.e. 9 MW and 6 MW. The 6 MW phase was
commissioned on 8 November 2011 (commercial operation date (COD)) and the balance was
commissioned on 21 November 2011 (COD).
The project has been executed through a turnkey engineering procurement construction
(EPC) contract with Conergy Renewable Energy Singapore Pte Ltd. Solar panels and
inverters have been sourced from First Solar and SMA Solar Technology, respectively. O&M
is being carried out in-house.
The total project cost is INR 2,261.5 m, funded through INR 1,696.1 m buyer‘s credit
facility and INR 565.4 m sponsor‘s equity. Equipment supply has been financed through a
buyer‘s credit from foreign banks secured by letter of credit and letter of undertaking of USD
33.06 m and inland letters of credit of INR134.8 m.
The project company availed a loan of INR 1,700 m in March, 2014. The proceeds were used
to pay-off maturing buyers.
*Note: In respect to the company’s non-disclosure agreement policy the name of the project
and the project company is not disclosed.

Project Summary
Particulars Details
Project Type 15 MW solar power plant based on the thin film technology
Project Location (State) Gujarat
Status Operational, achieved COD in November 2011
Revenue Basis Volume or Amount of Generation
Applicable Regulation
The Central Electricity
Act, 2003 MNRE, Gujarat Solar
Power Policy 2009
Contractor
Conergy Renewable
Energy Singapore–
Turnkey EPC contractor
Operator In-House
Equity Sponsors The Holding Company through its 100% owned subsidiaries
Equipment Suppliers
Thin Film Modules : First Solar Inverters: SMA
Thin Film Modules : First Solar Inverters: SMA Solar
2.4 Ownership and Sponsor Structure
 Promoters (85%)
 Other Enterprise Partner
(15%)
Structure of Holding
Company
Third Party Client
Clean Energy
Developer
Solar Capacity Added
through Solar Plant
Establishment

2.5 Rating Evaluation Framework
Evaluate Cash Flow Stability
India Ratings‘ analysis addresses the project‘s ability to generate a stable cash flow.
This requires an evaluation of the fundamental characteristics of the underlying asset,
considering its legal framework and fundamental economics, together with any industry
specific, political or macroeconomic risks. Analyst will evaluate the sponsor and legal
structure, completion risk, operating risk, revenue risk, industry risk and macro risks.
Evaluate Financial Structure
The agency next considers the financial structure to form an opinion on the capacity of those
cash flows to service the rated debt instruments in accordance with their terms. The financial
analysis evaluates the debt structure, including priorities, amortization, maturity, interest risk
and associated hedging, liquidity, reserves, financial covenants and triggers in the context of
the project‘s operating environment. Counterparty risk (off-takers, concession grantors,
warranty providers, etc.) is assessed for its impact on the rated debt.
Evaluate Stress Scenarios
Stress scenarios are used to test the cash flow sensitivity in a range of possible outcomes for
key rating drivers. Ultimately, rating cases are established to assess the level of financial
flexibility a project can sustain as it encounters stress that can be reasonably expected to
occur over the relevant forecast period. The ability of the SPP to make timely payments takes
into account its full resources and capacity as captured in metrics measuring its liquidity
profile, such as a debt service coverage ratio, as well as metrics measuring its overall
financial and operational flexibility, such as a project life coverage ratio or other
measures of overall leverage. Important characteristics and metrics of the project financial
profile are compared, where possible, with peer transactions to ensure consistency across
transactions.
Typical Attributes and Peer Comparison
Investment-grade ratings are typically associated with projects, structures, and instruments
displaying predominantly stronger or midrange attributes described in this report combined
with metrics consistent with ratings at that level. Where information on appropriate peer
projects for which a rating has been assigned is available to India Ratings (usually for the
same sector, and structure), this will be used for comparative analysis of individual risk
factors (both qualitative and quantitative) or in establishing the rating, with respect to the peer

group. Relevant sector criteria suggest indicative metrics for investment grade debt. Where
no specific sector criteria apply completely, appropriate metrics will be determined on a basis
that seeks consistency and comparability with assets having similar risk profiles. For
example, an LNG facility would be evaluated under the Master Criteria and closely follow
the analytical approach adopted in criteria for thermal power projects. Even if a project meets
the financial metrics requirements for investment grade, other factors may constrain it to
a lower rating category. Factors such as weak sponsors, excessive technical risk, partial
merchant exposure, sub-investment-grade counterparties or other key risk factor assessments
may support a lower rating. Conversely, factors may be present that support a higher rating,
such as exceptionally strong contractual protections, a benign industry environment, or
market dynamics that reduce potential price or cost volatility. Projects otherwise meeting
investment-grade requirements, but exhibiting DSCR coverage profiles lower than indicated
for investment grade, are assessed based on the facts and circumstances particular to the
project.
2.6 Financials
Credit Analysis Base Case Assumption
Project Data and Assumption (All units in INRm) / Base Case
Term Loan/Total Debt Amount (in INRm)
(75%) 1696.10 Loan Tenor (Years)
15
Total Equity Amount (in INRm) (25%) 565.40
O&M Cost including insurance
(INRm/MW/Year)
1.1
Total Cost of Capital/Project Cost (in INRm) 2261.50 O&M Annual Escalation 5%
Total Capacity (MW) 15 Loan Outstanding (in INRm) 1600
PLF 20% Auxiliary Consumption 1%
Total Generation (mn KWh) 26.280 Interest Rate 12%
PLF Degradation Factor 0.50% Depreciation 7%
Tariff Rate (INR/Unit) for 1st 12 Year 15 Tax Rate 30%
Tariff Rate (INR/Unit) for 2nd 13 Year 5
Analysis Summary
DSCR (CFADS/Debt Service) 1.18
Net Present Value of CFADS 2086.41
PLCR (Project Life Coverage Ratio) 1.30
Average DSCR (SUM of All CFADS/SUM of Debt Service) 1.39
LLCR (NPV of CFADS till the Loan Tenor) /Outstanding Debt) 1.30
EBITDA-Interest Coverage Ratio (EBITDA/Interest Payment) 2.12
Project IRR 10.07%
Equity IRR 11.04%

Measures under Consideration
Plant Load Factor (PLF) or Capacity Utilization Factor (CUF)
The PLF or the CUF is a measure of ‗how well a plant is utilized‘. This is important because
a PV plant is an asset with a limited life and the investor would like to extract as much value
from the plant as possible.
It actually depicts the net capacity factor of a power plant that is the ratio of its actual output
over a period of time, to its potential output if it were possible for it to operate at full
nameplate capacity indefinitely. To calculate the capacity factor, take the total amount of
energy the plant produced during a period of time and divide by the amount of energy the
plant would have produced at full capacity.
Here in our project we calculated the total energy generation as below considering the PLF
measure as 20%:
( Total Capacity (in MWh) x PLF X 365 x 24 x 1000 )
1 million
DSCR (Debt Service Coverage Ratio)
The Debt-Service Coverage Ratio (DSCR) is a measure of the cash flow available to
pay current debt obligations. The ratio states net operating income as a multiple of debt
obligations due within one year, including interest, principal.
A DSCR greater than 1 means the entity – whether a person, company or government – has
sufficient income to pay its current debt obligations. A DSCR less than 1 means it does not.
Here in this project we have calculated DSCR as:
By this we have calculated the DSCR count for next twelve years and measured the count as
more than 1 approximately for all the years and that signifies a strong cash flow standard of
the project. Below Fig: 14 will illustrate that trend.
mn KWh

Cash Flow Available for Debt Service (CFADS)
It is a measures the amount of cash a company has on hand as compared to its debt service
obligations. Debt service obligations include all current interest payments due, as well as all
current principal repayments due.
Investors generally prefer a company to have a high CADS ratio; the higher the ratio, the
more of a cash cushion the company has to fund its upcoming debt service payments. In other
words, the higher a company's CADS ratio, the less likely the company will be to default on
its debts, making owning its shares much safer for shareholders.
The undertaken project‘s CFADS profile looks promising and it has maintained a consistent
rate across the forecasted years as per the financial model.
The average CFADS measure for the next 15 years maintains a consistent measure in the
range of 300-350 INR m which is significantly higher that the project‘s y-o-y debt service
amount.
EBITDA to Interest Coverage Ratio
The EBITDA-to-interest coverage ratio is a ratio that is used to assess a company's financial
durability by examining whether it is at least profitably enough to pay off its interest
expenses. A ratio greater than 1 indicates that the company has more than enough interest
coverage to pay off its interest expenses.
1.18 1.21 1.25 1.30 1.35 1.41 1.47 1.55 1.63 1.73 1.85 1.98
2.12 2.29 2.49 2.73 3.02 3.37
3.82
4.40
5.20
6.36
8.18
11.44
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Year
15
Year
16
Year
17
Year
18
Year
19
Year
20
Year
21
Year
22
Year
23
Year
24
Year
25
Year
26
Fig 21: Forcasted Analysis of Financial Trend
DSCR
EBITDA-Interest
Coverage Ratio

For this project this ratio also signifies a strong profile as the ratio reflects a consistent
EBITDA to Interest Coverage Ratio two above for the next fifteen years. That is also
illustrated in Fig: 14.
Amortization Schedule
An amortization schedule is a blend of loan payments, showing the amount of principal and
the amount of interest that comprise each payment so that the loan will be paid off at the end
of its term. While each periodic payment is the same, early in the schedule, the majority of
each periodic payment is interest. The percentage of each payment that goes toward interest
diminishes a bit with each payment, and the percentage that goes toward principal increases.
Later in the schedule, the majority of each periodic payment is put toward the principal. The
last line of the schedule shows the borrower‘s total interest and principal payments for the
entire loan term. In below Fig: 15 we have illustrated the loan repayment structure of the
undertaken project. As per the prepared financial model the entire loan amount is getting
repaid by end of FY 28 i.e. 12 years down the line.
-200.00
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
FY29INRm Fig:22 Debt Repayment Schedule Trend
Closing Debt
Interest Payment
Amount
Debt Service
(Interest+Principal)

2.7 Scenario Analysis
Table: 8
Scenario Analysis
Average
DSCR
(SUM of
All
CFADS/S
UM of
Debt
Service)
EBITDA-
Interest
Coverage
Ratio
(EBITDA/Inter
est Payment)
Equity
IRR
Project IRR
Base
Scenario
Scenar
io 1
PLF 20%
1.39 5.76 11.04% 10.07%
Tariff Rate (INR/Unit) for 1st
12 Year 15
Tariff Rate (INR/Unit) for 2nd
13 Year 5
Positive
Scenario
Scenar
io 2
PLF 21%
1.55 7.09 17.72% 12.18%
12 Year
16%
13 Year 7
Scenar
io 3
PLF
21.5
0%
1.54 6.08 18.84% 12.50%
12 Year 16
13 Year 4
Negative
Scenario
Scenar
io 4
PLF 19%
1.31 5.12 9.14% 7.94%
12 Year 15
13 Year 4
Scenar
io 5
PLF
18.5
0%
1.07 3.91 8.20% 5.19%
12 Year 12
13 Year 3
While doing the rating assessment considering various ratios we have performed a
scenario analysis for the under taken project, where we divided the scenarios into three
basic categories namely Base Case Scenario, Positive Case Scenario and Negative Case
Scenario. There we varied the plant load factor (PLF) and yearly slab wise tariff rate in
order to see how project DSCR and other factors react to different scenarios which in
turn will refer to the cash flow stability of the project and also ensure the return on
investment to the lenders.
Inference
It is also evident from the scenario analysis that under several positive or stress situation
the Average DSCR consistently remain more than one. The equity IRR and project IRR

also has reflected a promising measure under every circumstance. Hence we can opine
the project profile as a strong one. And as per the analysis we can state that it will
maintain a consistent performance in terms of meeting its obligations.
Debt Characteristics and Term Loan
The project owner has raised a term loan of INR1700 mn to retire the buyer‘s credits. The
door-to-door tenor of the loan is 14.25 years (six-month moratorium) (in our analysis we
didn‘t consider the projects moratorium period). Interest cost for the loan is 12% at floating
interest rates with an annual reset. Very recently the lender of the project Yes Bank sold
down its loan coverage to India Infrastructure Finance Company Limited and Indian Bank
through novation.
Equity IRR and Project IRR Calculation
The project IRR takes as its inflows the full amount(s) of money that are needed in the
project. The outflows are the cash generated by the project. The IRR is the internal rate of
return of these cash flows. The calculation assumes that no debt is used for the project.
Equity IRR assumes that you use debt for the project, so the inflows are the cash flows
required minus any debt that was raised for the project. The outflows are cash flows from the
project minus any interest and debt repayments. Hence, equity IRR is essentially the
―leveraged‖ version of project IRR.
Generally Equity IRR is more than project IRR and the equity IRR will be lower than the
project IRR whenever the cost of debt exceeds the project IRR.
In case of this project under rating assessment analysis we found the project IRR as 10% and
equity IRR as 12% and it signifies a very strong commitment towards the equity investors in
terms of their return on investment.
2.8 Risk Factors under Consideration
Operation Risk
The O&M of the plant is carried out in-house. Attributed cost is INR0.6m/MW per annum,
which is much lower than the O&M cost of INR0.9m/MW per annum approved by
the Gujarat Electricity Regulatory Commission for solar power plants. Ind-Ra in its base
case has assumed an O&M cost (including insurance) of INR1.1m/MW for FY16.
Unlike most industry peers, the project does not have a provision of major maintenance
overhaul costs. Annual O&M costs of PV projects are lower than those of typical thermal
power projects. Costs unique to PV projects include inverter repair or replacement and PV
panel replacement due to defect or breakage. Overhaul costs for inverters can range from
every five to 10 years. The project does not have long-term water sourcing arrangement in

place. It has created a large reservoir for water storage and has awarded a module cleaning
contract to the locals.
Supply Risk –Solar Resource
The project has not conducted any independent solar resource estimation study. It has used
satellite data from the global meteorological database provider Meteonorm. This contains
database of ground station measurements of irradiation and temperature on hourly basis.
India has 57 Meteonorm stations and the nearest stations from site are Rajkot (141km),
Ahmedabad (262km) and Bhuj-Rudramata (48km). Site resource data is interpolated from
these stations and satellite data.
We consider the usage of only satellite data for the estimation of solar irradiance as a weak
attribute. However, given the abundance of solar resources in Gujarat (project site), the
variance in long-term incidence of solar irradiation at different degrees of statistical
probabilities is modest (average difference between P-50 and P-90 is 5%-10%). Irradiance
and generation potential at the project site have been verified from independent
technical consultant, TUV Rheinfield, based on the solar radiation data sourced from
Meteonorm. Also, uncertainty concerning the supply risk is mitigated by the 16 months
operational data of the project.
Technology Risk
The rating factors in the limited operating history of cadmium telluride based thin-film PV
panels being used in the project compared with over 30 years of operating history of
crystalline silicon-based PV panels. According to the independent engineer, thin-film
technology is more suitable for high temperature regions as with an increase in temperature,
efficiency loss is lower in thin film PV panels than in crystalline silicon based PV panels.
However, some uncertainty exists over PV panels segment‘s operating performance
(efficiency, degradation) because of absence of long-term performance data from existing
installations in India and the segment‘s dependence on favorable climatic conditions.
We draw some comfort from the plant‘s 53-months track record of hassle-free operations. PV
modules have demonstrated efficiency, performance ratio and annual degradations in line
with the technical efficiency specified by the original equipment manufacturers.
Tail-Risk
The project has an economic life of 25 years (COD: November 2011) and loan amortization
schedule of 13.75 years (last principal repayment date: March 2028). Hence, a comfortable
tail of around nine years provides the sponsors an incentive to support the project in case of

stress in cash flow during the initial stabilization period.
Revenue Risk
Gross Revenue/Off-take
The project‘s revenue profile is secured with a 25-year long PPA with a relatively strong
counterparty, at a fixed tariff of INR15/unit for first 12 years and INR5/unit for the
following years. The PPA has a payment security mechanism in form of a revolving letter of
credit equivalent to one month‘s power sales payment.
The project‘s tariff of INR15/unit is higher than the applicable tariff for the projects based on
the conventional sources of fuel. The agency considers the price risk for the project as
moderate due to the state policy support for solar power developers. That said, the project‘s
revenue profile is sensitive to regulatory policy risks.
Project Counter Party Risk
The project‘s PPA counterparty has a better credit profile than other government-owned
discoms‘ in the country. Also, Gujarat was one of the few states to fulfill its renewable
purchase obligation in 2012-2013. The project‘s equipment supplier for PV panels First Solar
and inverter supplier SMA Solar both have a long operating history. Hence, the risk
pertaining to warranty servicing is fairly limited.
Termination Event Risk
Upon the occurrence of any event of default from the project counterparty, the developers
may deliver a default notice specifying the reasons and calling upon the project off taker to
solve the same. At the expiry of 30 days from the delivery of this default notice, unless the
parties have agreed otherwise or the event of default has been sorted and in that case the off
taker may serve a suspension notice to project counterparty for a duration not exceeding one
year. Following events will considered as a default by the counterparty:
1. Failure or refusal by counterparty to pay any portion the monthly bill for 90 days after the
due date
2. Start-up of bankruptcy or insolvency proceedings
3. Repudiation of this PPA
In case that counterparty fails to cure the default even after the end of suspension period,
project off taker may terminate this agreement by delivering a termination notice to the
counter party.

2.9 Key Rating Drivers and Rating Assignment
Project Operations in Line with Projections
As per the analysis I affirmed senior project terms loans taken by the project owner. The
affirmation reflects stable plant load factor (PLF) of 19.49% in 2014, in line with the
agency‘s base case expectations and the project receiving the scheduled payment from the
power purchase agreement (PPA) counterparty.
Favorable Off-take Arrangement
The rating reflects the project‘s strong revenue profile through a 25-year PPA with a
reasonably strong counterparty, at a fixed tariff of INR15/unit for the first 12 years of
operations and INR5/unit for the remaining 13 years. The PPA counterparty is purchasing
power from project builder at the contracted tariff and paying within 30 days from the date of
invoice. However, the project‘s revenue profile is highly sensitive to possible
regulatory/policy actions.
Payment Security Mechanism
Payments under the PPA are supported by a security mechanism, wherein PPA counterparty
has established a revolving letter of credit equivalent to one month‘s average billing. The
project‘s economic interest is partially protected i.e. if the counterparty defaults on its
purchase obligation, the PPA contract will be terminated. The off-taker is liable to pay
Project Developer and Sponsors an amount equivalent to three years‘ billing based on the
first-year tariff considered on a normative PLF of 20%.
Moderate Technology Risk
The rating factors in the limited operating history of cadmium telluride based thin-film PV
panels being used in the project compared with over 30 years of operating history of
crystalline silicon-based PV panels. According to the independent engineer, thin-film
technology is more suitable for high temperature regions as with an increase in temperature,
efficiency loss is lower in thin film PV panels than in crystalline silicon based PV panels.
However, uncertainty still looms over the plant‘s operating performance (efficiency, panel
degradation) because of lack of long term performance data from the existing installations in
India and performance dependence on favorable climatic conditions.

Strong Equipment Supplier
Solar PV panels and inverters have been sourced from First Solar Inc. Malaysia and SMA
Solar Technology AG, Germany, respectively, which have extended a defect liability period
of five years for the products. The original equipment manufacturers have proven technology
and a long operating track record.
Sponsor’s Satisfactory Track Record
The rating is supported by the sponsor‘s satisfactory experience in operating solar power
plants. The sponsor is the largest owner and operator of solar power projects in India with an
installed capacity of 364MW as on date. Operations and maintenance (O&M) is being carried
out in-house.
Rating Affirmation
Bank Loan Sanctioned Outstanding Rating/Outlook
India Infrastructure Finance
Company
670 624.8 IND A-/Stable
Indian Bank 500 466.3 IND A-/Stable
Yes Bank 530 494.2 IND A-/Stable
Total 1700 1585.3

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