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Here Comes The Sun

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It’s being seen as a watershed development for India’s fledgling solar power industry. Since January, solar power projects, which have typically enjoyed subsidy-backed tariffs of Rs 10-15 per unit, have seen a dramatic fall in tariffs during bidding for new projects in three states.

The tender floated for solar power supply by the Tamil Nadu Generation and Distribution Corporation (Tangedco) last December attracted the lowest bid of Rs 5.97 per kwh. Tangedco selected 20 solar power firms for setting up plants to generate power at Rs 6.48 per unit for the first year. From FY15 on, the tender provides for a 5 per cent escalation every 10 years.

Similar was the case in Rajasthan. The state’s tender saw the lowest solar tariff bid at Rs 6.45 a unit. Four of the 23 valid bids came in below Rs 7. The story was repeated in Andhra Pradesh. For solar photovoltaic (PV) parks adding 1,000 MW being developed by APTransco, the lowest bid came in at Rs 6.52 per unit from Essel Mining, an Aditya Birla group company. Considering almost all successful solar power projects in the country so far have priced their power at a minimum of Rs 7 a unit, the three instances are a new low for solar power tariffs.

Pashupathy Gopalan, CEO of SunEdison, one of the two highest bidders for Tamil Nadu’s solar power projects, says: “It (low bids) shows that solar power is entering an era where it is becoming commercially viable.” SunEdison has successfully developed a business model in North America and Europe — selling portions of completed solar farms to utilities and institutional investors once they are proven and de-risked. It is now seeking to replicate the model in emerging markets like India.

Even a large developer like SunEdison has been redefining its customer as one who has never had access to electricity. It has been testing the off-grid market in India for over a year with micro-grid installations. It launched operations out of Chennai in 2010 to specifically cater to South Asia and sub-Saharan Africa, both energy-deficient markets. It has executed around 80 MW of grid-tied utility-scale projects in the country.

Like Gopalan, the rest of the industry has been watching the recent goings-on with bated breath. Santosh Kamath, partner at KPMG India, agrees that plummeting solar tariffs in the three states are a pointer to grid parity. However, there are others who consider such low tariffs unsustainable because of the dodgy health of discoms or as an accelerated depreciation. Amit Kumar, director, energy, environment technology development at Teri (The Energy and Resources Institute), while agreeing that solar parity may be achieved sooner rather than later, says that the solar power story is yet to pan out.

At current levels, solar power tariffs may still be a far cry from that of coal-fired power at Rs 4-Rs 4.5 a unit, but compares favourably with the Rs 7–Rs 7.50 a kwh that commercial and industrial users pay. It is already a good alternative to diesel-generated power for captive use that costs around Rs 12 a unit. 



It’s still early days. Solar PV power projects adding up to  a 1,410 MW have been commissioned since the launch of the Jawaharlal Nehru National Solar Mission (JNNSM) in 2010. That’s a drop in the ocean compared to the overall energy shortfall of an estimated 25-35 GW. But as phase two of the solar power policy targeting 4,000 MW in capacity addition kicks off this year, the race for solar power is on despite a tentative policy environment.

Learning By Trial & Error
The burst of activity in off-grid solutions is distinct. When Minda NexGen, a subsidiary of automotive OEM (original equipment manufacturer) Uno Minda, diversified into renewable energy-based power generation  two years ago, it chose to concentrate on micro and mini grids to provide basic lighting to areas and communities away from the grid. These grids provide electricity to communities as small as 10 households. A solar micro grid typically provides basic lighting to 40 households for four-six hours daily using LED lamps. Minda’s strategy is to develop a viable business model in operating these small installations, to be handed over to rural entrepreneurs after an initial hand-holding by way of training.  These rural solar entrepreneurs are responsible for operations, maintenance and revenue collection from end-consumers.

Minda set up the first installation in Nagla Dhuli, an un-electrified village in Firozabad district of Uttar Pradesh, in late 2011 to showcase the concept, build on the takeaways from the model and ramp it up quickly. Praveen Bhasin, who heads the company’s power generation vertical, recounts the problems the pilot threw up and how Minda calibrated the strategy in response. Minda NexGen’s first plant was a 1.2 kw grid costing around Rs 5 lakh on a build-operate-maintain model.

Each household contributed a monthly rental of Rs 150 for basic lighting (two LED lights of 1.5 watt) and a mobile charging unit. Minda tweaked the specifications for the next solar power plant it set up in Rayba, another village in the district. An AC (alternating current) plant made way for a low-voltage direct current plant, and 24 volts in place of the usual 12 volts to tackle pilferage. More importantly, the company chose a 240 watt plant to bring down costs to about Rs 1 lakh. This helped rural entrepreneurs to invest in, and operate these micro grids and recover their return on investment within four-five years.

Minda NexGen has installed 33 micro grids in Rajasthan, Maharashtra, Tamil Nadu and Jharkhand — each costing a little over Rs 1 lakh.  Of this, one-third comes as capital subsidy from the Ministry of New and Renewable Energy. The entrepreneur brings in the rest, financed through Kisan Credit Cards or self-help groups, making the initiative sustainable. Minda expects to roll out in 1,500 villages across the country in another three years to reach an estimated million people. Says N.K. Minda, chairman of Uno Minda Group, “Once fully scaled, this programme could substantially change rural electrification using decentralised generation and renewable energy in a manner largely unexplored so far.”

Similarly, Teri has designed standardised DC solar micro grids ranging from 100 wp (watt peak, equivalent to 100 watt) to 1,000 wp, depending on whether the installation services a cluster of 20, 40 or 100 households and small village shops.  
 
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The entrepreneur charges the PV panels through the day, switches them on in the evening for about five hours to power two LED lights till the battery is exhausted. By collecting a fee as little as Rs 5 a day from a household or commercial customer, he can recover his investment in just about a year’s time. Teri has installed 34 such systems in the districts of Azamgarh, Rae Bareli and Jagdishpur in Uttar Pradesh, reaching around 1,400 customers. Teri’s Kumar says that an increasing number of entrepreneurs are now offering to invest more. Teri also designed bigger community-based power plants ranging from 5 kw to 10 kw for income-generating applications. 
 
In Orissa’s Mayurbhanj district, for example, where sal leaves and tamarind are a major source of income for forest dwellers, machine processing helps improve plate-making out of leaves and the quality of tamarind pulp. The power is thanks to solar multi utility (SMU) hubs at Baunshdiha and Laxmiposi villages. A typical SMU of 8 kw capacity costs about Rs 20 lakh. That kind of investment is stiff and Teri is working on a grant-based model for now, treating it as a demonstration project not expected to recoup the entire investment. However, the pilot generates revenue to meet operational expenses.

Also toying with the distributed generation solar power plant idea for India’s villages is SunEdison’s Eradication of Darkness Programme, which targets lighting up 29 under-electrified villages and 14 un-electrified ones in the next year. There are more ambitious scale-up plans: to light up about 1,000 villages in just about two years’ time by taking mini grid solution to villages in clusters.

The company installed a 14 kw mini grid in Guna dis-trict’s Meerwada village in Madhya Pradesh last year as a pilot for their rural electrification programme. “Technology is only a minimal part,” says Manik Jolly, director of rural solar solutions at SunEdison. “The bigger challenge is to find the right operating model that is sustainable.” As in other models, operational expenses are to be met with revenue collected from houses accessing power, while capital costs are to be supported through government subsidy and CSR (corporate social responsibility) funds. Each of the 70-odd households pays as little as Rs 50 a month in Meerwada. Yet the pilot is operationally positive. Jolly calls this the exploratory phase of SunEdison’s rural electrification programme. “We still do not have clarity on what will work,” he says, adding, “any model starts defining when revenues start coming in, and for that anchor load is crucial.”

That is why SunEdison wants to promote entrepreneurship. Flour mills and milk chillers are among some of the micro businesses that will determine power consumption and bring in revenues to sustain operations. 

Creating Last Mile
One common aspect in off-grid business models is that developers are creating quality infrastructure in remote villages, ready for use when the government grid eventually reaches them. Among other notable innovators in the space are Mera Gaon, which designs micro grids specifically for basic lighting, keeping costs down to a minimum; and Gram Power, which installed the country’s first smart micro grid that makes it possible to meter the power availed. Gram Power offers on-demand power through prepaid schemes.



Clearly, affordability and customisation are the underlying strategies of all off-grid business models. They are driving the industry’s support eco-system. Even as these off-grid models proliferate, the grid-connected solar PV market is becoming entrenched. The market has followed two broad approaches: first, utility driven, involving a large ground-based project that utilities commission to meet their renewable purchase obligation at minimum cost. The second, a customer-driven route in the form of solar rooftop systems, which — despite the advantage of ease of installation — has failed to become popular.

Gujarat implemented the country’s first of its kind, grid-interactive solar rooftop pilots in Gandhinagar, which are now being used as a model for rollout across five other cities in the state. The key feature of this model is that all energy generated is fed into the grid and there is no captive consumption.

The Gandhinagar pilots brought forth a couple of innovations to the solar rooftop model.  As availability of rooftops is always an issue, the state government made available rooftop space on public buildings. Second, in order to incentivise the lease of rooftops, project developers pay a monthly monetary ‘green incentive’ to property owners. It depends directly on the solar electricity generated from the system and fed into the grid. 

Most important of all, since there is no provision for net metering (meant to primarily feed the rooftop owners’ captive loads in India), the pilots followed the gross metering model.

But, enabling net metering can be a game changer, says KPMG’s Kamath, for the simple reason that energy is consumed at the point of generation without requiring any infrastructural investment. Gopalan pushes for a decentralised model of power generation, saying, “Rooftop solar PV has a potential to grow up to 10 GW in India if the supporting ecosystem is developed well.”

SunEdison executed the first commercial rooftop solar project in India with the installation of the 100 kw plant for Standard Chartered Bank in Chennai. The plant will generate 3 million units of electricity over 20 years. That is enough to power 40 Indian homes a year. This is the energy sale model under which the developer builds, owns, and maintains the rooftop solar PV system and sells the power generated. In addition, there is the system sale model under which plants are leased out.

Now that Tamil Nadu and Karnataka are bringing in net metering for the residential solar market, more players are eying the space. Green Infra, set up by IDFC private equity, is a case in point. CEO Shivanand Nimbargi says the firm is analysing the generation cost and would be pursuing some proposals in the next six months. 
 
Clearly, the solar PV market is at a nascent stage. The government is following a tranche-by-tranche approach even as the industry clamours for more. With discoms in poor health, bankability of power purchase agreements remains a concern. There is a call for stringent enforcement of rural purchase obligations and renewable energy certificates, which certify the green attributes of generation. Reforms like ‘time of day pricing’ and exemption from grid transmission charges are needed to allow solar PVs to make the shift from an expensive energy option to a truly competitive one. 

bweditor(at)abp(dot)in

(This story was published in BW | Businessworld Issue Dated 03-06-2013)