Frequently Asked Questions on Solar Power

Solar Power industry in India is gaining more and more prominence with each passing day. The domestic/off-grid industry is picking up speed too. Owing to the queries we are receiving regarding the various issues pertaining to Solar Power Plant setup, we thought it would be a great idea to put together a bunch of questions and answer the same. We shall keeping adding to the list as we keep receiving more queries. So, here are the most Frequently Asked Questions and our answers for the same. Do let us know in case you would like us to answer any more questions. Also, kindly point out any inaccuracies/mistakes that you may find here so that we can correct the same for the benefit of everyone. We have tried our best to provide the best and most accurate information. However, inputs or responses to questions from other industry experts are encouraged and extremely appreciated.

[Update - 31-08-2014: The FAQs page has been updated. CERC Benchmark Cost and related details have been updated from 2013-14 figures to those of 2014-15.] 

General

How much land is required to setup a 1MW solar power generation Unit?

The land required for a 1 MW power plant setup is around 4.5-5 acres for Crystalline technology and around 6.5-7.5 acres for Thin-Film technology. This is only a rough benchmark and may vary based on technology and efficiency of panels.

What is the life-time of a typical Solar Power plant?

The useful life of a typical Solar Power plant is considered to be 25 years. This is the duration for which long-term PPAs are signed and financial models are built. However, Solar Power plants can run beyond 25 years while producing a lower output. Many Solar Panel manufacturers guarantee an output of 90% at the end of 10 years and 80% at the end of 25 years.

What is the annual energy generated from a 1 MW Solar Power plant?

The usual benchmark for energy generated from a 1 MW Solar Power plant is considered as 1.5 Million units. This is only a benchmark and should not be considered as the actual output for a given location. The amount of actual energy generated from a Solar Power Plant in an year depends on both internal and external factors. External factors which are beyond the control of a Solar developer can include the following:

• Number of sunny days
• Solar Irradiation
• Day Temperatures
• Air Mass

The output also depends on the following internal factors all of which are within the control of a Solar Developer:

• Plant Location
• Usage of Solar Tracking systems
• Quality of equipment used
• Workmanship of the EPC contractor
• O&M activities

What are the various modes under which we can setup a Solar Power plant?

The various modes under which a Solar Power plant can be setup depends on the specific requirement. All the following are valid modes and the costs for each kind of system varies based on various factors:

• Off-Grid Captive Consumption for domestic premises
• Off-Grid Captive Consumption for commercial premises
• Grid Connected (Net Metered) Captive Consumption for domestic premises
• Grid Connected (Net Metered) Captive Consumption for commercial premises
• Sale of Power generated to local Distribution Company (DISCOM)
• Sale of Power generated to 3rd Party consumer (Industry or Commercial entity)

What is the cost of setting up a Rooftop Solar Power plant for domestic or commercial use?

Rooftop Solar Power plants can be broadly categorized into Battery-based and Non-Battery based systems. The benchmark cost set by MNRE for the year 2013-14 for these systems are Rs.90-100 per W for Non-Battery based systems and Rs.170-210 per W for Battery-based systems. More details can be accessed on the following MNRE webpage: http://mnre.gov.in/file-manager/UserFiles/amendmends-benchmarkcost-aa-jnnsm-2013-14.pdf

What size Solar Power plant is required for domestic or commercial use?

Identifying the Solar Power plant size for your domestic or commercial premises depends on the following factors:

• Wattage of appliances to be run on Solar
• Monthly energy consumption from these appliances
• Energy Backup or Days of Autonomy required
• Roof space available for plant setup

Based on these factors, the power plant sizing can be accordingly done at your end.

Permissions and Bank Loans

What permissions/clearances are required to setup a Solar PV Plant?

A certain set of permissions need to be obtained and documents need to be submitted in order to setup a Solar PV plant. While these may vary from state-to-state, in order to get a Solar PV Project Accredited by AP State Load Dispatch Center (AP SLDC) for REC mechanism, the following are the statutory clearances and environmental clearances to be furnished:

1. Industrial Clearance
2. Land conversion (Agricultural to Non-Agricultural)
3. Environmental Clearance Certificate from APPCB, Hyderabad
4. Contract labour license from AP Labour Department
5. Fire Safety certificate from AP Fire Department
6. Latest tax receipt from the Municipal/Gram Panchayat for the factory land.
7. Auditor compliance certificate regarding fossil fuel utilization
8. Approval from Chief Electrical Inspector
9. Clearance from Forest department

Also, all necessary approvals/agreements before start of Solar PV project construction are to be furnished as and when necessary. These include the following:

10. Land purchase
11. Power Evacuation arrangement permission letter from DISCOM
12. Confirmation of Metering Arrangement and location
13. ABT meter type, Manufacture, Model, Serial No. details for Energy Metering.
14. Copy of PPA (important as Preferential PPA projects are not eligible for REC mechanism)
15. Proposed Model and make of plant equipment
16. Undertaking for compliance with the usage of fossil fuel criteria as specified by MNRE
17. Details of Connectivity with DISCOM
18. Connectivity Diagram and Single Line Diagram of Plant
19. Details of pending court cases with APERC, Supreme Court of India, High Court of A.P. or any other courts
20. Any other documents requested by AP SLDC

While these are the documents that AP SLDC requires for REC project accreditation, these are typically the clearances/documents required in general for a Solar PV project.

Can Solar Power developers avail loans from banks for Solar Power plant setup? What is the loan % and what criteria does a bank/lending institution look for?

There are 2 kinds of Financing mechanisms that are usually discussed – Recourse Financing and Non-Recourse Financing. Recourse Financing requires collaterals and other extensive guarantees from the Solar developer who wishes to avail loan. Non-Recourse Financing, on the other hand, does not require any additional collateral as the Asset or Power Plant itself is the collateral in this case. Recourse Financing is the prevalent mechanism in India currently owing to lack of confidence of banks in the Power and Solar Power sector. The typical Debt-Equity Ratio (Loan to Investment Ratio) for Solar Power plants is 70:30. And the typical collaterals required for a 70% project cost loan could be in the range of 40-60% project cost. This, however, varies from bank to bank as each bank has its own risk perception/mitigation strategy, exposure targets to various sectors and Non-Performing Asset (NPA) limits.

Setup Costs and Power Sale Tariff 

What would be the total project cost excluding the cost of land?

Total project cost per MW would be in the range of Rs.6.5 Crores-Rs.8 Crores depending on the kind of technology you are using, whether or not you are using tracking systems, the kind of EPC Contractor you choose for power plant system etc. CERC recently announced the benchmark tariff for setup of Solar PV and Thermal Plants in India. Here are the links to the documents containing more details: http://www.cercind.gov.in/2014/orders/SO353.pdf and http://www.cercind.gov.in/2014/orders/SO354.pdf

The table below indicates CERC determined benchmark cost for Financial Year 2014-15.

What would be the O & M cost?

Central Electricity Regulatory Commission (CERC) benchmark costs for O&M is Rs.12.3 lakhs/year/MW for 2014-15 with a 5.72% increase every year. This varies from project to project based on the number of people you employ for maintenance, frequency of cleaning of panels, onsite-engineer availability etc.

What would be the per unit expected sale price?

This depends on the mode of sale of power and the consumer of power.

• In the case of sale of power to DISCOM, the prevailing Average Pooled Power Purchase Cost (APPC) will be applicable.
• In the case of sale of power to 3^rd Party consumer, a mutually agreed price can be agreed upon and accordingly a PPA can be signed.

It is to be kept in mind that several additional charges such as Wheeling Charges, Distribution Charges, Open-Access Charges, Cross-Subsidy Charges are applicable in the case of sale of power to 3^rd party. These charges vary from State-to-State and DISCOM-to-DISCOM and even based on voltage levels.

RECs and Carbon Credits (CERs)

Which kinds of Solar Power plants are eligible for REC benefits?

Solar Power Plants need to be Grid-Connected on order to avail REC benefits. Though there have been recommendations on multiple occasions that Off-Grid Solar Power plants be made eligible for RECs, the proposal is still under discussion. Solar Power plants setup under the following 3 modes are eligible for REC benefits:

• Captive Power plants
• Sale of power to Govt. at APPC
• Sale of power to 3^rd party at mutually agreed price

Captive Power Plants are eligible for RECs subject to the condition that Concessional/Promotional Transmission or Wheeling Tariffs and/or banking facility benefit are not availed. Also, Solar Power plants setup under Preferential Tariff schemes are not eligible for RECs. Check out more information on RECs on our REC page here – http://efficientcarbon.com/services/energy/renewable-energy-certificates

Is there a minimum size for Solar Power plants to be eligible for RECs?

As per the Second Amendment of REC Principal Regulations – 2013, there is no lower limit for Solar Power plants to be eligible for RECs. Though it previously stated that 250 KW is the minimum size for Solar Power plants to be eligible for RECs, the same has been removed as part of the above stated amendment.

Can CDM benefits (Carbon Credits) be availed for a Solar Power plant?

Yes. REC Mechanism and CDM are mutually exclusive and hence a power developer can claim CDM benefits (Carbon Credits) also. However, it is to be noted that the current trading prices of Carbon Credits or Certified Emission Reductions (CERs) at the European ETS system is less than 0.7 Euro which are pretty low compared to the 15-20 Euro trading prices a few years back. At these prices, getting a Solar project registered under CDM mechanism does not make any sense as the payback for the expenses in the process itself takes several years. Unless the Solar Power Plant is of size 10 MW or more it does not make financial sense to go for Carbon Credits (CERs).

Benefits for Solar Power plants

What kind of Central/State benefits are available for Solar Power plant setup?

Solar plants can be categorized into 2 broad categories – Grid Connected and Off-Grid plants. The usual Govt. support available for an Off-Grid plant is a Capital Subsidy of 30% on the project cost upto a maximum size of 500 KW. This can be claimed by the Manufacturer/Supplier/EPC Contractor (should be an MNRE accredited supplier) on behalf of the customer. The list of MNRE accredited suppliers (all across India) can be downloaded from http://mnre.gov.in/file-manager/UserFiles/list_channelpartners_sp_jnnsm.pdf

Subsidy is not available for Grid Connected plants that engage in sale of power either to the local DISCOM or a 3^rd party. Following are the benefits a Solar Power Developer involved in Sale of Power Generated can avail:

• Accelerated Depreciation – Upto 90% of asset value with 80% depreciation allowed in the first year.
• 10 years Tax Holiday – Tax holiday can be availed for 10 years during which time Minimum Alternate Tax is still applicable (19.9305%) which can be offset against tax payable later.
• Other State specific exemptions which vary from state to state.

Can Accelerated Depreciation benefits be claimed by Solar Power Developers?

Yes. Accelerated Depreciation benefits can be claimed by Off-Grid and Grid-Connected Solar Power Developers in order to offset taxes on profits from their connected businesses. Typically, 90% depreciation is allowed with 80% allowed in the first year.

Can Capital Subsidy be claimed for a 1 MW Solar Power plant (or greater size)?

No. Capital Subsidy cannot be claimed for plants beyond 500 KW size. Also, capital subsidy is made available only to Off-Grid and Decentralized Solar Power applications and not Grid Connected Plants that are in the business of selling the generated power.

Is there any subsidy available for Solar Power plant setup?

Capital Subsidy of 30% is applicable only for captive power plants up to 100 KW. Subsidy will not be applicable in case of sale of power.

Setting up Solar Power plant in Andhra Pradesh

We would like to setup a Solar power plant in Andhra Pradesh but we have not participated in AP solar bidding. What are the other options?

Since you have not participated in AP Solar Bidding, one other way would be the REC route. You can sell the generated power to APTRANSCO or third party consumer. Through this route, you sell power to APTRANSCO/third party and also claim RECs for the same. This way, you will be able to get a base tariff (APPC) from APTRANSCO and then additional revenue can be generated through sale of Solar RECs. However, it is to be kept in mind that the following additional benefits may be availed for a Solar PV Project commissioned before June 2014 subject to the condition that REC benefits are not availed (in case of Captive Generating Plants and Plants setup under Preferential Tariff basis):

• Exemption from  Electricity Duty
• Exemption of Wheeling Charges, Transmission Charges and Cross-subsidy Charges
• Refund of VAT
• Refund of Stamp Duty and Registration Charges for purchase of land

However, it has to be kept in mind that REC revenue is market driven and can fluctuate as both demand and supply are pretty low on Solar front right now. Kindly refer to our monthly newsletter – REChronicles (http://efficientcarbon.com/services/energy/renewable-energy-certificates) – for more and up-to-date information on the REC market.

Download documents relevant to Andhra Pradesh Solar Policy here –http://nedcap.gov.in/PDFs/2012ENY_MS39.pdf
http://nedcap.gov.in/PDFs/Amendment_to_AP_Solar_power_policy.pdf

Miscellaneous

I have land and some company posted that they are looking for people having land and ready to invest about Rs.10 lakhs. Can I go ahead with this investment?

It is difficult to comment much without more information about the company. However, it is advised to check the company’s track record to understand the company’s previous projects and the revenues/returns from such projects. A couple of things that you might have already understood from the info on this FAQs page is that a typical good quality Solar PV Power plant required Rs.6.5-8 Crores for setup. In line with this, the investment of Rs.10 lakhs you have been asked to make comes to around 1.5% of total project cost which is not much. If your land also has certain value, that can be factored into your equity contribution to the project. While we am not sure about the promise made by the company to you in terms of returns, kindly make sure that your investment has been duly considered in project equity and the associated returns. Also, it is possible that there are several other investors such as you who might be investing in the project. You might ask the company details regarding the same. Following are a few more things you can ask the company to provide:

• Is the entire project equity funded from investors such as you? If ‘Yes’, who are the other investors? If ‘No’, what is the debt portion, where is it coming from and what is the interest rate?
• Where is the project going to be setup?
• Who is the power sold to and at what price is it being sold?
• What are the yearly estimated revenues and returns?
• When would you as an investor start making money (important as payback period is reasonably high for Solar Projects)?

As an investor, you have every right to know the answers to these questions. Kindly evaluate all scenarios and clarify all you queries before making such an investment.