The role of the public sector in mobilizing commercial financing for grid-connected solar projects - India Case Study (Part 1)
India is the world's second largest population country and fourth largest economy. India's economic growth has been strong over the past decade, despite a slowdown in recent years (the average annual GDP growth rate in 2015 was 8.2% and 6.6% in 2017). India's service industry contributes nearly two-thirds of its GDP, demonstrating the country's ability to leverage new technologies and develop advanced technologies. India's economic and social development still faces challenges of rural poverty and unequal educational opportunities, although the government is increasingly paying attention to the resolution of these problems. Table 3.1 lists some of the socio-economic indicators in India.
Basic information on the power sector in India
Power installed capacity and power consumption
As of the end of 2018, the total installed capacity in India was about 346 GW (Figure 3.1). Hybrid power is mainly coal, accounting for nearly 60% of installed capacity.
source:CEA2018
Figure 3.1 The electricity composition of India
The coal used for power generation is mainly provided by local resources; imports account for about one-fifth of coal-fired power plants consumed. Other energy sources include natural gas, nuclear energy and diesel. Renewable energy (including large hydropower) accounts for one-third of installed capacity. Solar installed capacity is 24 GW, accounting for 6.9% of power generation and is growing rapidly (CEA 2018). Economic growth, rapid urbanization, rising living standards and significant growth in electricity supply are the main drivers of electricity demand in India, with an annual growth rate of 7% between 2000 and 2015 (Figure 3.2). Although total installed capacity has exceeded peak demand and the country is working to expand its power generation capacity, power shortages are still occurring repeatedly in some regions. The main reasons for the continued restrictions on the supplier are shortage of coal supply, high losses in transmission and distribution, regional connectivity and poor financial conditions of utilities. Some distribution companies are under enormous financial pressure to meet demand (NITI 2015).
Figure 3.2 India's electricity consumption in 2010-2016
Organizational structure and key stakeholders
According to the Indian Constitution, the central government and state government supervise the power sector, but the central government has limited impact on energy policy at the state level. Therefore, the industry development and the penetration level of renewable energy in each state vary greatly. Over the past 15 years, India has made profound reforms to the power industry, including the split of state-owned utilities and increased private sector participation, so several private power generation and distribution utilities have been created one after another (Figure 3.3). About 45% of India's power generation capacity is in private hands, while control over public power generation capacity is scattered among large public enterprises and is supervised by central and state governments.
Figure 3.3 Organizational Structure of the Indian Electric Power Department
The Ministry of Electric Power is responsible for overseeing the department and is ultimately responsible for setting a wide range of policy objectives. The Ministry of New Energy and Renewable Energy (MNRE) was established in 1992 to formulate renewable energy policies. The Central Electric Power Regulatory Commission (CERC) was established in 1998 and is a statutory body. It enforces electricity department regulations at the national level, while National Electricity Regulatory Commission (SERC) enforces electricity regulations at the state level. SERC sets tariffs for electricity sales and has the right to promote renewable energy in various states.
The central government launched Solar Energy Corporation of India (SECI) in 2011 to help the Ministry of New and Renewable Energy (MNRE) implement several important renewable energy programs (the company's mission has subsequently expanded to cover all renewable energy sources).
India Renewable Energy Development Agency Ltd (IREDA) is a major player in facilitating financing for renewable energy and energy efficiency projects. Its tasks include the management of a power generation-based incentive program that provides projects with additional fees per kilowatt-hour above the price of the Power Purchase Agreement (PPA) paid by the offender to enhance the offender's credibility.
Key energy policy objectives
Since the launch of the "Jawaharlal Nehru National Solar Energy Plan" in 2010, India has invested a lot of energy and funds in solar projects.By 2 2022, raised its initial target of 20 GW of solar to 100 GW in July 2015, partly due to the encouragement of market development and price declines. These targets are consistent with India's Nationally Determined Contribution (NDC), which requires India to reduce its carbon intensity of GDP by 33-35% compared to its 2005 levels and enable renewable energy to account for 40% of its energy composition by 2030. The achievement of this goal is conditioned on technologies from sources such as the Green Climate Fund (GCF) and low-cost international financing. The New National Energy Policy Draft, released in 2017, sets four goals: access to energy at affordable prices, energy security and independence, sustainability and economic growth. The goal of the policy is to achieve universal electricity by 2022, but it also recognizes that at least in the short term, the poor still need financial support. Energy security is the driving force behind diversification beyond coal imports. The SDGs are closely related to energy security, as governments see solar deployment as a way to mitigate climate change, increase domestic electricity production and create jobs. In 2016 alone, the number of full-time equivalent positions related to solar and wind energy increased by about 70,000. A reasonable priced and increased electricity supply is expected to help the economy grow at a faster rate (NITI 2017).
India's solar energy market
India's position in global solar energy development
India's solar energy market began to develop in early 2010, when Indian Prime Minister Manmohan Singh initiated the "National Solar Energy Plan" (Figure 3.4). The National Solar Plan has planned extensive coordinated actions to promote the deployment of solar technology across the country. As of the end of 2013, the installed capacity of photovoltaic in India has reached 1.3 GW (IRENA 2017). India's photovoltaic market continues to grow rapidly, reaching 5 GW in 2015, 18 GW in 2017, and about 24 GW in November 2018 (CEA 2018). CSP is not developing that fast, with a total installed capacity of only 230 megawatts of in 2017, the same as in 2014 (in 2014, solar photovoltaics began to be more economical than concentrated solar thermal power generation in terms of average electricity costs).
Figure 3.4 India's solar photovoltaic and centralized solar energy development stage
When India initially began to deploy grid-connected solar energy, the technical cost had begun to decrease globally. But solar power is still much more expensive than coal and hydro, and most of the country's power generation depends on coal and hydro. The relevant documents of the National Solar Plan state that solar energy costs are much higher than coal and that grid parity will not be possible until 2030. In 2010, the price of photovoltaics for utility-scale solar in India was about USD 0.27 per kilowatt-hour. However, the Indian government is confident in rapidly expanding and leveraging its huge solar potential and cherishing the environmental benefits of solar energy and its role in helping India develop and secure its own electricity production. India is also concerned about the impact of rising coal supply and the rise in coal prices. Finally, the National Solar Plan also seeks to help rural communities benefit from off-grid solar systems, keeping Q free from fossil fuel price fluctuations (MNRE 2010).
Specific national factors affecting the development of the solar energy market
Market size and potential
India is the world's third largest electricity producer after China and the United States. Assuming there is 3% wasteland available for development, the country's solar potential is estimated at 750 GW (MNRE, 2017).
Market structure and competition
Until 2003, India's electricity industry has been featuring vertical utilities in every state. The liberalization of the power market has paved the way for many solar energy procurement channels. Policy formulated at the state level is the main driver, and under the guidance of such policies, India has put into use 8,220 MW of electricity by June 30, 2017 (Table 3.2). However, not all states have the ability or willingness to develop solar energy. In fact, since its inception, 10 of the 29 states have 96% of India's solar power capacity (Mercom India 2018).
Local financial market
S&P (November 2017) rated India's foreign currency and local currency long-term debt to BBB, with a stable outlook. This shows that the country's debt provides sufficient protection for investors, although the country's credibility may be adversely affected by adverse economic factors. Local banking is crucial to India's economic growth. In fiscal year 2016/17, loans and advances on the balance sheet of Bank of India were INR 81.1 trillion (USD 1.13 trillion), with an additional INR 36.5 trillion (USD 508 billion). The industrial sector received the largest share of bank credit (INR 26.8 trillion [USD 373 billion]), followed by the service sector (INR 18 trillion [USD 251 billion]), personal loans (INR 16.2 trillion [USD 225.4 billion]) and agriculture (INR 9.9 trillion [USD 137.8 billion]) ( Reserve Bank of India , 2017). Investment demand to achieve the central government's 100 GW solar target by 2022 is estimated to be US$83 billion (of which utilities and rooftop photovoltaics account for more than half) (BNEF 2017). Given the depth of India's financial markets, it is possible to mobilize investments at this level locally, but major coordination among capital providers is required.
The evolution of the grid-connected solar market
The liberalization of the Indian economy began in the early 1990s. What followed was an attempt to encourage private participation in the power sector. In 1991, the government allowed private investment to participate in power generation and distribution projects due to the extremely inefficient realization of the existing monopoly public ownership model (Ahn and Graczyk 2012). However, until the end of the last century, progress was still very small. The Central Government level formulated the Integrated Energy Policy in 1998, calling for deeper reforms to promote private participation. It points out that promoting and developing renewable energy is a way to improve India's energy independence.
It was not until the release of the " Electric Power Method " in 2003 that all levels of the power market began to separate. The most significant developments after the bill were the separation of state-owned utilities, unlicensed energy production, non-discriminatory access to transmission networks, and direct sales to consumers.
2008, India has taken the first step in large-scale deployment of solar energy. At that time, the government issued the National Climate Change Action Plan and identified solar energy as its main resource. Concerns about energy security, climate change and energy access have contributed to the launch of the National Solar Plan in 2010. The mission plans a series of coordinated actions to facilitate the deployment of solar technologies nationwide, including solar heating, grid-connected off-grid, photovoltaic, concentrated solar thermal power generation (CSP), ground installation and roof power generation.
"National Solar Energy Plan" attaches great importance to the generation of energy, education, research, technology development and domestic manufacturing of solar modules. Its initiatives include the government’s direct purchase of solar energy or paying additional fees above agreed electricity bills to reduce the financial burden on the offender (called generation-based incentives) (Dilip Nigam, 2016).
When India's total installed solar energy capacity is less than 50 MW, the "National Solar Energy Plan" sets the target of grid-connected solar energy deployment for a limited time: reach 1 GW by 2013, 4 GW by 2017, and 20 GW by 2022. Initially, the “plan” did not indicate a bias towards solar photovoltaic or concentrated solar thermal power generation, as either technology could achieve these goals.
By March 2013, the total solar procurement volume reached 1,441 MW, surpassing the first phase of 1,000 MW target. About 30% (or 422 MW) of installed capacity was purchased through a competitive price-based procurement process called the National Solar Plan batch I and II. Other projects also benefit from the mandatory purchase price or incentive mechanism based on electricity generation in Gujarat. The main reasons for the delays caused by
are the difficulty in ensuring financing, the lack of reliable ground measurement irradiation data, and cumbersome licensing procedures. Land acquisition and access to the grid are considered bottlenecks that affect solar photovoltaic or concentrated solar thermal power generation projects.The high reliance on foreign financing and low participation of Indian banks has caused concerns that insufficient financing will prevent the rapid expansion of grid-connected solar energy in the next stage of the national solar mission.
Thanks to the success of the first phase, the sharp drop in PV module prices and India hopes to continue as a global leader, the central government announced a revised target in June 2015 to increase grid-connected solar to 100 GW MW by 2022, five times higher than the initial 20 GW target set in 2010 for 2022. The new goal is to connect 60 GW of ground, medium to large power plants to the transmission grid and 40 GW of roof and distributed solar to the distribution grid. The mechanisms established during 2010-13 were continued and new plans were introduced. These support mechanisms include capital subsidies to producers using survivability gap funds to meet pre-determined tariffs, and solar parks where states protect land and transmission infrastructure and lease them to developers. The solar park program targets a total capacity of 40 GW (double the original 20 GW) with fiscal support of $1.2 billion. As of June 2018, the government has approved 45 solar parks in 22 states with a planned total capacity of 26 GW (MNRE 2018b). Most projects are in the planning or preparation stage. Six solar parks have been put into use (partially or fully) into operation, adding more than 2.4 GW of installed capacity. Recent reports on market conditions are encouraging. India added 9.1 GW of new utility solar power in fiscal 2017/18, equivalent to 10.4 GW, including rooftop and off-grid solar, an increase of 72% over fiscal 2016/17. The recommended safeguard obligations to protect local industries may slow down project completion and create uncertainty for developers and financiers (Chandrasekaran 2018).
Liquidity of commercial finance
Since the launch of the "National Solar Plan", the vast majority of investments have been invested in the solar photovoltaic field through hundreds of transactions, but there is no comprehensive summary of the total amount of commercial investment raised. According to the World Bank's "Private Participation in Infrastructure Projects" database, the greenfield investment received by solar projects between 2010 and 2018 was US$6 billion (Figure 3.6).
equity investment is mainly provided by state-owned companies such as Acme, ReNew, Azure Power and Adani. Some projects are led by international investors and developers, including AES and EDF Energies Nouvelles and Actis, but their numbers remain in a minority. US-based SunEdison is one of the most active international companies in the Indian PV market, but filed for bankruptcy in 2016 (Indian Greenko acquired its assets in India). In the first phase of the National Solar Plan, 2010-13, commercial banks invest less than 25% of the initial investment. Since then, local banks have become more active in the solar market, offering about half of their business loans. Indeed, the success of the first projects reduced people's perception of technological risks, and the credibility of distribution companies improved, prompting commercial banks to support independent power generators (IPPs).
Figure 3.6 India's investment in Greenland solar projects between 2010 and 2018
India's non-bank financial institutions (including infrastructure debt funds and investment companies) provided a quarter of the total loans. The most active companies are PTC, a subsidiary of Indian Electric Power Trading Corporation, and the Public Financial Institution Infrastructure Development Finance Corporation (IDFC), which is dedicated to infrastructure development.
The role of the public sector in mobilizing commercial financing of grid-connected solar projects - India Case Study (Part 2)
Effectiveness of public sector intervention
India's market is jointly developed by the central government and state government, which has introduced some policies and support mechanisms to promote the development of solar photovoltaics.
Law, Policy and Regulatory Framework
2003 The promulgation of the Electric Power Act is the first step for India's power sector to move towards liberalization. The bill proposes for the first time a detailed plan will be made to deeply split the power sector at all levels.In addition to splitting state-owned integrated utilities, the following provisions of the bill also have an impact on the development of commercial grid-connected solar projects:
• Electricity production is listed as a license-free activity, greatly simplifying the licensing process.
• Grant all power producers an open transmission channel without discrimination.
• Can sell electricity directly to distribution companies or qualified customers.
• Distribution companies must use competitive procedures to meet all their future electricity needs.
• Introduces basic elements of preferential electricity prices for renewable energy and a framework for mandatory renewable energy procurement obligations in the future.
The Electricity Law, introduced in 2003, required the formulation of a national electricity policy, which was released in 2005. This policy clearly illustrates the role of independent power producers (IPPs) in deploying renewable energy and increasing the overall share of unconventional energy in the power structure. Since the late 1980s, wind energy has benefited from a wide range of support measures (including accelerated devaluation of capital investment, tax exemption, on-grid electricity prices, mandatory purchase of wind energy, and public support for research and development and pilot projects), and was therefore the focus of development at the time. These support measures later provided a model for solar market intervention under the National Solar Energy Program (Barroso and Khanna 2014).
India's regulatory framework is a complex problem. The Electric Power Industry Regulatory Commission (CERC) makes a decision at the national level and is then implemented at the state level by the National Electricity Supervision and Administration Commission (SERC). From a regulatory and institutional perspective, the process of implementing certain support programs is very complex. For example, solar renewable energy procurement obligations and renewable energy credit trading mechanisms launched in 2010-11 enable the National Electricity Supervision and Administration Commission to set a minimum level of renewable energy supply. If the offender is unable to meet these requirements due to insufficient supply (e.g., states with low solar potential), distribution companies and direct purchasers can purchase renewable energy certificates to bridge the gap between their purchase and obligations. Renewable energy credits include avoided greenhouse gas emissions and will be sold on a dedicated market. Successful experiences vary across India. As of fiscal year 2013/14, five states met their renewable energy procurement obligations (India Accounting and Auditor General Office, 2015). By the end of 2017, only six states had done this (Greenpeace India, 2018). In May 2018, the Ministry of New Energy and Renewable Energy (MNRE) created a renewable energy procurement obligations compliance organization (MNRE 2018a) for coordinated purposes.
The evolution of the fiscal environment, such as the recent changes in the general sales tax regime applicable to solar equipment, is the source of uncertainty. In July 2018, the Indian government proposed a two-year protection tax on solar modules imported from China and Malaysia (25% in the first year, 20% in the next six months and 15% in the last six months). According to relevant recommendations, these measures are a way for local industries, but higher tariffs are likely to bring frustration to developers and delay the process of solar energy deployment (Upadhyay, 2018).
planning, technology and operational capabilities
power generation plan
"National Solar Plan" and subsequent target revisions have determined the national power generation priority of renewable energy (especially grid-connected solar energy). Official policy documents define short-term and long-term goals for expanding power generation capacity. Since most solar installations are obtained through competitive bidding, transparency is crucial in the upcoming bidding process. After a period of exploration, a series of stable bidding announcements were launched in 2016 and 2017. The Ministry of New Energy and Renewable Energy expects to offer 30 GW of ground solar park installations in the 2018-19 fiscal year and a further tender for 30 GW in the 2019-20 fiscal year (Prateek 2017).
grid integration, access and power evacuation
2003 The Power Act guarantees non-discriminatory access to the power grid. In fact, however, grid connection has always been a common challenge for solar projects.Since the implementation of the National Solar Plan, the timely availability of transmission lines has been worrying, and as a result, there have been delays in the commissioning of solar projects. In the case of loss of revenue due to power reduction (caused light), the current PPA model does not provide compensation to IPP.
Land supply
In some states, land availability has become a major bottleneck. Converting the name of a land use is time-consuming and, according to the developer, the process requires permission from a large number of different levels of authorities. Some states such as Madhya Pradesh and Gujarat have more advantages in land acquisition than others. The concept of designing solar parks is partly designed to solve this problem and has been successful. However, due to the prevalence of conflicts with local farmers’ organizations, land may still be a barrier to park development.
Infrastructure Investment
Solar Park Program improves grid connectivity. Public entities lease land from citizens and use the site for solar photovoltaic power generation (establishing internal evacuation plans, substations, layout of roads and waterways), and then auction large chunks of land to the developer, who agree to pay upfront fees, operation and maintenance costs, land lease rentals and development costs. The use of solar parks across India greatly reduces the process of land acquisition and access to the transmission grid (Box 3.1).
Box3.1 Rewa Solar Park - Promote innovation to expand the development of Indian solar park
Rewa Ultra Mega Solar (RUMS or Rewa Solar Park) is a 750 MW solar park covering an area of approximately 1550 hectares, located in Rewa, Madhya Pradesh, India. It was developed by Rewa Ultra Mega Solar Park Ltd (RUMSL), a joint venture between Madhya Pradesh Urja Vikash Nigam Limited and Indian Solar Energy Corporation. In 2017, the Indian Madhya Pradesh government announced the results of the tender process, choosing a private investor-developed (3×250 MW) solar power plant. The project was awarded to three solar power companies in its first year with electricity prices of Rs 2.979, Rs 2.970 and Rs 2.974, respectively. Unlike the large projects at the time, these electricity prices were obtained without providing any feasibility gap funds to the developers, including an all-time low of INR 2.97 (approximately US$0.44).
reduces payment risks. The transaction package includes a power purchase agreement with Delhi Railway Company (DMRC), and another purchase agreement with Madhya Pradesh distribution company Madhya Pradesh Electric Power Management Co., Ltd. (MPPMCL). Although DMRC is an investment-grade rating utility, MPPMCL's credibility still concerns solar developers. The risk of counterparty of the power purchase agreement can be alleviated through a three-layer payment mechanism. First, MPPMCL provides a letter of credit covering a month's payment. Second, the payment security fund managed by RUMSL ensures payments for another three months. Finally, the Madhya Pradesh government guarantees that it will pay for MPPMCL's default if it is unavoidable.
Land and electricity transfer. RUMSL determined the project location, carried out the preliminary work required for solar energy development, and obtained the necessary permits and permits (rights of way to grid interconnects, long-term grid access, etc.). The construction of internal transfer infrastructure (220/33 kV substation) is supervised by Madhya Pradesh Electric Power Transmission Co., Ltd. All other amenities such as roads, street lighting, cable tray support structures and drainage systems are under the responsibility of the developer. Compared to most solar parks in the country, the project will focus on areas where public support is most needed, allowing RUMSL to reduce rental fees to developers. All contract works are uploaded to the data room available for prequalified bidders. The project also regularly uploads photos of development and power transfer work to enable bidders to determine local progress when preparing financial and technical quotes. About 97% of the land was available for use on the day of the auction.
Other forms of government support. The Ministry of Electricity has granted the project regional power station qualification, so there will be no expense or loss incurred in the transmission of electricity between states.Therefore, the electricity can reach the Delhi Railway at the same speed as when entering Reva until the perimeter of Delhi. India's central transmission company, India's Power Grid Corporation, built a 220/400 KV substation at the Rewa project address, making the state and the project completely exempt from costs.
The cost of internal evacuation infrastructure has been cut through grants from the Ministry of New Energy and Renewable Energy under the Solar Park Program, as well as loans from the World Bank and the Clean Technology Fund (CTF). The CTF also provided a grant to strengthen institutional capacity building. RUMS is the first solar park in the country to use CTF preferential financing and grants. International Finance Corporation (IFC) serves as a transaction consultant for RUMSL, providing expert advice to build projects, preparing financing project agreements, managing stakeholders through extensive consultation and negotiation, and providing comprehensive analysis and implementation support. The project is well known as a turning point in India’s solar industry, allowing the government to shift its focus from feasibility gap funds to adopting large-scale solar investment financing based on markets.
is adapted from BusinessLine 2018, EnergyNext 2017 and World Bank 2017
The proportion of variable renewable energy is expected to grow significantly in the coming years, so it is recognized that the need to improve the capacity of transmission grid operators and to modify grid regulations at the federal and state levels, while strengthening interstate connectivity to avoid congestion (NITI 2017). Given the speed of development of the country, there will inevitably be congestion problems.
To help the transmission network keep up with power generation, two potential solutions have been proposed. First is roof solar energy. The 2022 solar target includes 40 GW of roof and distributed solar power connected to the distribution grid, while the target is only 250 MW in 2015. Small-scale distributed solar energy can strengthen weak urban grids and help reduce power loss on distribution lines. As concerns over high-voltage grid congestion grow, allocating 40% of the global target (100 GW) to the distribution grid may delay the expensive demand for reinforcement of transmission infrastructure. The second option is India’s Green Energy Corridor Program, which aims to remove bottlenecks by connecting renewable energy-rich areas to the western and southern power grids. The Asian Development Bank has supported three projects under the program, but only some states have begun to implement transmission plans. In order to alleviate power grid congestion and bottlenecks, the government is also considering storage. Under a World Bank-funded project, Solar Energy Corporation of India (SECI) will pilot battery storage power plants in combination with renewable energy in hybrid power plants and independent grid assets.
Direct and indirect financing
on-grid electricity price subsidy scheme has been the core of India's promotion of rapid solar energy deployment. The development of solar energy has been promoted through the "National Solar Plan", bundled sales, power generation-based incentives and feasibility gap funds. Bundle sales provide indirect public financing by subsidizing fixed tariff procurement. Power generation-based incentives provide funds directly to developers by providing additional fees to independent power producers (IPPs) above the established fixed electricity bill.
independent power generation projects purchased under various feasibility gap funding plans benefit from direct public support in the form of capital investment subsidies. The 7750 MW PV project purchased by Solar Energy Corporation of India (SECI) has received a total of US$1.2 billion approval (the first, third and fourth batches of the second phase were purchased under the feasibility gap funding plan approved by the Ministry of New Energy and Renewable Energy).
Independent power generators are responsible for bidding at fixed prices according to the feasibility gap funding plan, and point out subsidy requirements per megawatt of installed capacity. The capacity provided will be awarded to bidders with minimum viability gap funding requirements. The program is designed to address the affordability issues of distribution companies. With capital subsidies, Solar Energy Corporation of India (SECI) was able to buy solar energy and sell it to distribution companies at lower prices than the market. Feasibility gap funds are welcomed by private developers because subsidies are given early in the project’s life cycle, thus limiting risks. At the beginning of its establishment, the developer charged a fixed price of INR 5.45 per unit. Since some state-level auctions are bidding below INR 3.00 per unit, feasibility gap funds are no longer needed.By subsidizing solar PV projects related to energy storage projects, the program can serve new goals in the near future to improve its affordability. Solar Energy Corporation of India (SECI) canceled the 2016 solar and battery project auction (Chandrasekaran 2017) due to higher prices.
The central government has budgeted $600 million in financial assistance to support the first 20 GW solar parks established nationwide (MNRE 2017). The Indian Renewable Energy Development Agency (IREDA) has provided loans to selected states for the development of solar parks, supported by some international financial institutions.
Income tax exemption period and accelerated depreciation are two methods of indirect financing projects. The tax cut period allows developers to recover their investments faster than requiring their initial profits to be taxed. Accelerated depreciation is an accounting tool used to lower tax payables in the first few years, helping developers recover their investments faster. In its guidance on feasibility gap funding schemes, the independent generators will receive a fixed price, i.e. INR 5.45 per unit, and INR 4.75 per unit if accelerated depreciation is not used (MNRE 2015).
In 2015, the Reserve Bank of India added renewable energy to its priority industry loan category. Therefore, domestic commercial banks must lend 40% of their adjusted net bank credit (or credit equivalent for off-balance sheet risk, whichever is higher) to renewable energy projects (RB India, 2018).
Government sponsored guarantee
Undertaker reputation
Since the launch of the "National Solar Energy Plan", the distribution company's financial situation has been poor, hindering the large-scale development of grid-connected solar energy. Therefore, the project sets up some plans to provide some protection for independent power generators to prevent offenders from defaulting while also solving the affordability problem of distribution companies. However, none of these mechanisms can solve the problem, and the main reason for the troubles of independent power generators is the delay in payments from distribution companies.
At the end of 2015, the government launched a national improvement plan for power distribution companies. The Ujwal Distribution Company Assurance Yojana (UDAY) program aims to reform the financial and operational performance of utilities. One of its main interventions is to transfer 75% of the distribution company's debt to states and reorganize the remaining debt. Other measures include revising prices, reducing technical losses plans, installing instruments in systems and performing GIS drawings for consumers.
Under the UDAY plan, the achievements of the distribution company are visible in real time. The progress made so far is encouraging, and solar developers show cautious optimism. Although the adverse results of previous attempts to reorganize the distribution company’s finances have raised some doubts, most people are positive about the plan, according to a survey of the CEO of Indian Solar Energy Corporation in 2016 and 2017 (Bridge to India 2016, 2017b). The financial situation of
distribution companies remains the second biggest problem in the solar industry after the power grid. The Ministry of Electricity released six annual reports, evaluating the performance of utility based on three sets of parameters: operational performance and reform, external performance and financial performance. Since 2015, only five of the 41 highest rated utility companies have received the highest rating, while the number of companies with the lowest rating has increased year by year (Figure 3.8).
Figure 3.8 Performance rating of Indian power distribution facilities from 2013 to 2017
Margin
In the first phase of the national solar mission, the Indian government established a budget support mechanism for the Ministry of New Energy and Renewable Energy (MNRE). The program aims to alleviate defaulted payments from state-owned utilities and distribution companies and ultimately ensure that projects purchased through designated solar procurement agency Vidyut Vyapar Nigam Limited (NVVN) receive financial closures (MNRE 2011). NVVN purchased solar power from independent generators and sold it to state-owned utilities and distribution companies, partially protecting independent generators from the risk of the buyer.
The Ministry of New Energy and Renewable Energy (MNRE) has established a "Solar Payment Security Account", a third-party payment security mechanism funded by $100 million in working capital.Given the total installed capacity is 1,000 MW, the amount is equivalent to about two months of payment at the on-grid electricity price. This mechanism is not a real guarantee of payment, as NVVN is not obliged to pay an independent generator if the ultimate acquisition defaults and therefore reserves full discretion in management. However, it can effectively reduce the risk of offenders (Khanna and Garg 2013). The mechanism purchased 960 megawatts of electricity and expanded in the second phase of the National Solar Plan.
In the second phase of the National Solar Plan, the central government created Solar Energy Corporation of India (SECI) in 2011 as a separate buyer with the goal of providing utilities with lower than the market electricity prices. Solar Energy Corporation of India (SECI) reduces the risk of offenders for solar park plans and roof installations. In 2016, Solar Energy Corporation of India (SECI) announced the establishment of a USD 200 million (INR 150 billion) payment security fund to ensure timely payments to solar developers. The mechanism is designed to compensate for the default payments from distribution companies, state-owned utilities and bulk consumers to Solar Energy Corporation of India (SECI). It also enables Solar Energy Corporation of India (SECI) to fulfill its financial obligations in accordance with standard tender documents and power purchase agreements when MNRE/MOP (SECI n.d.) is in effect. India has established a similar payment security mechanism to support electricity procurement under national survey missions. However, there is no conclusive evidence that the mechanism can effectively alleviate investor concerns.
Key Discovery and Summary
Over the past decade, India has made leap forward in changing its power sector and achieving its renewable energy and policy goals. After the liberalization of the electricity market in the 2000s, the central government announced the launch of the "National Solar Plan" to leverage the country's huge solar potential, increase power supply, promote domestic electricity production and take action to combat climate change.
The Indian government and its states have taken creative and flexible actions to achieve its ambitious goals, with plans to achieve 100 GW of solar power by 2022. The country has adopted direct and indirect financing methods to attract developers, address congestion and mitigate risks to offenders. Many government and state-level institutions were established to help strengthen the solar market; to improve the overall situation in India, the government took measures to improve the credibility of the acquirer; and to expand the grid and provide policy support to increase the flexibility of the power system, which are necessary to achieve ambitious solar energy goals.
lack of available land, need to deploy on roofs or floating devices, the problem of lower creditworthiness in states with the best solar resources and a proposed 20% protection tax may slow down the deployment of solar power in India. However, the momentum of the market and the steady growth of loans in the financial sector will still allow India to maintain its global leadership in solar power generation.
This article is excerpted from the World Bank Report The Role of the Public Sector in Mobilizing Commercial Finance for Grid-Connected Solar Projects: Lessons Learned and Case Studies
is compiled by REPER project team-UNCCD intern Rong Yu/Tsinghua University postdoctoral fellow He Yang to Chinese
By 2 2022, raised its initial target of 20 GW of solar to 100 GW in July 2015, partly due to the encouragement of market development and price declines. These targets are consistent with India's Nationally Determined Contribution (NDC), which requires India to reduce its carbon intensity of GDP by 33-35% compared to its 2005 levels and enable renewable energy to account for 40% of its energy composition by 2030. The achievement of this goal is conditioned on technologies from sources such as the Green Climate Fund (GCF) and low-cost international financing. The New National Energy Policy Draft, released in 2017, sets four goals: access to energy at affordable prices, energy security and independence, sustainability and economic growth. The goal of the policy is to achieve universal electricity by 2022, but it also recognizes that at least in the short term, the poor still need financial support. Energy security is the driving force behind diversification beyond coal imports. The SDGs are closely related to energy security, as governments see solar deployment as a way to mitigate climate change, increase domestic electricity production and create jobs. In 2016 alone, the number of full-time equivalent positions related to solar and wind energy increased by about 70,000. A reasonable priced and increased electricity supply is expected to help the economy grow at a faster rate (NITI 2017).India's solar energy market
India's position in global solar energy development
India's solar energy market began to develop in early 2010, when Indian Prime Minister Manmohan Singh initiated the "National Solar Energy Plan" (Figure 3.4). The National Solar Plan has planned extensive coordinated actions to promote the deployment of solar technology across the country. As of the end of 2013, the installed capacity of photovoltaic in India has reached 1.3 GW (IRENA 2017). India's photovoltaic market continues to grow rapidly, reaching 5 GW in 2015, 18 GW in 2017, and about 24 GW in November 2018 (CEA 2018). CSP is not developing that fast, with a total installed capacity of only 230 megawatts of in 2017, the same as in 2014 (in 2014, solar photovoltaics began to be more economical than concentrated solar thermal power generation in terms of average electricity costs).
Figure 3.4 India's solar photovoltaic and centralized solar energy development stage
When India initially began to deploy grid-connected solar energy, the technical cost had begun to decrease globally. But solar power is still much more expensive than coal and hydro, and most of the country's power generation depends on coal and hydro. The relevant documents of the National Solar Plan state that solar energy costs are much higher than coal and that grid parity will not be possible until 2030. In 2010, the price of photovoltaics for utility-scale solar in India was about USD 0.27 per kilowatt-hour. However, the Indian government is confident in rapidly expanding and leveraging its huge solar potential and cherishing the environmental benefits of solar energy and its role in helping India develop and secure its own electricity production. India is also concerned about the impact of rising coal supply and the rise in coal prices. Finally, the National Solar Plan also seeks to help rural communities benefit from off-grid solar systems, keeping Q free from fossil fuel price fluctuations (MNRE 2010).
Specific national factors affecting the development of the solar energy market
Market size and potential
India is the world's third largest electricity producer after China and the United States. Assuming there is 3% wasteland available for development, the country's solar potential is estimated at 750 GW (MNRE, 2017).
Market structure and competition
Until 2003, India's electricity industry has been featuring vertical utilities in every state. The liberalization of the power market has paved the way for many solar energy procurement channels. Policy formulated at the state level is the main driver, and under the guidance of such policies, India has put into use 8,220 MW of electricity by June 30, 2017 (Table 3.2). However, not all states have the ability or willingness to develop solar energy. In fact, since its inception, 10 of the 29 states have 96% of India's solar power capacity (Mercom India 2018).
Local financial market
S&P (November 2017) rated India's foreign currency and local currency long-term debt to BBB, with a stable outlook. This shows that the country's debt provides sufficient protection for investors, although the country's credibility may be adversely affected by adverse economic factors. Local banking is crucial to India's economic growth. In fiscal year 2016/17, loans and advances on the balance sheet of Bank of India were INR 81.1 trillion (USD 1.13 trillion), with an additional INR 36.5 trillion (USD 508 billion). The industrial sector received the largest share of bank credit (INR 26.8 trillion [USD 373 billion]), followed by the service sector (INR 18 trillion [USD 251 billion]), personal loans (INR 16.2 trillion [USD 225.4 billion]) and agriculture (INR 9.9 trillion [USD 137.8 billion]) ( Reserve Bank of India , 2017). Investment demand to achieve the central government's 100 GW solar target by 2022 is estimated to be US$83 billion (of which utilities and rooftop photovoltaics account for more than half) (BNEF 2017). Given the depth of India's financial markets, it is possible to mobilize investments at this level locally, but major coordination among capital providers is required.
The evolution of the grid-connected solar market
The liberalization of the Indian economy began in the early 1990s. What followed was an attempt to encourage private participation in the power sector. In 1991, the government allowed private investment to participate in power generation and distribution projects due to the extremely inefficient realization of the existing monopoly public ownership model (Ahn and Graczyk 2012). However, until the end of the last century, progress was still very small. The Central Government level formulated the Integrated Energy Policy in 1998, calling for deeper reforms to promote private participation. It points out that promoting and developing renewable energy is a way to improve India's energy independence.
It was not until the release of the " Electric Power Method " in 2003 that all levels of the power market began to separate. The most significant developments after the bill were the separation of state-owned utilities, unlicensed energy production, non-discriminatory access to transmission networks, and direct sales to consumers.
2008, India has taken the first step in large-scale deployment of solar energy. At that time, the government issued the National Climate Change Action Plan and identified solar energy as its main resource. Concerns about energy security, climate change and energy access have contributed to the launch of the National Solar Plan in 2010. The mission plans a series of coordinated actions to facilitate the deployment of solar technologies nationwide, including solar heating, grid-connected off-grid, photovoltaic, concentrated solar thermal power generation (CSP), ground installation and roof power generation.
"National Solar Energy Plan" attaches great importance to the generation of energy, education, research, technology development and domestic manufacturing of solar modules. Its initiatives include the government’s direct purchase of solar energy or paying additional fees above agreed electricity bills to reduce the financial burden on the offender (called generation-based incentives) (Dilip Nigam, 2016).
When India's total installed solar energy capacity is less than 50 MW, the "National Solar Energy Plan" sets the target of grid-connected solar energy deployment for a limited time: reach 1 GW by 2013, 4 GW by 2017, and 20 GW by 2022. Initially, the “plan” did not indicate a bias towards solar photovoltaic or concentrated solar thermal power generation, as either technology could achieve these goals.
By March 2013, the total solar procurement volume reached 1,441 MW, surpassing the first phase of 1,000 MW target. About 30% (or 422 MW) of installed capacity was purchased through a competitive price-based procurement process called the National Solar Plan batch I and II. Other projects also benefit from the mandatory purchase price or incentive mechanism based on electricity generation in Gujarat. The main reasons for the delays caused by
are the difficulty in ensuring financing, the lack of reliable ground measurement irradiation data, and cumbersome licensing procedures. Land acquisition and access to the grid are considered bottlenecks that affect solar photovoltaic or concentrated solar thermal power generation projects.The high reliance on foreign financing and low participation of Indian banks has caused concerns that insufficient financing will prevent the rapid expansion of grid-connected solar energy in the next stage of the national solar mission.
Thanks to the success of the first phase, the sharp drop in PV module prices and India hopes to continue as a global leader, the central government announced a revised target in June 2015 to increase grid-connected solar to 100 GW MW by 2022, five times higher than the initial 20 GW target set in 2010 for 2022. The new goal is to connect 60 GW of ground, medium to large power plants to the transmission grid and 40 GW of roof and distributed solar to the distribution grid. The mechanisms established during 2010-13 were continued and new plans were introduced. These support mechanisms include capital subsidies to producers using survivability gap funds to meet pre-determined tariffs, and solar parks where states protect land and transmission infrastructure and lease them to developers. The solar park program targets a total capacity of 40 GW (double the original 20 GW) with fiscal support of $1.2 billion. As of June 2018, the government has approved 45 solar parks in 22 states with a planned total capacity of 26 GW (MNRE 2018b). Most projects are in the planning or preparation stage. Six solar parks have been put into use (partially or fully) into operation, adding more than 2.4 GW of installed capacity. Recent reports on market conditions are encouraging. India added 9.1 GW of new utility solar power in fiscal 2017/18, equivalent to 10.4 GW, including rooftop and off-grid solar, an increase of 72% over fiscal 2016/17. The recommended safeguard obligations to protect local industries may slow down project completion and create uncertainty for developers and financiers (Chandrasekaran 2018).
Liquidity of commercial finance
Since the launch of the "National Solar Plan", the vast majority of investments have been invested in the solar photovoltaic field through hundreds of transactions, but there is no comprehensive summary of the total amount of commercial investment raised. According to the World Bank's "Private Participation in Infrastructure Projects" database, the greenfield investment received by solar projects between 2010 and 2018 was US$6 billion (Figure 3.6).
equity investment is mainly provided by state-owned companies such as Acme, ReNew, Azure Power and Adani. Some projects are led by international investors and developers, including AES and EDF Energies Nouvelles and Actis, but their numbers remain in a minority. US-based SunEdison is one of the most active international companies in the Indian PV market, but filed for bankruptcy in 2016 (Indian Greenko acquired its assets in India). In the first phase of the National Solar Plan, 2010-13, commercial banks invest less than 25% of the initial investment. Since then, local banks have become more active in the solar market, offering about half of their business loans. Indeed, the success of the first projects reduced people's perception of technological risks, and the credibility of distribution companies improved, prompting commercial banks to support independent power generators (IPPs).
Figure 3.6 India's investment in Greenland solar projects between 2010 and 2018
India's non-bank financial institutions (including infrastructure debt funds and investment companies) provided a quarter of the total loans. The most active companies are PTC, a subsidiary of Indian Electric Power Trading Corporation, and the Public Financial Institution Infrastructure Development Finance Corporation (IDFC), which is dedicated to infrastructure development.
The role of the public sector in mobilizing commercial financing of grid-connected solar projects - India Case Study (Part 2)
Effectiveness of public sector intervention
India's market is jointly developed by the central government and state government, which has introduced some policies and support mechanisms to promote the development of solar photovoltaics.
Law, Policy and Regulatory Framework
2003 The promulgation of the Electric Power Act is the first step for India's power sector to move towards liberalization. The bill proposes for the first time a detailed plan will be made to deeply split the power sector at all levels.In addition to splitting state-owned integrated utilities, the following provisions of the bill also have an impact on the development of commercial grid-connected solar projects:
• Electricity production is listed as a license-free activity, greatly simplifying the licensing process.
• Grant all power producers an open transmission channel without discrimination.
• Can sell electricity directly to distribution companies or qualified customers.
• Distribution companies must use competitive procedures to meet all their future electricity needs.
• Introduces basic elements of preferential electricity prices for renewable energy and a framework for mandatory renewable energy procurement obligations in the future.
The Electricity Law, introduced in 2003, required the formulation of a national electricity policy, which was released in 2005. This policy clearly illustrates the role of independent power producers (IPPs) in deploying renewable energy and increasing the overall share of unconventional energy in the power structure. Since the late 1980s, wind energy has benefited from a wide range of support measures (including accelerated devaluation of capital investment, tax exemption, on-grid electricity prices, mandatory purchase of wind energy, and public support for research and development and pilot projects), and was therefore the focus of development at the time. These support measures later provided a model for solar market intervention under the National Solar Energy Program (Barroso and Khanna 2014).
India's regulatory framework is a complex problem. The Electric Power Industry Regulatory Commission (CERC) makes a decision at the national level and is then implemented at the state level by the National Electricity Supervision and Administration Commission (SERC). From a regulatory and institutional perspective, the process of implementing certain support programs is very complex. For example, solar renewable energy procurement obligations and renewable energy credit trading mechanisms launched in 2010-11 enable the National Electricity Supervision and Administration Commission to set a minimum level of renewable energy supply. If the offender is unable to meet these requirements due to insufficient supply (e.g., states with low solar potential), distribution companies and direct purchasers can purchase renewable energy certificates to bridge the gap between their purchase and obligations. Renewable energy credits include avoided greenhouse gas emissions and will be sold on a dedicated market. Successful experiences vary across India. As of fiscal year 2013/14, five states met their renewable energy procurement obligations (India Accounting and Auditor General Office, 2015). By the end of 2017, only six states had done this (Greenpeace India, 2018). In May 2018, the Ministry of New Energy and Renewable Energy (MNRE) created a renewable energy procurement obligations compliance organization (MNRE 2018a) for coordinated purposes.
The evolution of the fiscal environment, such as the recent changes in the general sales tax regime applicable to solar equipment, is the source of uncertainty. In July 2018, the Indian government proposed a two-year protection tax on solar modules imported from China and Malaysia (25% in the first year, 20% in the next six months and 15% in the last six months). According to relevant recommendations, these measures are a way for local industries, but higher tariffs are likely to bring frustration to developers and delay the process of solar energy deployment (Upadhyay, 2018).
planning, technology and operational capabilities
power generation plan
"National Solar Plan" and subsequent target revisions have determined the national power generation priority of renewable energy (especially grid-connected solar energy). Official policy documents define short-term and long-term goals for expanding power generation capacity. Since most solar installations are obtained through competitive bidding, transparency is crucial in the upcoming bidding process. After a period of exploration, a series of stable bidding announcements were launched in 2016 and 2017. The Ministry of New Energy and Renewable Energy expects to offer 30 GW of ground solar park installations in the 2018-19 fiscal year and a further tender for 30 GW in the 2019-20 fiscal year (Prateek 2017).
grid integration, access and power evacuation
2003 The Power Act guarantees non-discriminatory access to the power grid. In fact, however, grid connection has always been a common challenge for solar projects.Since the implementation of the National Solar Plan, the timely availability of transmission lines has been worrying, and as a result, there have been delays in the commissioning of solar projects. In the case of loss of revenue due to power reduction (caused light), the current PPA model does not provide compensation to IPP.
Land supply
In some states, land availability has become a major bottleneck. Converting the name of a land use is time-consuming and, according to the developer, the process requires permission from a large number of different levels of authorities. Some states such as Madhya Pradesh and Gujarat have more advantages in land acquisition than others. The concept of designing solar parks is partly designed to solve this problem and has been successful. However, due to the prevalence of conflicts with local farmers’ organizations, land may still be a barrier to park development.
Infrastructure Investment
Solar Park Program improves grid connectivity. Public entities lease land from citizens and use the site for solar photovoltaic power generation (establishing internal evacuation plans, substations, layout of roads and waterways), and then auction large chunks of land to the developer, who agree to pay upfront fees, operation and maintenance costs, land lease rentals and development costs. The use of solar parks across India greatly reduces the process of land acquisition and access to the transmission grid (Box 3.1).
Box3.1 Rewa Solar Park - Promote innovation to expand the development of Indian solar park
Rewa Ultra Mega Solar (RUMS or Rewa Solar Park) is a 750 MW solar park covering an area of approximately 1550 hectares, located in Rewa, Madhya Pradesh, India. It was developed by Rewa Ultra Mega Solar Park Ltd (RUMSL), a joint venture between Madhya Pradesh Urja Vikash Nigam Limited and Indian Solar Energy Corporation. In 2017, the Indian Madhya Pradesh government announced the results of the tender process, choosing a private investor-developed (3×250 MW) solar power plant. The project was awarded to three solar power companies in its first year with electricity prices of Rs 2.979, Rs 2.970 and Rs 2.974, respectively. Unlike the large projects at the time, these electricity prices were obtained without providing any feasibility gap funds to the developers, including an all-time low of INR 2.97 (approximately US$0.44).
reduces payment risks. The transaction package includes a power purchase agreement with Delhi Railway Company (DMRC), and another purchase agreement with Madhya Pradesh distribution company Madhya Pradesh Electric Power Management Co., Ltd. (MPPMCL). Although DMRC is an investment-grade rating utility, MPPMCL's credibility still concerns solar developers. The risk of counterparty of the power purchase agreement can be alleviated through a three-layer payment mechanism. First, MPPMCL provides a letter of credit covering a month's payment. Second, the payment security fund managed by RUMSL ensures payments for another three months. Finally, the Madhya Pradesh government guarantees that it will pay for MPPMCL's default if it is unavoidable.
Land and electricity transfer. RUMSL determined the project location, carried out the preliminary work required for solar energy development, and obtained the necessary permits and permits (rights of way to grid interconnects, long-term grid access, etc.). The construction of internal transfer infrastructure (220/33 kV substation) is supervised by Madhya Pradesh Electric Power Transmission Co., Ltd. All other amenities such as roads, street lighting, cable tray support structures and drainage systems are under the responsibility of the developer. Compared to most solar parks in the country, the project will focus on areas where public support is most needed, allowing RUMSL to reduce rental fees to developers. All contract works are uploaded to the data room available for prequalified bidders. The project also regularly uploads photos of development and power transfer work to enable bidders to determine local progress when preparing financial and technical quotes. About 97% of the land was available for use on the day of the auction.
Other forms of government support. The Ministry of Electricity has granted the project regional power station qualification, so there will be no expense or loss incurred in the transmission of electricity between states.Therefore, the electricity can reach the Delhi Railway at the same speed as when entering Reva until the perimeter of Delhi. India's central transmission company, India's Power Grid Corporation, built a 220/400 KV substation at the Rewa project address, making the state and the project completely exempt from costs.
The cost of internal evacuation infrastructure has been cut through grants from the Ministry of New Energy and Renewable Energy under the Solar Park Program, as well as loans from the World Bank and the Clean Technology Fund (CTF). The CTF also provided a grant to strengthen institutional capacity building. RUMS is the first solar park in the country to use CTF preferential financing and grants. International Finance Corporation (IFC) serves as a transaction consultant for RUMSL, providing expert advice to build projects, preparing financing project agreements, managing stakeholders through extensive consultation and negotiation, and providing comprehensive analysis and implementation support. The project is well known as a turning point in India’s solar industry, allowing the government to shift its focus from feasibility gap funds to adopting large-scale solar investment financing based on markets.
is adapted from BusinessLine 2018, EnergyNext 2017 and World Bank 2017
The proportion of variable renewable energy is expected to grow significantly in the coming years, so it is recognized that the need to improve the capacity of transmission grid operators and to modify grid regulations at the federal and state levels, while strengthening interstate connectivity to avoid congestion (NITI 2017). Given the speed of development of the country, there will inevitably be congestion problems.
To help the transmission network keep up with power generation, two potential solutions have been proposed. First is roof solar energy. The 2022 solar target includes 40 GW of roof and distributed solar power connected to the distribution grid, while the target is only 250 MW in 2015. Small-scale distributed solar energy can strengthen weak urban grids and help reduce power loss on distribution lines. As concerns over high-voltage grid congestion grow, allocating 40% of the global target (100 GW) to the distribution grid may delay the expensive demand for reinforcement of transmission infrastructure. The second option is India’s Green Energy Corridor Program, which aims to remove bottlenecks by connecting renewable energy-rich areas to the western and southern power grids. The Asian Development Bank has supported three projects under the program, but only some states have begun to implement transmission plans. In order to alleviate power grid congestion and bottlenecks, the government is also considering storage. Under a World Bank-funded project, Solar Energy Corporation of India (SECI) will pilot battery storage power plants in combination with renewable energy in hybrid power plants and independent grid assets.
Direct and indirect financing
on-grid electricity price subsidy scheme has been the core of India's promotion of rapid solar energy deployment. The development of solar energy has been promoted through the "National Solar Plan", bundled sales, power generation-based incentives and feasibility gap funds. Bundle sales provide indirect public financing by subsidizing fixed tariff procurement. Power generation-based incentives provide funds directly to developers by providing additional fees to independent power producers (IPPs) above the established fixed electricity bill.
independent power generation projects purchased under various feasibility gap funding plans benefit from direct public support in the form of capital investment subsidies. The 7750 MW PV project purchased by Solar Energy Corporation of India (SECI) has received a total of US$1.2 billion approval (the first, third and fourth batches of the second phase were purchased under the feasibility gap funding plan approved by the Ministry of New Energy and Renewable Energy).
Independent power generators are responsible for bidding at fixed prices according to the feasibility gap funding plan, and point out subsidy requirements per megawatt of installed capacity. The capacity provided will be awarded to bidders with minimum viability gap funding requirements. The program is designed to address the affordability issues of distribution companies. With capital subsidies, Solar Energy Corporation of India (SECI) was able to buy solar energy and sell it to distribution companies at lower prices than the market. Feasibility gap funds are welcomed by private developers because subsidies are given early in the project’s life cycle, thus limiting risks. At the beginning of its establishment, the developer charged a fixed price of INR 5.45 per unit. Since some state-level auctions are bidding below INR 3.00 per unit, feasibility gap funds are no longer needed.By subsidizing solar PV projects related to energy storage projects, the program can serve new goals in the near future to improve its affordability. Solar Energy Corporation of India (SECI) canceled the 2016 solar and battery project auction (Chandrasekaran 2017) due to higher prices.
The central government has budgeted $600 million in financial assistance to support the first 20 GW solar parks established nationwide (MNRE 2017). The Indian Renewable Energy Development Agency (IREDA) has provided loans to selected states for the development of solar parks, supported by some international financial institutions.
Income tax exemption period and accelerated depreciation are two methods of indirect financing projects. The tax cut period allows developers to recover their investments faster than requiring their initial profits to be taxed. Accelerated depreciation is an accounting tool used to lower tax payables in the first few years, helping developers recover their investments faster. In its guidance on feasibility gap funding schemes, the independent generators will receive a fixed price, i.e. INR 5.45 per unit, and INR 4.75 per unit if accelerated depreciation is not used (MNRE 2015).
In 2015, the Reserve Bank of India added renewable energy to its priority industry loan category. Therefore, domestic commercial banks must lend 40% of their adjusted net bank credit (or credit equivalent for off-balance sheet risk, whichever is higher) to renewable energy projects (RB India, 2018).
Government sponsored guarantee
Undertaker reputation
Since the launch of the "National Solar Energy Plan", the distribution company's financial situation has been poor, hindering the large-scale development of grid-connected solar energy. Therefore, the project sets up some plans to provide some protection for independent power generators to prevent offenders from defaulting while also solving the affordability problem of distribution companies. However, none of these mechanisms can solve the problem, and the main reason for the troubles of independent power generators is the delay in payments from distribution companies.
At the end of 2015, the government launched a national improvement plan for power distribution companies. The Ujwal Distribution Company Assurance Yojana (UDAY) program aims to reform the financial and operational performance of utilities. One of its main interventions is to transfer 75% of the distribution company's debt to states and reorganize the remaining debt. Other measures include revising prices, reducing technical losses plans, installing instruments in systems and performing GIS drawings for consumers.
Under the UDAY plan, the achievements of the distribution company are visible in real time. The progress made so far is encouraging, and solar developers show cautious optimism. Although the adverse results of previous attempts to reorganize the distribution company’s finances have raised some doubts, most people are positive about the plan, according to a survey of the CEO of Indian Solar Energy Corporation in 2016 and 2017 (Bridge to India 2016, 2017b). The financial situation of
distribution companies remains the second biggest problem in the solar industry after the power grid. The Ministry of Electricity released six annual reports, evaluating the performance of utility based on three sets of parameters: operational performance and reform, external performance and financial performance. Since 2015, only five of the 41 highest rated utility companies have received the highest rating, while the number of companies with the lowest rating has increased year by year (Figure 3.8).
Figure 3.8 Performance rating of Indian power distribution facilities from 2013 to 2017
Margin
In the first phase of the national solar mission, the Indian government established a budget support mechanism for the Ministry of New Energy and Renewable Energy (MNRE). The program aims to alleviate defaulted payments from state-owned utilities and distribution companies and ultimately ensure that projects purchased through designated solar procurement agency Vidyut Vyapar Nigam Limited (NVVN) receive financial closures (MNRE 2011). NVVN purchased solar power from independent generators and sold it to state-owned utilities and distribution companies, partially protecting independent generators from the risk of the buyer.
The Ministry of New Energy and Renewable Energy (MNRE) has established a "Solar Payment Security Account", a third-party payment security mechanism funded by $100 million in working capital.Given the total installed capacity is 1,000 MW, the amount is equivalent to about two months of payment at the on-grid electricity price. This mechanism is not a real guarantee of payment, as NVVN is not obliged to pay an independent generator if the ultimate acquisition defaults and therefore reserves full discretion in management. However, it can effectively reduce the risk of offenders (Khanna and Garg 2013). The mechanism purchased 960 megawatts of electricity and expanded in the second phase of the National Solar Plan.
In the second phase of the National Solar Plan, the central government created Solar Energy Corporation of India (SECI) in 2011 as a separate buyer with the goal of providing utilities with lower than the market electricity prices. Solar Energy Corporation of India (SECI) reduces the risk of offenders for solar park plans and roof installations. In 2016, Solar Energy Corporation of India (SECI) announced the establishment of a USD 200 million (INR 150 billion) payment security fund to ensure timely payments to solar developers. The mechanism is designed to compensate for the default payments from distribution companies, state-owned utilities and bulk consumers to Solar Energy Corporation of India (SECI). It also enables Solar Energy Corporation of India (SECI) to fulfill its financial obligations in accordance with standard tender documents and power purchase agreements when MNRE/MOP (SECI n.d.) is in effect. India has established a similar payment security mechanism to support electricity procurement under national survey missions. However, there is no conclusive evidence that the mechanism can effectively alleviate investor concerns.
Key Discovery and Summary
Over the past decade, India has made leap forward in changing its power sector and achieving its renewable energy and policy goals. After the liberalization of the electricity market in the 2000s, the central government announced the launch of the "National Solar Plan" to leverage the country's huge solar potential, increase power supply, promote domestic electricity production and take action to combat climate change.
The Indian government and its states have taken creative and flexible actions to achieve its ambitious goals, with plans to achieve 100 GW of solar power by 2022. The country has adopted direct and indirect financing methods to attract developers, address congestion and mitigate risks to offenders. Many government and state-level institutions were established to help strengthen the solar market; to improve the overall situation in India, the government took measures to improve the credibility of the acquirer; and to expand the grid and provide policy support to increase the flexibility of the power system, which are necessary to achieve ambitious solar energy goals.
lack of available land, need to deploy on roofs or floating devices, the problem of lower creditworthiness in states with the best solar resources and a proposed 20% protection tax may slow down the deployment of solar power in India. However, the momentum of the market and the steady growth of loans in the financial sector will still allow India to maintain its global leadership in solar power generation.
This article is excerpted from the World Bank Report The Role of the Public Sector in Mobilizing Commercial Finance for Grid-Connected Solar Projects: Lessons Learned and Case Studies
is compiled by REPER project team-UNCCD intern Rong Yu/Tsinghua University postdoctoral fellow He Yang to Chinese
