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Economics of setting up a MW scale solar power plant in India
Hello,
I am planning to set up a grid connected crystalline solar module MW scale solar power project in India and wanted to share my experience with the group and also invite any input.
The cost per MW is ~ Indian Rupee (INR) 7 – 8 Crores (~ US $ 1.5 Million). A 1 MW plant in a suitable location will generate ~ 1.5 million – 1.7 million units of power a year.
I am planning to set up the project under the Renewable energy credit (REC) scheme. Under this scheme the government gives you a renewable energy credit - solar that is traded on the Indian Energy Exchange. The government has set a floor price of INR 9.30/unit and cap of INR 13.40/unit. This floor and cap is in place till March 2017. The buyers of the REC are power distribution companies (DISCOMS) and industrial users of power. These companies have renewable purchase obligations - solar (RPO - solar) that have been set by the various state governments. These RPOs increase every year.
In addition to this you get ~ INR 2.50/unit - INR 5.00/unit by selling the power.
The risk factor as I see them are -
1. Over capacity - Just because there is a floor and cap it doesn’t guarantee that you will get a customer for your REC. If the government doesn't enforce the RPO stringently with harsh penalties the buyers will not buy them.
2. What will the REC floor/cap be for the remaining 21 years of your plant. If the REC price drops rapidly in 2017 the economics are impacted.
3. The base power charge will be paid to you by (DISCOMS). Most of them are in very bad financial health. So there is default risk.
In regards to point 2 – A majority of your money will be recovered till 2017 so even if the REC drops to Rs. 0 the business case makes sense. Also the base power charge will probably go up 2017 so you gain some there.
In regards to point 3 – If you can find an end customer for the power then you will get a higher tariff and you also don’t need to deal with power companies. Another way to mitigate this risk is to set up the power plant in states where the DISCOMS are relatively in good health such as Gujarat, Andhra Pradesh, Maharashtra, etc.
I haven’t figured out if there is a way to mitigate the oversupply risk though so that’s one I'll have to live with.
I also evaluated the various state policies but it looks like the majority of the companies participating in the reverse bidding are doing so to take advantage of the 80% accelerated depreciation (AD) benefit. If you take the AD out of the picture it is not feasible to sell solar power at INR 6/unit or INR 7/unit. Since the AD is not of benefit to me I decided that the REC mechanism offers me the best return.
I'm also looking at KW scale rooftop projects. They are smaller in size but give good returns if you can scale up to decent volumes.
That's my experience so far!
CPS
I am planning to set up a grid connected crystalline solar module MW scale solar power project in India and wanted to share my experience with the group and also invite any input.
The cost per MW is ~ Indian Rupee (INR) 7 – 8 Crores (~ US $ 1.5 Million). A 1 MW plant in a suitable location will generate ~ 1.5 million – 1.7 million units of power a year.
I am planning to set up the project under the Renewable energy credit (REC) scheme. Under this scheme the government gives you a renewable energy credit - solar that is traded on the Indian Energy Exchange. The government has set a floor price of INR 9.30/unit and cap of INR 13.40/unit. This floor and cap is in place till March 2017. The buyers of the REC are power distribution companies (DISCOMS) and industrial users of power. These companies have renewable purchase obligations - solar (RPO - solar) that have been set by the various state governments. These RPOs increase every year.
In addition to this you get ~ INR 2.50/unit - INR 5.00/unit by selling the power.
The risk factor as I see them are -
1. Over capacity - Just because there is a floor and cap it doesn’t guarantee that you will get a customer for your REC. If the government doesn't enforce the RPO stringently with harsh penalties the buyers will not buy them.
2. What will the REC floor/cap be for the remaining 21 years of your plant. If the REC price drops rapidly in 2017 the economics are impacted.
3. The base power charge will be paid to you by (DISCOMS). Most of them are in very bad financial health. So there is default risk.
In regards to point 2 – A majority of your money will be recovered till 2017 so even if the REC drops to Rs. 0 the business case makes sense. Also the base power charge will probably go up 2017 so you gain some there.
In regards to point 3 – If you can find an end customer for the power then you will get a higher tariff and you also don’t need to deal with power companies. Another way to mitigate this risk is to set up the power plant in states where the DISCOMS are relatively in good health such as Gujarat, Andhra Pradesh, Maharashtra, etc.
I haven’t figured out if there is a way to mitigate the oversupply risk though so that’s one I'll have to live with.
I also evaluated the various state policies but it looks like the majority of the companies participating in the reverse bidding are doing so to take advantage of the 80% accelerated depreciation (AD) benefit. If you take the AD out of the picture it is not feasible to sell solar power at INR 6/unit or INR 7/unit. Since the AD is not of benefit to me I decided that the REC mechanism offers me the best return.
I'm also looking at KW scale rooftop projects. They are smaller in size but give good returns if you can scale up to decent volumes.
That's my experience so far!
CPS
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