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India

For private circulation only


25 27 September 2013
www.deloitte.com/in
4th World Renewable
Energy Technology Congress
2
Introduction 3
Renewable Energy Technology Trends 5
Policy environment and its implementation 13
Financing RE projects 22
Way forward 31
Contents
4th World Renewable Energy Technology Congress 3
Introduction
Availability of energy is a crucial input for sustaining
long term GDP growth of a country especially in
country like India where there is unmet demand due
to limited access to energy. In India, the demand for
energy during the 12th Five Year Plan is projected to
increase as the economy grows and access to electricity
increase including in rural areas. The supply of primary
commercial energy is projected to increase by almost
70% from 710.79 mtoe in 2011-12 to 1219.76 mtoe by
2021-22.
Despite the promising growth witnessed in the
generation capacity additions in past few years, the
electricity shortage continues to impose signicant
constraints to Indias economic development and
growth. During the nancial year 2012-13, the shortage
conditions prevailed in the country both in terms of
energy and peaking availability as shown.
While coal will remain the mainstay of energy supply
for few more years, India intends to develop and
deploy emerging technologies, and focus on promoting
understanding of climate change, adaptation and
mitigation, energy efciency, and natural resource
conservation committed through the National Action
Plan on Climate Change (NAPCC). Huge untapped
renewable energy potential will assume signicance
in the energy supply scenario, currently constituting
12.20% of total installed capacity as on June 2013.
Renewable energy sector in India witnessed a rapid
expansion in the past few years Installed capacity has
almost tripled during the 11th ve year plan (2007-
2012), increasing from 7.7 GW to more than 24 GW.
The strongest expansion was registered in wind energy
capacity addition (up by 10.3 GW), followed by small
hydropower plants (up by 1.4 GW). Also, from almost
negligible capacity in 2009 to over 1,142 MW in
December 2012, solar power has emerged as one of the
fastest growing segments.
However, renewable power remains an expensive
source of power vis--vis conventional power sources.
Sustained government policy support and technological
development would be required to enable the
renewable power to become competitive and accessible.
Also, overcoming technology cost disadvantages
relative to conventional sources of energy entails rapid
deployment of existing renewable technologies.
Deployment of renewable energy technologies involves
various stages right from basic R&D to commercialisation
to adaptation/deployment and these stages have varying
risk proles as shown below.
Power demand supply gap
Various stages in the innovation process
FY 2012-13 Energy (MU) Peak Demand
(MW)
Requirement 1,048,533 144,225
Availability 978,301 140,964
Surplus/(Decit) (70,232) (3,261)
Surplus/(Decit) (6.7%) (6.2%)
Note: Considering transmission constraints, anticipated all India peak
shortage works out to 6.2%
Source: CEA Load Generation Report, March 2013
Source: International Renewable Energy Agency Paper, March 2013
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Hence, while technology has a key role in development
and commercialisation of renewable energy sources,
government policy need to provide requisite enablers
for nurturing an environment of technology innovations
as well as deployment. In line with the technological
developments, the Government (at Centre and
State) has created a conducive policy framework
for adaptation and installation of renewable energy
projects.
On one hand, the Government (both Centre and State)
has introduced the policy and regulatory incentives for
promoting installation of renewable energy capacity
in the country and on other hand, it has developed a
variety of technical facilities for technology evaluation
and validation, testing and standardization, performance
reliability, monitoring and data analysis apart from
training over the years e.g. establishment of Centre
for Wind Energy Technology (C-WET) and Solar Energy
Centre (SEC).
Through this paper, we have attempted to highlight
various trends across the renewable energy sector
in India with respect to three aspects: technology,
policy and nancing. In the rst chapter, we would be
describing the various technology trends with regards to
renewable energy especially in wind and solar energy,
and their impact on the levelised cost of energy (LCOE)/
project economics and grid parity status. Second chapter
dwells on the policy framework for renewable energy
in India, Governments effort to promote technological
R&D and adaptation, State level policies to enhance
capacity addition and recent bidding rounds in the solar
sector. Third chapter provides nancing requirements of
the renewable energy projects, recent nancing trends,
available nancing options for renewable projects and
nancing mix.
4th World Renewable Energy Technology Congress 5
Renewable Energy
Technology Trends
Over the years, technology development has largely
inuenced the levelised cost of energy (LCOE) of
renewable energy and in turn, its project economics
thereby contributing to growth of renewable energy.
E.g. Decreasing capital costs for onshore wind and
hydropower have increased deployment of these
sources of renewable energy. Similarly, Capital costs
for solar photovoltaic (PV) continue to fall in 2012,
large-scale systems were at USD 1450-3500/kW
and small-scale systems were at USD 2200-5500/
kW (GRES 2013) which has led to increased capacity.
However, cost reductions are proceeding rather slowly
for other emerging technologies e.g. Turbines and
associated equipment suited for an ocean environment
make offshore wind costlier than onshore wind and
Concentrated Solar Power (CSP) costs remain high,
though hybridisation and storage features add value
that should enhance attractiveness over time for these
technologies as well.
These trends in capital costs of renewable energy
installations have translated into increasingly attractive
generation economics compared to other sources
of power. For instance, renewable auction prices
(wind) have fallen signicantly in recent past making
them compete well with natural gas and with other
historically less expensive renewable sources, such as
hydropower and bioenergy.
Solar Photovoltaic (PV) generation costs are higher,
but are falling rapidly. While utility-scale solar PV costs
are still signicantly higher than base-load generation
from conventional fuels, they approach peak power
prices in places with summer peak demand (e.g. due
to air-conditioning needs) and unsubsidised fossil-fuel
alternatives. With PV expanding around different parts
of the world, the combination of decreasing capital
costs and favourable nancing is expected to further
decrease generation costs.
Technology trends vis--vis efciency / cost
Wind Energy Technology trends
Wind power technology has come a long way in the
last two decades, both globally and in India, improved
technology has slowly and steadily improved capacity
utilization levels of wind farms. Some of key existing
and emerging trends in development of wind power
technology are discussed in this section.
Improving capacity factors
Globally, improvements in the turbine technology
including higher hub heights, blade length/design,
improved component parts, siting, turbine control
software and improved availability, have led to higher
average capacity factors/turbine efciency as shown
below.
As a result of improving technology in terms of the
capacity factor of the wind turbines for onshore wind,
capital cost (Cost / MW) has observed a decline
over years.
Source: BNEF
Average Capacity Factor (1984-2011)
40 m
80 m
100 m
20%
25%
30%
35%
1980
40%
1985 1990 1995 2000 2005 2010
24%
34%
40%+
Efciency and
hub height
Efciency only
6
Onshore Wind Turbine Prices
Global trends have largely been replicated in Indian
context of wind energy development. A key trend in
the Indian industry is development of multi megawatt
turbines installed at greater hub heights. Larger
diameter rotors mean that a single wind power
generator can capture more energy, or more power per
tower. This allows Wind Turbine Generators (WTGs) to
take advantage of higher altitudes with stronger winds
and less turbulence. Subsequently larger machines have
resulted in a steady increase in the capacity factor on
average from 10-12% in 1998 to 20-22% in 2010. For
two decades now, global average WTG power ratings
have grown almost linearly, with current commercial
machines rated on average in the range of 1.5 MW
to 2.1 MW (IWEO 2011) which may reach 2.4 MW by
2017 (NA Wind Power 2013).
The average size of WTGs installed in India also has
gradually increased from 767 kW in 2004 to 1,117
kW in 2009 (IWEO 2011). Currently, megawatt-scale
turbines account for over half the new wind power
capacity installed in India.
Also, the shift in India to larger WTGs is a result of
improved infrastructure available to handle bigger
turbines and improved economics of the sector. As
generator size increases, total xed project costs fall on
a per unit of output basis. Hence, installing fewer high
capacity turbines, as compared to installing a greater
number of smaller turbines, reduces overall capital
investment by lowering installation, maintenance and
potentially real estate costs and thereby improving
the project economics. For example, instead of siting
ten 600 kW turbines on acres of land, developers can
instead site only three 2.0 MW WTGs.
Currently, a study of WTG technologies across India
reveals a trend towards turbine size ranging from 600
kW to 2300 kW. Their technological features would
include pitch regulation, variable speed, gearbox etc.
and generator type would mostly be asynchronous,
Permanent Magnet Synchronous Generator (PMSG) and
Doubly Fed Induction Generator (DFIG).
Most parts of India, except in pockets in the State
of Tamil Nadu, have low wind regimes requiring
considerable changes not only in the design of turbine
components but also in generator conguration. Turbine
manufacturers usually utilize two parallel approaches
of reducing production costs and maximizing power
capture, thus optimizing performance and reducing the
LCOE. In case of India, most of the new manufacturers
offer Class III machines that are more suitable for low
wind regimes (Wind Speed: 7.5 m/s). Manufacturers
now offer Class II (Wind Speed: 8.5 m/s) and Class
III machines (Wind Speed: 7.5 m/s) with newer
technologies and higher power capture capabilities.
Source: BNEF
2011 2004 2000 1990 1984
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100 1,000 10,000 100,000 1000,000
Global
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4th World Renewable Energy Technology Congress 7
Notably, Indian manufacturers are engaging in
the global market by taking advantage of lower
manufacturing costs in India. Indian companies now
export wind turbines and blades to Australia, Brazil,
Europe, USA and a few other countries. Leading
manufacturers like Suzlon, Vestas, Enercon, RRB Energy
including newer entrants like Gamesa, GE, Siemens,
Regen Powertech and WinWinD have set up production
facilities in India. Some of the international companies
with subsidiaries in India are sourcing over 80% of their
components from Indian component manufacturers.
According to estimates by WISE the annual wind turbine
manufacturing capacity in India has increased to about
10,000 MW during the FY 2013.
Solar Energy Technology trends
Prevailing solar PV technologies include:
Crystalline silicon (c-Si) modules represent 85-90%
of the global annual market today. C-Si modules are
subdivided in two main categories: i) single crystalline
(sc-Si) and ii) multi-crystalline (mc-Si).
Thin lms currently account for 10% to 15% of global
PV module sales. They are subdivided into three main
families: i) amorphous (a-Si) and micromorph silicon
(a-Si/c-Si), ii) Cadmium-Telluride (CdTe), and iii) Copper-
Indium-Diselenide (CIS) and Copper-Indium-Gallium-
Diselenide (CIGS).
Emerging technologies encompass advanced thin lms
and organic cells. The latter are about to enter the
market via niche applications. Concentrator technologies
(CPV) use an optical concentrator system which focuses
solar radiation onto a small high-efciency cell. CPV
technology is currently being tested in pilot applications.
Novel PV concepts aim at achieving ultra-high efciency
solar cells via advanced materials and new conversion
concepts and processes. They are currently the subject
of basic research.
C-Si cells have reached a record efciency of around
25% and the efciency of the best current commercial
c-Si modules is around 19-20%. The majority of
commercial c-Si modules, however, have efciencies
in the range of 13-19% with more than a 25-year
lifetime. Commercial TF modules offer lower efciency
between 6-12% (with a target to reach 12-16% by
2020). Figure presents the historical progress of the
best reported solar cell efciencies to date based on
different technologies along with projected trends. (The
efciencies of commercial (or even the best prototype)
modules are only about 5065% of the efciency of the
best research cells.)
Improvement in solar cell efciencies, by system (1975-2013)
Source: NREL
4%
1975 1980 1985 1990 1995 2000 2005
8%
12%
16%
20%
24%
28%
32%
36%
40%
44%
48%
50%
2010 2015
Multijunction Cells
(2-terminal, monolothic)
3 Junction (concentrator)
3 Junction (non-concentrator)
2 Junction (concentrator)
Crystalline Si Cells
Single Crystal
Multicrystalline
Thick Si lm
Silicon Heterostructures
Thin Film Technologies
Cu (In, Ga) Se2
CdTe
43.5%
25%
20.4%
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In addition to the commercial options, a number
of new PV technologies is under development (e.g.
concentrating PV, organic PV cells, advanced thin lms
and novel concepts and materials) which hold out
promise of high performance and reduced costs in the
medium-term.
Concentrated solar power (CSP) is a re-emerging market.
The CSP technology includes four variants, namely
Parabolic Trough (PT), Fresnel Re ector (FR), Solar Tower
(ST) and Solar Dish (SD). In 2012, the global installed
CSP capacity was about 2 GW (compared to 1.2 GW
in 2010) with an additional 20 GW under construction
or development. While CSP still needs policy incentives
to achieve commercial competitiveness, in the years to
come technology advances and deployment of larger
plants (i.e. 100-250 MW) are expected to signicantly
reduce the cost, meaning that CSP electricity could be
competing with coal- and gas-red power before 2020.
Further, the solar industry is entering a period of
maturation that is likely to set the conditions for more
stable and expansive growth after 2015 as further
technological breakthroughs are already in testing
phase. Indeed, companies have an opportunity to
reduce their costs dramatically by adopting approaches
widely used in more mature industries to optimize
areas i.e. procurement, supply-chain management, and
manufacturing. For example, solar module and system
prices have fallen signicantly over last decade to reach
$ 0.73 / Wp and $ 2.4 /Wp respectively (Renewable
Energy World, NREL, BTI). Thus companies could
position themselves to capture attractive margins even
as prices for PV modules decline.
The solar sector in India has responded to the global
sector trends at large. For example, recent solar
auctions have revealed signicant fall in the bid price
quoted by the bidders suggesting that capital cost of
solar PV projects as estimated by the developers have
gone down in India as well. Improving cell efciencies,
procurement and other supply side factors have led to
fall in the module prices.
Declining Module Prices
Source: BNEF
C-Si
CdTe
1979
0.5
1.00
10.00
100.00
10 100
1000 10000
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4th World Renewable Energy Technology Congress 9
Technology trends leading to improved project
economics
Wind Energy
Given improved technology conditions and steadily
improved capacity utilization, developers have an
opportunity to reduce their costs.
Solar Energy
The past six years have seen tremendous progress in
solar power mainly due to a technology, crystalline
silicon which continues to make incremental
improvements to all aspects of the technology. Further,
improving economics of solar would be a combination
of factors including procurement, supply-chain
management, and manufacturing as shown below.
Average Levelised Cost of Electricity (LCOE) of onshore wind 1984-2011 (EUR/MWh)
Signicant cost reductions projected (c-Si multi crystalline solar PV system)
Source: BNEF
Note: Levelized cost of energy; assumptions: 7% weighted average cost of capital, annual operations and maintenance equivalent to 1% of
system cost, 0.9% degradation per year, constant 2011 dollars, 15% margin at module level (engineering, procurement, and construction
margin included in BOS costs).
Source: Industry experts; Photon; GTM Research; National Renewable Energy Laboratory; US Energy Information Administration; Enerdata;
press search; company Web sites; McKinsey analysis.
2011 2004 2000 1990 1984
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2011-15 2016-20
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Other Renewable Energy Sources
We have attempted to summarise prevailing
technologies for other renewable energy power
especially with respect to their main features, capital
costs and energy costs.
Snapshot of other renewable energy technologies: Features and costs
Technology Main Features Capital Costs
(USD/kW)
Energy Costs
(LCOE U.S. cents/
kWh)
Power Generation
Hydropower: Grid-based Plant size:
1 MW18,000+ MW
Plant type: reservoir,
run-of-river
Capacity factor: 3060%
Projects >300 MW: <2,000
Projects <300 MW:
2,0004,000
212
Hydropower: Off-grid/rural Plant capacity: 0.11,000
kW
Plant type: run-of-river,
hydrokinetic,
diurnal storage
1,1753,500 540
Ocean power: Tidal range Plant size: <1 to >250 MW
Capacity factor: 2329%
5,2905,870 2128
Bioenergy combustion:
Boiler/steam turbine
Co-re; Organic MSW
Plant size: 25200 MW
Conversion efciency:
2535%
Capacity factor: 5090%
8004,500
Co-re: 200800
5.520
Co-re: 412
Bioenergy gasication Plant size: 110 MW
Conversion efciency:
3040%
Capacity factor: 4080%
2,0505,500 624
Bioenergy anaerobic
digestion
Plant size: 120 MW
Conversion efciency:
2540%
Capacity factor: 5090%
Biogas: 5006,500
Landll gas: 1,9002,200
Biogas: 619
Landll gas: 46.5
Geothermal power Plant size: 1100 MW
Capacity factor: 6090%
Condensing ash:
2,1004,200
Binary: 2,4706,100
Condensing ash:
613
Binary: 714
Source: REN21: Renewables 2013 Global Status Report
4th World Renewable Energy Technology Congress 11
Source: IRENA Report, March 2013
Grid parity projections
Based on sustained technological advancements
and government support as described in preceding
sections, levelised costs of generation from onshore
wind and solar PV have fallen while average global
costs (excluding carbon) from coal and natural gas
generation have increased due to higher capital costs
and increasing feedstock prices. As prices for many
renewable energy technologies continue to fall, a
growing number of renewables are achieving grid parity
in more and more countries around the world (IRENA).
Solar power is increasingly becoming nancially viable
in many countries that have higher commercial and
industrial tariffs as shown below. Despite the ux in the
market, a gradual shift has been observed from policy
driven incentive based projects to parity driven projects.
Going forward, policy based projects will continue to
play their part but the share of installations based on
commercial parity, industrial parity, diesel parity and
RPO/REC projects will continue to increase its share.
Future challenges facing renewables are no longer
fundamentally about technology. Nor is economics
the bottleneck, as grid parity and other measures of
competitiveness have arrived, or are soon arriving, for
many renewables in many countries (GRES 2013).
LCOE for Different Renewable Energy Technologies compared to conventional power
OECD Europe
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Cost of fossil fuel
based power
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Residential PV Price Parity Residential power price v. LCOE
Note: LCOE based on 6% weighted average cost of capital, 0.7%/year module degradation, 1% capex as O&M annually. $2.65/W capex
assumed for 2012, $2/W for 2015.
Source: BNEF
0.00
0.05
0.15
0.20
0.25
kW / kWh per year
0.10
0.30
Europe Middle East Africa
2015 LCOE
0.35
0.40
2015 LCOE
1000 1200 1400 1600 1800
2000
25
GW
America Asia
Denmark
Germany
Italy
Spain
France
Turkey
Brazil
New Jersey
Texas
California North India
Indonesia
North China South China
South India
Potential
Residential
PV Market
4th World Renewable Energy Technology Congress 13
Policy environment and
its implementation
Rapid growth and deployment of the renewable energy
capacities in India owes their success to the government
policy framework /incentives to a large extent. Starting
from scal incentives to regulatory policies for the
renewable sector, policy environment has played a
key role.
To begin with, the Electricity Act 2003 (EA 2003)
changed the legal and regulatory framework for
the renewable energy sector in India. The EA 2003
mandates policy formulation to promote renewable
sources of energy by the federal government, the State
governments and the respective agencies within their
jurisdictions.
An integrated energy policy framework
In India the rst attempt at putting together an umbrella
energy policy came forth after almost 60 years of the
countrys independence. The Planning Commission
brought out the Integrated Energy Policy: Report of
the Expert Committee (IEP) in October 2006, which
provided a broad overarching framework for all policies
governing the production, distribution, usage etc. of
different energy sources. IEP includes provisions for
promoting renewable and nonconventional energy
sources which emphasized the need to move away from
capital subsidies towards performance incentives for
promoting renewable sources.

Renewable Energy Law
One of the critical requirements for India is to develop
and adopt an integrated energy framework that
has a long-term vision, a time-bound plan and an
implementing mandate that supports Indias efforts
for achieving clean, secure and universal energy access
for its people. Such a framework can help to address
not only the concerns of investors in relation to volatile
policy environment and market risks but also deliver
indigenous power supply free from the fuel price risk
associated with fossil fuels.
Recently the Energy Coordination Committee under
the Prime Ministers Ofce has decided to support
the enactment of a Renewable Energy Law and
subsequently, a national level technical working
committee for a Renewable Energy Law was constituted
by MNRE.
National Missions
India is acutely conscious of the need to address the
climate change issue, while focusing on growth of its
economy and development of its citizens. India, working
towards a sustainable development of the economy,
committed targeting a further emissions intensity decline
of 20-25% by 2020 on 2005 levels. With this objective
of addressing climate change issues and at the same
time managing economic growth, the Government
prepared the National Action Plan on Climate Change
(NAPCC) with the objective of preparing a strategy and
action plan for adaptation and mitigation mechanisms
for India to address the climate change challenge. The
NAPCC outlined its implementation strategy through the
establishment of eight national missions. Two of these
missions are energy related, the National Solar Mission
and the National Mission for Enhanced
Energy Efciency.
14
The NAPCC stipulates that a dynamic minimum
renewable purchase target of 5% (of total grid
purchase) may be prescribed in 2009-2010 and this
should increase by 1% each year for a period of 10
years. That would mean that by 2020, India should be
procuring 15% of its power from renewable energy
sources. To achieve such targets there is a clear need
for comprehensive and long-term planning both at the
federal and state levels.
National Solar Mission
Jawaharlal Nehru National Solar Mission (JNNSM) has
the objective of establishing India as a global leader in
solar energy, by creating the policy framework for its
large-scale diffusion across the country as quickly as
possible. JNNSM is divided into three phases as shown
in the following table.
JNNSM Phase-I was focused on capturing the low
hanging options in solar. It was divided into two
Batches-I & II over FY11 and FY12, respectively. In
Batch-I, grid-connected capacity addition of 150MW
solar PV plants and 500MW of solar thermal plants was
envisaged including project through NTPC Vidyut Vitran
Nigam (NVVN), migration scheme and RPSSGP (off-grid).
However, in Batch-II the remaining targeted capacity i.e.
350MW was awarded (of which 290 MW has already
been installed), while for off-grid, 99MW was allotted
(12 MW already installed).
Policy and Regulatory Incentive Framework
The Government (central and state level) policy
framework to promote the renewable energy
development could broadly be summarised as below.
Regulatory Incentives
Preferential feed-in tariff (FIT) in 15 states for both
wind and solar power, 17 states for small hydro
projects, 10 states for biomass
Favorable provisions for wheeling, banking and third
party sale by renewable power producers
National-level dynamic Renewable Purchase
Specication (RPS) of 5% (2009/2010) increasing
by 1% every year to 15% by 2020 proposed under
National Action Plan on Climate Change; RPS
announced in 26 states as mandated by the Electricity
Act, 2003
Renewable Energy Certicate (REC) mechanism
introduced for inter-state trading of renewable power
(solar and non-solar power separately)
Concessional levy of cross subsidy surcharge in
the case of third party sales by wind / solar power
producers
Policy Incentives
Renewable Power Generators (RPGs) are eligible for
the provision of 80% depreciation for purpose of
Income Tax. For Wind Power Generators (WPG), this
incentive was withdrawn in March 2012, based on
substantial development made by the wind sector in
India. Solar Power Generators (SPG) continued to be
eligible for availing this provision
Application
Segment
Units Target
Capacity
Awarded
capacity
Actual
capacity
Target Capacity
Phase I (2010-2013) Phase II
(2013-2017)
Phase III
(2017-2022 )
Utility grade
power
MW 1,100 1,100 466 10,000 20,000
Off-grid solar
application
MW 200 200 89 1,000 2,000
Total MW 1,300 1,300 555 11,000 22,000
Source: MNRE JNNSM Phase II Policy Document
4th World Renewable Energy Technology Congress 15
Generation-based Incentive was introduced to
enhance generational efciencies in the wind sector.
It was withdrawn in March 2012, to be further
reinstated from 1 April 2013 (Notication, September
2013)
Tax holiday for 10 years under section 80 I A of the
Income Tax Act, if the renewable energy power plants
start generation before 31st March 2013
Value-added tax (VAT) at reduced rates from 12.5%
to 5.5% in some States
Allotment and leasing of forest land for development
of wind power projects
Concessional customs duty (5%) on some of the
components of renewable power machinery
Institutionalization of sector nancing through the
Indian Renewable Energy Development Agency
Exemption from excise duty for renewable energy
sector
Institutionalization of R&D, training, product
certication, testing and resource assessment
e.g. establishment of the Centre for Wind Energy
Technology (C-WET) and Solar Energy Centre (SEC)
Exemption of Electricity Duty by State Governments
100% Foreign Direct Investment in renewable energy
sector allowed through the automatic route
Note: The Government of India is likely to introduce a new direct tax
code (DTC), The alternative incentive mechanism suggested under
DTC provided for expenditure-based incentives to the business of
generation, transmission and distribution of power. All revenue and
capital expenditures (with a few exceptions) will be allowed as tax
deduction upfront instead of claiming amortization/depreciation on
capital expenditure and no tax holiday would be available.
The solar sector growth primarily began with the
introduction of the solar FIT orders in many states.
However, it is being sustained by the solar policies and
bids invited by various states currently. Hence, solar
tariffs are largely being derived based on the bidding
rounds.
State level policies - Solar
Policy Target Off-taker Financial Exemptions Other key
benets
DCR
National Solar
Mission
20 GW till
2022
Solar Energy
Corporation of
India (SECI)
Viability Gap
Funding (VGF)
based on reverse
bidding
Will depend on
the state in which
the project is
being executed
Will depend on
the state in which
the project is being
executed
DCR on 350 MW
out of the 750 MW
to be allocated
Tamil Nadu
Solar Policy
3GW till 2015 Obligated
entities (as
dened by the
state) - State
distribution
company
Preferential tariff
based on reverse
bidding. (For a part
of the target)
No exemption Single window
clearance - GBI for
residential consumers
None
Uttar Pradesh
Solar Policy
500 MW till
2017
State
distribution
companies
Preferential tariff
based on reverse
bidding
Exemption
on wheeling/
transmission
charges
Evacuation
infrastructure
onstruction by the state
None
Andhra
Pradesh Solar
Policy
Not driven by
target
Third party
power
consumers
- Obligated
entities
None Exemption
on wheeling/
transmission
charges
Banking of
power permitted
with fee.
None
Karnataka
Solar Policy
200MW till
2016
State
distribution
companies
Preferential tariff
based on reverse
bidding
Exemption only
for policy based
projects
None None
16
Policy Target Off-taker Financial Exemptions Other key
benets
DCR
Rajasthan Solar
Policy
1 GW till 2022 State
distribution
companies
Preferential tariff
based on reverse
bidding
No exemption Exemption on land
stamp duty
None
Madhya Pradesh
Solar Policy
800 MW
(timeline not
provided)
State
distribution
companies
Preferential tariff
based on reverse
bidding
No exemption Solar parks to be reated
for policy allocations
None
Chhattisgarh 500 MW to
1000 MW by
2017
State
distribution
companies
Not known No exemption Exemption from
electricity and stamp
duty
None
Gujarat Target
exceeded
State
distribution
companies
No exemption Solar park infrastructure
provided
None
4th World Renewable Energy Technology Congress 17
State level policies - Wind
States Current tariff rates
per kWh
Details of available tariff rates RPS Targets (% for wind)
Andhra Pradesh INR 4.70 Constant for 25 years for the PPAs to be signed by
31-03-2015
5% for all RE (2012-2013)
Gujarat INR 4.23 No escalation for 25 years of project life 5.5% for wind (2012-2013)
Haryana Wind Zone I INR 6.14
Wind Zone II INR 4.91
Wind Zone III INR 4.09
Wind Zone IVINR 3.84
Tariff is for FY 2012-13 3% for all RE (2012-2013)
Kerala INR 3.64 No escalation for 20 years of project life 3.3% (2011-2012) & 3.63%
(2012-2013) for all RE
Karnataka* INR 3.70 No escalation for 10 years 7-10% (2011/12) for all
Non-Solar
Madhya Pradesh INR 4.35 No escalation for 25 years of project life 4% for wind (2012-2013)
Maharashtra Wind Zone I INR 5.67
Wind Zone II- INR 4.93
Wind Zone III INR 4.20
Wind Zone IV INR 3.78
No escalation for 13 years 8% for all RE (2012-2013)
Orissa INR 5.31 No escalation for 13 years 5.5% for all RE (2012-2013)
Punjab INR 5.07 (for zone I) No escalation for 10 years 2.9% for all RE (2012-2013)
Rajasthan** INR 4.46 & 4.69 (for FY
2011-12)
No escalation over project life of 25 years
INR 4.46/kWh for Jaisalmer, Jodhpur & Barmer districts while
INR 4.69/kWh for other districts
7.5% for wind (2011-2012)
Tamil Nadu INR 3.51 No escalation for 20 years of project life 9% for all RE (2011/12)
Uttarakhand Wind Zone I INR 5.15
Wind Zone II INR 4.35
Wind Zone III INR 3.65
Wind Zone IV INR 3.20
INR 5.65 for the rst 10 years & INR 3.45 11th year onwards
INR 4.75 for 1st 10 year & INR 3.00 for 11th year onward
INR 3.95 for 1st 10 year & INR 2.55 for 11th year onward
INR 3.45 for 1st 10 year & Rs.2.30 for 11th year onward
5.05% for all RE (2012/13)
West Bengal INR 4.87 No escalation for 10 years 4% for all RE (2012/13)
Note: * RPS for Bangalore Electricity Supply Company Ltd. (BESCOM), Mangalore Electricity Supply Company Ltd. (MESCOM), and Calcutta Electricity Supply Company Ltd. (CESC)
is 10% while for Gulbarga Electricity Supply Company Ltd. (GESCOM), Hubli Electricity Supply Company Ltd. (HESCOM), and Hukeri, it is 7%. **RPS percentage specied only for
wind.
Source: GWEC: India Wind Energy Outlook 2012
18
Renewable Technology R&D
Apart from providing a policy framework to promote
renewable energy, the government has developed
technical facilities for technology evaluation and
validation, testing and standardization, performance
reliability, monitoring and data analysis apart from
training over the years.
Centre, For Wind Energy Technology (C-WET) has been
established by MNRE at Chennai as an autonomous
R&D institution of Government of India. It is aimed at
carrying out research and development, large scale
demonstration and diffusion of the non-conventional
energy sources. A Wind Turbine Test Station with
technical and partial nancial support by Danida,
Government of Denmark, has been established at
Kayathar, in Thoothukudi, District, and Tamil Nadu,
as an integral part of the Centre. It is envisioned that
C-WET will serve as a technical focal point of excellence
to foster the development of wind energy in the
country.
Solar Energy Centre (SEC) established in 1982, is a
dedicated unit of the Ministry of New and Renewable
Energy, Government of India for development of
solar energy technologies and its related science and
engineering. To achieve its objective, the Centre has
been working on various aspects of solar resource
utilization and technology development in collaboration
with other research institutions, implementing agencies
and industry.
R&D Projects by Institutions. MNRE provides funding
support for the renewable technology R&D and
demonstration projects to Universities, Government
Research Institutes, IITs, IISc and others.
Recent bidding rounds in solar
Initial growth in the solar sector was driven by the
introduction of the FIT by various states. Next drive
of capacity additions happened subsequent to the
launch of the JNNSM bidding. Phase I has resulted into
commissioning of over 550 MW solar capacity so far.
Based on the learning of the JNNSM bidding, several
states have outlined their solar polices stating their
capacity addition targets and have invited bids based on
these policies to carry out a solar price discovery.
An analysis of the recent solar bidding rounds has been
done to assess the solar policies of respective states with
respect to their success in attracting bidders interest
and solar price discovery. Also, certain parameters have
been dened for the solar attractiveness of states.
Andhra Pradesh
Under the AP Solar Policy, 184 bidders participated
in the bidding and in all, 294 bids were submitted. A
cumulative capacity of 1339.5 MW was bid for by the
bidders.
The lowest price offered or the L1 price under the AP
policy was INR 6.49/kWh. Based on that, APTRANSCO
received offers for setting up 418 MW capacity Solar
PV plants. These offers were received from 35 bidders
who accepted the solar purchase price at INR 6.49/unit.
Of those 350 MW capacity responses received from
34 bidders, only 7 bidders (contributing to 53 MW)
had accepted the price without any conditions and
acceptance for the remaining 297 MW was subject to
conditions.
Bid capacity range (MW) No. of players
20-50 8
50-100 6
>100 1
Total capacity 1339.5 MW
4th World Renewable Energy Technology Congress 19
Punjab
Under the Punjab Solar Policy, bids were invited under 2
categories Category 1 for newly incorporated/existing
companies with project size between 1 and 4 MW and
Category 2 for existing companies with project size
between 5 and 30 MW.
The bid details for the Category 1 and II are as follows:
It may be noted that the average bid price for the
larger projects are higher than those for smaller plants.
Another interesting aspect is that the average bid price
was above INR 8/kWh. This rate is high compared to
Rajasthan (INR 6.45/kWh), Andhra Pradesh (INR 6.49/
kWh) and Tamil Nadu (INR 6.48/kWh with 5% escalation
for the rst 10 years).
Tamil Nadu
Tamil Nadu received bids for less than 500 MW under
the 'L1' method of bidding process, wherein bidders
are asked to match the lowest bid. Out of the 500 MW,
40% of the capacity has been bid in INR 7 /kWh- INR 8 /
kWh range and only about 60 MW below INR 7 /kWh.
Bids for about 75 MW are above INR 10 /kWh, while
those for 141 MW are between INR 8 /kWh and
INR 10 /kWh.
The lowest nancial bid for Tamil Nadu's plan to set
up 1000 MW of solar power, India's single-biggest
solar tender, has come in at INR 5.97 /kWh by Mohan
Breweries. However, state utility Tamil Nadu Generation
and Distribution Corporation Ltd will take a nal
decision regarding a workable rate as the bid rate could
be too low.
Rajasthan
The nancial bids for the allocation of 100 MW of solar
PV projects in Rajasthan were opened on February
2013. A total of 25 bids worth over 200 MW have been
received.
Developers could bid for either a 5 MW project or a 10
MW project. The lowest bid has been submitted at INR
6.45/kWh by Essel Mining and Industries Ltd. This is
currently the lowest valid solar bid in India based on no
escalation provisions.
This tariff could be nancially viable based on
accelerated depreciation benets. However, the
Rajasthan solar policy does not consider separate tariffs
for projects that avail accelerated depreciation and
projects that do not.
Category Average
bid price
(INR /
kWh)
Weighted
average
(INR /
kWH)
Median bid
price (INR
kWh)
I 8.22 8.27 8.355
II 8.41 8.34 8.52
20
State-level Solar Bidding Summary
Various State Solar Policies
S. No. State Policy
Date
Target
Capcity
Bid
received
(MW)
Tariff
range
COD/
Target
cap.
Remarks
1 Tamil Nadu Oct-12 1000 (104
projects)
499 Lowest bid
is INR 5.97/
unit (20
year PPA);
PPAs with
bidders are
about to be
executed
NA Bankability
of PPA is an
issue
2 Kerala Feb-13 Only draft has released 500MW by
2017
3 AP Jan-13 1000 1340 Lowest bid
is INR 6.58/
unit (20
year PPA)
Jan-14 Incentive
for early
commissing
4 Rajasthan Feb-13 100 200
Lowest bid
is INR 6.48/
unit (20
year PPA)
No separate
tariff using
AD scheme
5 UP Mar-13 NA NA Benchmark
tariff is INR
7.0/unit
500MW by
2017
Poor
DISCOM
health
6 MP Jun-12 225 Awarded
225 MW
projects
<25MW
CoD by
Jun-13
7 Punjab Dec-12 1000 Bids are not
closed
Benchmark
tariff is INR
8.75/unit
Land prices
too high
8 Karnataka Apr-12 80 Only
20/30 MW
applciations
for CSP,
hence 60
MW for PV
Benchmark
tariff is INR
14.75/unit
for PV and
INR 11.50/
unit for CSP
Oct-13 NA
Source: CARE Report
4th World Renewable Energy Technology Congress 21
Implementation issues
For utility scale projects, solar developers have given
preference to those states with 1) bankable PPAs
i.e. AP and 2) cheap land availability i.e. Rajasthan.
Furthermore, transmission evacuation infrastructure
and DISCOM health are the other major drivers for
investment in solar projects.
Grid based Solar Attractiveness parameters:
Bankability of PPA and DISCOM nancial health:
Relatively higher weightage given to lower
counterparty risk and better DISCOM health
Evacuation Infrastructure: Relatively higher weightage
given to states making efforts to bring in dedicated
evacuation infrastructure
Consumer Proling: Relatively higher weightage given
where non domestic tariffs are almost at par or higher
than solar FiT
RPO compliance: Relatively higher weightage given to
states with proven adherence to RPO compliance
Land Availability: Relatively higher weightage given to
states with lower land prices and ample availability.
Source: CARE Report
22
Financing RE projects
Renewable energy funding requirements
Improved technologies and government policy
framework have made a case for rapid growth of
renewable energy development in India. Such growth
in renewable capacity could be instilled though sound
nancing systems/options.
Renewable energy development
Wind power installed capacity increased from 230
MW in 1994-95 to 16,078 MW by 2011, reaching
approximately 94% of the 11th plan (2007-12) target.
In 2007-11, wind capacity installations increased at
a compound annual growth rate of 19.7% as the
Government of India introduced additional incentives
such as the generation-based incentive (GBI) as well as
accelerated depreciation (AD).
Going forward, reaching Indias ambitious target of
total wind installed capacity of 31,078 MW by 2017,
will now depend upon new mechanisms, including the
Renewable Purchase Obligation (RPO) and Renewable
Energy Certicate (REC) market.
Signicant growth in Indias solar power industry
commenced only in 2010 with the launch of Jawaharlal
Nehru National Solar Mission (JNNSM). The grid-
connected solar PV capacity increased by 165% in 2011
alone to reach 427MW.
India wind power installed capacity and future
targets
India grid connected solar PV installed capacity v.
Phase I target
Note: Yearly data is at the end of December every year; Source: BP
Statistical Review 2012
Note: Yearly data is at the end of December every year
Source: BP Statistical Review 2012; CERC; MNRE, India Infoline
0
10,000
20,000
30,000
12
th
plan target
11
th
plan target
2006 2011 2012 2017
I
n
s
t
a
l
l
e
d

c
a
p
a
c
i
t
y

(
M
W
)
17,164
31,078
JNNSM
0
1,000
2,000
I
n
s
t
a
l
l
e
d

c
a
p
a
c
i
t
y

(
M
W
)
Phase I
Target
2007 2011 2013 2009
4th World Renewable Energy Technology Congress 23
Recent nancing trends
Table below shows that wind asset nance came in at
USD 3 billion, solar at USD 1.8 billion and small hydro
and biomass and waste-to-energy at USD 641 million
and USD 544 million respectively. Overall asset nance
was, at USD 6.1 billion.
The reduction in solar asset nance, of around
two-thirds in 2012, comes as a surprise, given the
ambition of the targets set by Indias government for
its JNNSM as well as by few states. However, last year
marked a lull between different phases of the JNNSM,
after the rst 1.1 GW had largely been nanced and
before the next 3.6 GW phase, due to start in 2013.
State Governments meanwhile have about 2.2 GW
auctioned off during this year.
During 2006-09, Indias annual total renewable energy
investment remained between USD 4 billion to USD
5 billion. Investment rose rapidly from USD 4.2 billion
to USD 12.3 billion in 2011 and thereafter reduced to
USD 6.2 billion in 2012 due to large capacity of solar
projects under Phase I of JNNSM nanced during 2010
and 2011.
While wind continues to receive the majority of
investment, solar has seen the highest growth, and the
gap between the two is reducing rapidly.
Asset
Finance*
Public
Markets
VC/PE Total
Wind 3.0 - 0.1 3.1
Solar 1.8 - 0.01 1.8
Small
Hydro
0.6 - - 0.6
Biomass
& w-t-e
0.5 - 0.03 0.6
Biofuels 0.02 - - 0.02
Total 6.0 0.0 0.1 6.2
*Asset nance volume adjusts for re-invested equity
Source: UNEP, Bloomberg New Energy Finance
Renewable energy investment trends in India, 2012,
USD bn
Wind and Solar energy investment trends in India,
2012, USD bn
Source: Global trends in renewable energy investment 2013
Source: Global trends in renewable energy investment 2013
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012
0
2
4
6
8
10
12
14
2006 2007 2008 2009 2010 2011 2012
24
Financing requirements
Based on the capacity addition targets as per the
Strategic Plan for New and Renewable Energy Sector
for the period 2011-17, the funds required for
implementing the year-wise targets in grid and off grid
renewable energy is estimated at INR 142,047 crores.
Government support and funding gap estimate
About 60% of the capacity addition in renewable
sector in the period 2011-17 is expected to contribute
by private sector which implies higher borrowings
requirement as against XI plan. Further, total estimated
availability of debt including domestic bank credit,
non-banking nance companies, pension / insurance
companies, external commercial borrowings, multilateral
agencies etc. would be able to meet only 50-55%
approximately of debt required by the private IPPs.
The sources of fund for the targeted deployment of
21.7 GW during 2011-17 shows a funding gap of about
INR 51,668 crores.
Mar-11 Add. Target (MW) Mar-17 Fund requirement
(INR Crores)
Biomass / Agri waste 1,025 500 1,525 2,225
Bagasse Cogen 1,616 1,600 3,216 6,720
U&I Energy 84 240 324 960
SHP 3,040 1,960 5,000 15,092
Solar 35 4,000 4,035 40,000
Wind 13,900 13,400 27,300 77,050
Total 19,700 21,700 41,400 142,047
Note: Assumptions for capital cost: Biomass/Agri Waste INR 4.45 Cr. / MW; Bagasse Cogen INR 4.2 Cr. / MW; U&I Energy INR 4 Cr. /
MW; SHP INR 7.7 Cr. / MW; Solar INR 10 Cr. / MW; Wind INR 5.75 / MW
Source: MNRE Strategy Paper 2011-17, CERC Petition No. 35/2012 (Suo-Motu) dt. March 2012
Year-wise targets for Grid Interactive RE Power for the period 2011-17
Fund
requirement
Government
Support
Balance Fund Private Sector
Contribution
Funding Gap
Biomass /
Agri waste
2,225 35 2,190 1,314 876
Bagasse Cogen 6,720 250 6,470 3,882 2,588
U&I Energy 960 360 600 360 240
SHP 15,092 1,065 14,027 8,416 5,611
Solar 40,000 8,368 31,632 18,979 12,653
Wind 77,050 2,800 74,250 44,550 29,700
Total 142,047 12,878 129,169 77,501 51,668
Source: MNRE Strategy Paper 2011-17, Deloitte assumptions
4th World Renewable Energy Technology Congress 25
Financing options
A variety of investors nance renewable energy projects
in India, including institutions and banks. Institutional
investors are either state-owned or bilateral and
multilateral institutions. Among banks, both private
sector and public sector banks are nancing renewable
energy projects. In addition to these, venture capital
and private equity investors are also actively contributing
equity investment. Return expectations of the investors
vary according to the sources of their funds and the risk
attached to the projects.
The different sources for debt nance available in the
Indian renewable market vary with respect to speed,
cost (interest rate), lending criteria, risk perception and
motivation.
Indian commercial banks
The majority of renewable projects in India have been
nanced by Indian commercial banks. Almost all of the
disbursed loans in India so far have been backed by the
promoters balance sheets.
Non-banking nancial companies (NBFC)
Some of the prominent NBFCs that are open to
nancing renewable projects include: L&T Infrastructure
Finance Company, Power Finance Corporation (PFC),
Mahindra Finance, IDFC, IL&FS and SBI.
The procedure, interest rates and expectations with
regards to IRR and DSCR for NBFCs is similar to that of
the Indian banks.
Export Credit Agencies/Investment insurance
agencies
An export credit agency (ECA) or investment insurance
agency is usually a government-backed institution
that supports exporters of a given country by reducing
the cost of risk/ debt associated with cross-border
transactions. The nancing can take the form of direct
debt support and/or credit insurance and guarantees.
Financial details for Indian Commercial Banks
Financial details for NBFCs
Source: BTI
Source: BTI
Banks nancing
the sector
Interest rates Debt equity
ratio
Loan tenure DSCR
expectation
Timeline
Indian Commercial Banks 10.25% (Base
Rate) + 2.75 to
4.25% (Margin)
=13 to 14.5%
Max of 70:30 9 12 years Approx. 1.40 3 months
NBFCs nancing the
sector
Interest rates Debt equity
ratio
Loan tenure DSCR
expectation
Timeline
Various Indian NBFCs 10.25% (Base
rate) or + 2.00%
to 2.75%
(Margin)
=12.25-13.00%
Max of 70:30 9 12 years Approx. 1.35 2-3 months
26
Financial details for Export Credit Agencies
Financial details for Development Financial Institutions
Source: BTI
Source: BTI
Prominent banks
nancing the sector
Interest rates Debt equity
ratio
Loan tenure DSCR
expectation
Timeline
US EXIM
KfW
JBIC
0.7% (LIBOR) +
3.5% (350- 400
BIPS) (Margin)+
6.5% (Hedging)
= 10.7%
Up to 80%
based on value
of imports
9 16 years Approx. 1.45 5-6 months
Prominent banks
nancing the sector
Interest rates Debt equity
ratio
Loan tenure DSCR
expectation
Timeline
IFC, OPIC,
ADB, DEG
OPIC
2.5% (US
Treasury rate) +
2.5 -3% (Margin/
200 BIPS) +
6.5% (Hedging)
= 11.5-12%
Some other DFIs
0.7% (LIBOR) +
3.5% (Margin -
350-400 BIPS) +
6.5% (Hedging)
= 10.7%
25:75 9 16 years Approx. 1.45 6-7 months
Development nance institutions
Development Funding Institutions (DFIs) are multilateral
or unilateral funding agencies, which provide credit in
the form of higher risk loans and loan guarantees in
developing countries. DFIs have a mandate to provide
nance to the private sector for investments that
promote development and many DFIs actively provide
nancing for renewable energy. DFIs sometimes use the
same tools as ECAs to carry out their loan disbursement,
i.e., through direct lending, nancial intermediary loans
and interest rate equalization.
4th World Renewable Energy Technology Congress 27
Equity & Debt Scenario: A perspective
As compared to nancing of renewable energy projects
in the developed world, relatively high cost and low
availability of debt for renewable projects in India adds
substantially to the cost of renewable energy projects.
While equity returns have a comparatively minor impact
on relative costs, impact of the cost and terms of debt
on renewable energy project costs is key issue that
concerns policy makers.
Conditions for renewable energy project nance vary
depending on the technology employed, the developer,
geography, and requirements of the investors. In India,
the differences between debt and equity are particularly
striking. Chart above highlights the differences between
renewable energy debt and equity markets in India
as compared to developed markets. While the equity
returns in India are comparable to those in the U.S. and
Europe, interest rates on debt are signicantly higher.
Additionally, access to potentially lower cost
international debt is limited due to regulatory barriers,
the cost and risks associated with long-term currency
swaps, and perceived country risks. As a result, the
cost of debt to a renewable energy project in India
will typically be in the 10-14% range, as compared to
the 5-7% range typical in the United States. Despite
the higher cost, debt in India also suffers from inferior
terms, including shorter tenors and variable rather than
xed interest rates.
Range of returns on equity and debt costs for renewable energy projects India versus US and Europe
Source: ISB-Climate Policy Initiative Report December 2012
India US Europe
0%
5%
10%
15%
20%
0%
5%
10%
15%
20%
Equity
Debt
Solar PV
Onshore
Wind
Solar
Thermal Solar PV
Onshore
Wind
Solar
Thermal
E
q
u
i
t
y

I
R
R

o
r

D
e
b
t

r
a
t
e

(
%

p
e
r

y
e
a
r
)
E
q
u
i
t
y

I
R
R

o
r

D
e
b
t

r
a
t
e

(
%

p
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r

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e
a
r
)
28
Cost of Debt (Domestic and Foreign): Key issues
High benchmark
interest rate
Owing to macroeconomic factors, benchmark interest rate has been high in recent
times. Roughly 7-8% difference between benchmark interest rates in India and the
U.S. / Europe account for nearly all of the 5-7% difference in debt costs between
renewable energy projects, even when adjusted for the xed rate premium (2%+) for
the U.S. and European debt.
Longer tenor debt is
generally unavailable
The short debt tenors in India play a signicant part in keeping the costs high
compared to developed nations such as the US/Europe. This is mainly owing to factors
i.e. asset-liability mismatch of Indian Banks, weak bond markets and diminished role of
DFI after liberalisation.
Debt is not strictly
non-recourse
Though pure project nance (i.e., non-recourse based nancing) has not become
popular in India, it has picked up pace lately. In 2007 only 6% of IREDA lending was
non-recourse, by 2011 this had grown to 55%.
However, as for private sector banking, in most cases guarantees from promoters/
developers are required.
Availability of debt As per regulatory requirement, Banks have assigned internal cap to limit their exposure
to any one market, sector, technology or Company. As renewable deployment
increases, more banks are nearing their sector exposure limits. Further, most banks in
India include renewable energy in their power/ utility/energy sector limits. As these
sectors have heavy borrowing demand, to the point that many banks may have been
near their limits even before lending to renewable energy could begin.
Many banks will restrict lending to select RE projects which are yet to be developed as
sector or are subject to fast changing technology and uncertain regulation e.g. solar,
LED etc.
Sourcing debt from foreign lenders is restricted by regulations that set caps on the
amount of money that can ow in as well as the pricing of such debt, which may be
too low for some international lenders.
State-level issues, including the poor nancial condition of the State Electricity Boards
(SEBs) who are the counterparties to power purchase agreements in most of the
renewable energy projects, will restrict lending in those states.
Source: ISB-Climate Policy Initiative Report December 2012
4th World Renewable Energy Technology Congress 29
Equity & Debt Returns analysis
The spread between cost equity and debt represents the
allocation of risks and returns between equity and debt
which vary depending on factors like leverage levels,
spreads between technologies and markets.
For Indian wind projects, spreads are in the range of
4-7% between the cost of debt and the expected
return on equity that are similar to those found in other
countries. Key reason for this are proof and maturity
technology, competitive cost of generations and
relatively less project risk.
For solar, the observed spreads appear to be low
(0-3%). Thus equity investors are taking on more risk by
assuming debt, but, due to the high cost of debt, do
little to enhance their returns.
Expected returns, cost analysis and debt-equity spread for different renewable energy technologies in India
Technology Capital
expenses
(INR Cr. /
MW)
Operating
expenses
(INR/kWh)
Tariff (INR/
kWh)
Typical
initial debt
level (%
of total
capital)
Equity IRR
(%)
Cost of
domestic
debt (%)
Debt-
Equity
spread (%)
Solar PV 7-10 0.6 7.5-12.5 70-75% 12-15% 12-14% 0-3%
Solar CSP 12 0.9 11-15 70-75% 14-20% 12-14% 2-8%
Biomass
Power
5.5 1.00 (excl.
biomass
cost)
5 60-70% 20-25% 13-14% 7-12%
Wind 6 0.45 3.7 -5 70-75% 15-18% 11-12% 4-7%
Small Hydro 5.5 0.6 2.2-2.6 70-75% 17-20% 11-12% 6-9%
Source: ISB-Climate Policy Initiative Report December 2012
30
Investment issues
The Indian renewable energy market presents a
huge potential for investment. In recent times,
investment in renewable projects has seen slack for a
number of factors i.e. policy uncertainties (GBI, RPO
implementation, domestic content requirement for solar
etc.), poor balance sheet situation of power distribution
companies, lack of power evacuation infrastructure,
absence of non-recourse lending and withdrawal of
signed power purchase agreements (PPAs).
However, further analysis reveals that a slight dip in solar
energy installation in 2012 was because most projects
under JNNSM got nanced between the nancial
year 2011 and 2012. In the second half of 2012, the
slowdown was because the states were releasing
tenders for capacity installation. Andhra Pradesh and
Tamil Nadu invited bids for 1,000 MW each around
November last year. Now as the developers are in the
process of putting up these capacities the installations
which are likely to continue in 2013. The wind energy
capacity installation in 2012-13 in India was 1,700 MW,
about 50 per cent lower compared to 2012-2012. In
solar energy, the capacity installation was around 780
MW in 2012-2013, which was slightly lower than the
capacity installation of around 900 MW in the
previous year.
However, the price of renewable energy technology is
reducing every year worldwide. Things are looking up
in solar energy alone PPAs have been signed for around
1,600 MW in states such as Andhra Pradesh, Tamil
Nadu, Punjab, Rajasthan, Uttar Pradesh and Karnataka.
Apart from this, an allocation of 750 MW is expected
under the JNNSM soon. This means that a large
quantum of new investments is expected as all these
projects begin procurement and construction.
Moreover, apart from the policy based demand for
the renewable energy capacity, parity based projects
have already begun to take shape in India and this
segment promises to provide a stable growth in capacity
additions going forward.
Given the current power market situation, there is a
strong case of parity for certain segments: Commercial
power consumers i.e. consumers such as malls, ofce
spaces and retail outlets paying a commercial tariff as
high as INR 11 ( 0.17/$ 0.20)/kWh in certain locations
(the highest amongst all segments); and Industrial
power consumers i.e. manufacturing facilities, that are
charged the industrial tariff, which is usually the second
highest and can be over to INR 8 ( 0.12/$ 0.15)/kWh in
certain locations.
It has been observed that renewable (solar) power
is already cheaper than grid power for commercial
consumers in certain states (e.g. Maharashtra, Delhi)
even without the capital subsidy. Commercial consumers
in other states can also reduce their energy costs if they
go through the subsidy route. Similarly, for industrial
consumer States like Delhi, Maharashtra, and Gujarat
are fairly close to being viable destinations for use of
solar power without the subsidies.
4th World Renewable Energy Technology Congress 31
Growth trends of renewable energy suggest that the
initial challenges facing renewable energy in India have
largely been overcome. Renewable energy generation
has already become cheaper, efcient and scalable
based on the technology advancement and favourable
policy framework. As the sector is poised for the next
stage of growth, it faces issues such as evacuation
infrastructure and nancial health of distribution utilities.
The grid is to be modernized to withstand more large-
scale connected projects. The Smart Grid concept
provides a platform to combine technology with power
to improve productivity, efciency and reduce over cost.
Further, Net Metering could revolutionize the Indian
renewable scenario and encourage rural and urban
customers to generate their own electricity through
green means. The technology R&D and its deployment
would keep playing a key role as the renewable sector
treads the growth trajectory.
Way forward
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