100987 2015/50 k nKonw A A weldegdeg e ol n oNtoet e s eSrei r e ise s f ofro r p r&a c t hteh e nEenregryg y Etx itcrea c t i v e s G l o b a l P r a c t i c e The bottom line Implementing Rooftop Solar Projects: This brief showcases the challenges of structuring Public-Private Partnerships in India and developing rooftop solar photovoltaic projects using the Why is this issue important? ground-mounted solar photovoltaic (PV) projects, there has been public-private partnership model. growing interest in rooftop solar PV as a way to provide large The case study focuses on the Amid growing concerns over climate change numbers of people with access to green power. Rooftop solar instal- experience of the International and pollution, solar power is the key to solving lations, especially in urban areas, provide an excellent complement Finance Corporation in assisting fossil-fuel dependency to utility-scale, ground-mounted solar projects because they utilize the government of Gujarat, existing rooftop space. India, in developing the rooftop With over 65 percent of installed generation capacity in India solar PV model through the attributable to thermal power, the production of large quantities of greenhouse gases (GHG) has raised public health concerns. And with Why are public-private partnerships the way to go? implementation of two citywide, grid-connected rooftop solar PV limited domestic coal production, new thermal power plants are Collaborations between a government and a projects. inevitably dependent on price-volatile coal and gas imports, leading privately owned company or organization promise to energy insecurity. To sustain the country’s rapid economic growth while addressing concerns about climate change and pollution, in both innovation and efficiency recent years India’s federal and state governments have taken steps Public-private partnerships (PPPs) may offer an effective way to to tackle the growing energy crisis through the judicious use of promote and implement rooftop solar PV projects, particularly in abundantly available solar energy resources. emerging markets where developers and intermediaries are not Since 2010, solar power has gained rapid acceptance in India and fully active across the value chain of rooftop solar development. has made significant strides in both capacity and availability. Central Well-structured PPPs bring to the table the best sides of the public Pankaj Sinha is a senior and state government programs have helped increase India’s solar and private sectors, delivering innovation and efficiency while investment officer with the power usage; current installed capacity is 2.6 gigawatts (GW). Within also providing the right regulatory support and apportioning risks. PPP Transaction Advisory this growing solar power movement, rooftop solar collection in urban Effectively designed PPP projects are bankable and sustainable, group of the IFC. He led settings has started to emerge as a viable alternative for solar power feature adequate preparatory activities and technical due diligence, the Gujarat Solar Rooftop program. generation. To meet India’s recently announced target of adding 40 and provide scale and equitable risk-sharing arrangements. Their Shaina Sethi is part of GW of solar rooftop capacity by 2022, the implementation of solar success often snowballs into greater interest from the private sector, the same PPP group and rooftop projects must be accelerated. effectively transforming markets. Lessons from the PPP format can helped to develop India launched the Jawaharlal Nehru National Solar Mission also be used to design and streamline policies, regulations, and potential PPP business (JNNSM) in January 2010 to establish the country as a global leader technical standards, making future investments more feasible and opportunities through financial in solar energy. JNNSM encouraged a number of states, including sustainable. The success of PPP projects can open the doors for analysis. Gujarat, Karnataka, and Rajasthan, to develop their own solar self-replication through innovative business models and increased energy policies. Given the limited availability of suitable land for participation of third parties and intermediaries. 2 I m p l e m e n ti n g R o o ft o p S o l a r P r o j e cts : P u b l ic - P riv a t e P a rt n e rs h ips i n I n d i a In 2010, the government of Gujarat embarked on an ambitious 2 million. In June 2014, Madhav Solar Private Limited won a 25-year mission to structure and tender a first-of-its-kind grid-connected concession for a 5 MW rooftop solar PPP . The Vadodara project rooftop solar PV power PPP in the state capital, Gandhinagar. The clearly benefited from the lessons of Gandhinagar’s solar rooftop groundbreaking project attracted approximately $9 million in private program. Buoyed by two important successes, Gujarat’s government financing. Along with adding a power generation capacity of about 5 is mulling over whether to replicate the concept in other cities. It is megawatts (MW), providing better access to power for an estimated also drawing on past experience to improve the policy and imple- “In 2010, the government 10,000 people, the project promised to reduce GHG emissions by mentation framework and encourage replication. of Gujarat embarked on more than 7 million metric tons a year. Two private firms, Azure Meanwhile, on the other side of the country, the International an ambitious mission to Power and Sun Edison, each won 25-year concessions to install solar Finance Corporation has been helping the government of Odisha PV panels on the rooftops of selected public buildings (80 percent (formerly Orissa) set up solar rooftop PV panels. Odisha is using structure and tender a first- of the installed capacity) and private residences (20 percent). The a net-metering model by which rooftop systems supply power of-its-kind grid-connected operators were responsible for installing the panels, connecting them primarily to the owner of the premises. Excess generation (after rooftop solar PV power to the grid, and injecting the power generated from these panels into netting off the consumption) feeds into the grid and is then credited PPP in the state capital, the grid. In turn, the firms received a feed-in tariff (FiT) determined to the consumer’s account. Later, this excess amount is adjusted Gandhinagar.” during the bid process. The project was conceived on a gross-meter- against consumption from the grid over a defined settlement period ing basis by which the entire amount of power generated would be (usually a full year to account for seasonal variations in irradiance supplied directly to the local grid at declared FiTs (figure 1). and generation). The experience of Gujarat’s gross-metering model Following the success of Gandhinagar, the government of Gujarat has informed the decisions of Odisha and other states, enhancing decided to replicate the rooftop solar model in Vadodara, a city of the potential of rooftop solar development. Figure 1. Rooftop solar energy program in the city of Gandhinagar, Gujarat Government of Gujarat Project Generation-based implementation incentive over FiT agreement (determined during bidding) Power infusion Investment, capital cost from solar rooftop project Project developers Gujarat rooftop solar program Utility Returns, profits Bid tariff or FiT (whichever is lower) for power sold Rooftop Incentive lease for Rs 3/kWh 25 years ($0.05) Supply of rooftops Public Private Source: Authors. Note: FiT = feed-in tariff; kWh = kilowatt-hour. 3 I m p l e m e n ti n g R o o ft o p S o l a r P r o j e cts : P u b l ic - P riv a t e P a rt n e rs h ips i n I n d i a What are the challenges to replicating Gujarat’s Another challenge is identifying a credible and creditworthy off-taker. Rooftop PV projects that involve distributed generation success with solar power in other Indian states? are economically effective only when they are connected with the Finding a workable regulatory environment is local grid, so that the excess energy (if not consumed) feeds into one of the biggest challenges the local energy pool. Local distribution companies that are willing “Pilot PPP projects can to pay and have grid space available understandably prefer to avoid Replicating a rooftop solar project involves a few crucial consid- play an important role possibly adverse obligations (such as higher tariffs imposed by other erations. First and foremost, policy and regulatory frameworks, distribution utilities for use of their networks). In addition, off-takers in informing appropriate including incentives, need to be clear and stable to attract investors may impose restrictive interconnection requirements. Before the bid regulatory frameworks. This and consumers. Pilot PPP projects can play an important role in process is initiated, guidelines and interconnection schemes should informing appropriate regulatory frameworks. This is because such is because such projects be developed in conjunction with distribution companies, and regula- projects benefit from the active participation of informed investors benefit from the active tory approvals should be obtained. (The off-taker for the Gandhinagar and real-time feedback between policy development and an project was Torrent Private Limited and for the Vadodara project, the participation of informed investment’s promotion and execution. Relevant regulations might Madhya Gujarat Vij Company Limited.) investors and real-time cover FiTs (for gross-metered systems), nonfinancial incentives Another challenge involves reaching long-term agreements with such as mandatory purchase obligations, appropriate standards for feedback between policy private bodies. Given that the Gandhinagar project was envisaged metering and energy accounting, grid connectivity guidelines, and development and an as spanning 25 years, it was critical that the developer secure model commercial agreements for the exchange of real-time power access to rooftops for that long. Private entities, including residential investment’s promotion with the distribution grid. owners, were obviously hesitant about signing the necessary lease and execution.” Major solar rooftop markets exist where governments provided agreements. Meanwhile, the money paid for rooftop rentals pushed firm fiscal support in the initial phases of their development. up tariffs. To address these difficulties, rooftop owners were given Countries around the world have spent a large amount of public money (through subsidy schemes in Japan, for example) to develop the solar rooftop market. The implementation of solar rooftop projects can be further expedited by estab- lishing an enabling mechanism for funding from financial institutions. In the case of Gujarat, the state’s electricity regulator approved a power purchase agreement (PPA) that proved a sound basis for the replication phase. This is an optimal, often overlooked, and cautious approach to opening up a new market to the private sector. It avoids the risks inherent in fixing an unproven regulatory environment that may result in approaches that are not actually workable on the ground, effectively inhibiting investments down the line. The Gujarat solar team, meanwhile, worked with India’s national regulator to develop and publish regulatory guidelines for rolling out solar rooftop projects; other, interested Indian states may adopt the guidelines with or without Photo: Thinkstock modifications. 4 I m p l e m e n ti n g R o o ft o p S o l a r P r o j e cts : P u b l ic - P riv a t e P a rt n e rs h ips i n I n d i a the option to buy out the operator’s interest in the installation, at a agency (PIA)—was advised to raise awareness of the program by Make further negotiated price. In addition, there was an allowance for companies building capacity among various stakeholders (government bodies, connections to use a small percentage of capacity during downtime for operation developers, rooftop owners, and communities), reaching out to and maintenance (O&M) as well as for relocation to other rooftops. rooftop owners who could participate in the scheme, and providing Live Wire 2014/26. “Doubling The project faced obstacles to expanding grid availability, even as press releases to the general public. Relevant project-related the Share of Renewable Torrent Power Limited has a reputation for excellent availability. The information, requisite documentation (application forms and so Energy in the Global Energy private utility guaranteed minimum annual grid availability for the life on), and contact information were uploaded to a website that was Mix,” by Gabriela Elizondo of the project; if the agreement was not met, penalties would have to specifically developed for the public. In the case of Gandhinagar, the Azuela and Irina Bushueva. be paid to the solar developer. Madhya Gujarat Vij Company Limited, PIA’s role extended to facilitating the implementation of the project, a state-owned company, did not provide any such guarantee. But which proved essential to the project’s feasibility and to sustaining it shared information regarding the uptime of the distribution grid, bidders’ interest. information that potential developers could use to estimate their possible loss in energy sales due to grid failure. What can be learned from Gujarat’s solar Another challenge was finding enough rooftops. In the power projects? Gandhinagar project, rooftops sufficient to host 80 percent of installed capacity (that is, 4 MW) were identified during technical Detailed technical surveys are a crucial first step due diligence proceedings, and bidders were assured of their Identifying suitable rooftops in an emerging market where urban availability. These rooftops were exclusively on government buildings development is chaotic can prove challenging. Many factors must be and included those of schools, colleges, and affiliated institutions. taken into account: the shade of trees, adjoining buildings, and water Securing them provided a degree of comfort to investors, who tanks; rooftops’ sizes, heights, and uses; and ownership (residential, were asked to find private rooftops for the remaining 20 percent of commercial, or public). A detailed technical survey is a necessary installed capacity. initial step. It is particularly important to determine which rooftops With far fewer government-owned rooftops in Vadodara, nearly are structurally sound. The roof must be able to support the weight 80–85 percent of capacity had to be installed on privately owned of the solar PV system (including the system’s racks and structures) rooftops. This risk was mitigated in several ways: and withstand the added load from wind blowing under the modules. • Satellite images of rooftops across the city were collected from a Extensive technical surveys addressing the issues listed above were state-owned agency and made available to potential investors. conducted as part of both projects. Findings were shared with the • Rooftops outside municipal limits were included in the project bidders to assist them in the process of rooftop identification and to scope, allowing developers to choose from a larger set. highlight any potential technical issues. In the case of Gujarat, installation proved to be difficult even • The developer was given a buffer of +/- 20 percent on the where public rooftops were secured. And in Vadodara, where the nominal required capacity of 5 MW, leaving it free to install proportion of private rooftops was much higher, the difficulty was anywhere between a minimum of 4 MW and a maximum of 6 MW. multiplied. Where local governments are not in a position to secure rooftops or to allow higher tariffs to be borne by the off-taker, they Any state interested in replicating Gujarat’s success must also should consider providing financial assistance to alleviate the risks craft a communication campaign. Long-term access to technically taken by private sector players. Generation-based incentives were suitable and commercially viable rooftops is a crucial requirement provisioned for in both Gandhinagar and Vadodara, and proved for any large-scale solar rooftop development. An effective commu- effective. nication campaign is required to raise awareness and encourage building owners to participate. To this end, the Gujarat Power Ashish Khanna and Chandrasekar Govindarajalu were the peer reviewers of Corporation Limited (GPCL)—that is, the project implementation this note.