83266 Paving the Way for a Transformational Future Lessons from Jawaharlal Nehru National Solar Mission Phase I ESMAP MISSION The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, and the United Kingdom, as well as the World Bank. Paving the Way for a Transformational Future Lessons from Jawaharlal Nehru National Solar Mission Phase I Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Contents Abbreviations and Acronyms vi Acknowledgments viii Executive Summary ix 1. A New Sunshine: Achievements of Grid-connected Solar Sector in India 1 1.1 Introduction 1 1.2 Jawaharlal Nehru National Solar Mission: An Overview 2 1.3 Key Achievements of Jnnsm Phase I 5 1.4 State Solar Policies 8 2. Scaling up Under Jnnsm: Barriers and Challenges 13 2.1 Lack of Participation of Scheduled Commercial Banks in Solar Financing 14 2.2 Bottlenecks in the Enabling Environment 16 2.3 Payment Security for Future Projects 17 2.4 Unintended Technology Outcomes of Phase I of Jnnsm 18 2.5 Beleaguered Local Solar Manufacturing Industry 20 2.6 Adequacy of the Current Approach to Developing Solar Thermal Projects 24 2.7 Enforceability of Rpos and Concerns Around Solar RECs 24 3. JNNSM Phase II and Beyond: Essential Policy and Design Choices 27 3.1 Efficacy of Public Funding: Buying Down Tariffs vis-à-vis Addressing Structural Impediments to Financing 27 3.2 Promoting Local Manufacturing: Exploring Customized Industrial Policy Actions 35 3.3 Solar Thermal: Public Private Partnerships (PPPs) vis-à-vis Private-led Development 39 3.4 Role of Central Government: Co-development vis-à-vis Central Sector Projects 40 3.5 Development through Solar Parks (Cluster-based Approach) 43 4. Way Forward 45 5. Annexes 51 iii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I List of Annexes Annex 1: Consultative Workshop Details and Key Messages 51 Annex 2: Comparison of State Solar Policy Framework with JNNSM 57 Annex 3: CSP Players and Status of Implementation 58 Annex 4: JNNSM Auction Process and International Experience 59 Annex 5: Funding Requirements for JNNSM Phase II 61 Annex 6: PPA under JNNSM Phase I – Key Concerns 62 Annex 7: Payment Security Scheme and NCEF 64 Annex 8: Technology Factors in JNNSM Phase I 65 Annex 9: Domestic Content Requirement 70 Annex 10: Solar PV Manufacturing in India 72 Annex 11: Solar Thermal Manufacturing in India 75 Annex 12: International Experience in CSP Projects 77 Annex 13: Overall Funds Requirement for JNNSM Phase I 80 Annex 14: Key Incentives/Instruments for Solar Promotion in India 81 Annex 15: Regulatory and Policy Provisions for Renewable Energy 82 Annex 16: Competitive Bidding for Renewable Energy Projects 83 Annex 17: Institutional Framework for the Solar Sector 85 Annex 18: Gujarat Solar Park—A Case Study 88 List of Boxes Box 1: Policy Actions for Promotion of Local Manufacturing 36 Box A8 1: EC and EIB Support to CSP 66 Box A10 1: Indian Manufacturing Landscape 72 List of Figures Figure E1: PV and CSP Tariff Comparison Across Countries x Figure 1: JNNSM Objective and Strategy 3 Figure 2: JNNSM Phase I Chronology of Events 3 Figure 3: JNNSM Phase I Capacity Allocation Process 4 Figure 4 : Status of JNNSM Capacity Additions—July 2013 6 Figure 5: JNNSM Phase I Solar PV Tariff Trends 7 Figure 6: JNNSM Phase I Solar Thermal Tariff Trends 7 Figure 7: PV and CSP Tariff Comparison Across Countries 8 Figure 8: Key Observations of Phase I of JNNSM 14 Figure 9: Types of Debt Financing Available to Solar Developers 15 Figure 10: Global Solar PV Market Trends 18 Figure 11: JNNSM Phase I Solar PV Technologies Used 19 Figure 12: Global Solar PV Production Overview—2012 Beginning 20 Figure 13: Attractiveness of Solar PV Component Industries In India vis-à-vis International Benchmarks 21 iv Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 14: Cost Comparison - Cell and Module (India, China and Other Asian Countries) 22 Figure 15: Present Local CSP Manufacturing Capability in India 23 Figure 16: Attractiveness of CSP Component Industries in India vis-à-vis International Benchmarks 23 Figure 17: Solar RPO and Capacity Addition 25 Figure 18: Role of Public Funding in Developmental Life-cycle of Technology 29 Figure 19: Comparison of Subsidy Support for Public Financing Options 34 Figure 20: Framework to Design Industrial Policy Actions 37 Figure 21: Proposed Solar Thermal Roadmap under Subsequent Phases of JNNSM 40 Figure A8 1: Global PV & CSP Capacity 65 Figure A8 2: TF Market Growth and Polysilicon Spot Prices 67 Figure A8 3: Share of TF in Overall PV Installed Capacity 68 Figure A9 1: Solar PV Technology, Gujarat 71 Figure A11 1: Action Plan for Local Manufacturing of CSP Components (India) 75 Figure A12 1: Development of CSP, Spain 78 Figure A12 2: Development of CSP, U.S. 79 Figure A17 1: Central Institutions with Solar Sector 85 Figure A18A: Gujarat Solar Park Layout Plan 88 List of Tables Table 1: JNNSM Roadmap 2 Table 2: Cost of Bundled Power under JNNSM 5 Table 3: Solar Policy Capacity Targets and Status 9 Table 4: Installed Solar Capacities (MW) under Various Schemes 10 Table 5: Direct Support Instruments 30 Table 6: Facilitating Public Funding Mechanisms 32 Table 7: Analytical Framework for Analyzing Financial Instruments/Mechanism 33 Table 8: Institutional Gaps 42 Table A2 1: Comparison of State Solar Policies with JNNSM 57 Table A3 1: CSP Projects and Implementation Status 58 Table A4 1: JNNSM Phase I—Bidding Chronology 59 Table A4 2: Level of Participation—JNNSM Phase I 59 Table A4 3: Capacity Auction Structure—International Experience 60 Table A5 1: Indicative Funding Requirement for Phase II (Central Scheme) 61 Table A6 1: PPA under JNNSM Phase I—Key Concerns 62 Table A8 1: Comparison of PV and Thin Film Technologies 67 Table A9 1: National Experience, DCR 70 Table A9 2: International Experience, DCR 71 Table A10 1: Performance of Indian Solar PV Manufacturers 73 Table A10 2: Solar PV Market—Global and Indian 74 Table A12 1: International Experience, CSP Projects 77 Table A13 1: Overall Funding Requirement for JNNSM Phase I 80 Table A14 1: Key Incentives for Solar Promotion in India 81 v Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Abbreviations and Acronyms ADB Asian Development Bank Development Agency OPIC Overseas Promotion and BG Bank Guarantee GERC Gujarat Electricity Investment Corporation BNEF Bloomberg New Energy Regulatory Commission PBG Performance Bank Finance GoI Government of India Guarantee BOOM Build Own Operate Manage GPCL Gujarat Power PPA Power Purchase Agreement BOOT Build Own Operate Corporation Ltd. PPP Public Private Partnership Transfer GW gigawatt PSA Power Sale Agreement BoS Balance of Systems HT High Tension PSS Payment Security Scheme CdTe Cadmium telluride IDFC Infrastructure PTC Parabolic-trough collector CEA Central Electricity Development Finance PV Photovoltaic Authority Company R&D Research and Development CERC Central Electricity IFC International Finance RBI Reserve Bank of India Regulatory Commission Corporation REC Renewable Energy CoD Commercial Operation IREDA Indian Renewable Energy Certificate Date Development Agency RFP Request for Proposal CoE Centre of Excellence JNNSM Jawaharlal Nehru National RfS Request for Selection c-Si Crystalline Silicon Solar Mission RPO Renewable Purchase CSP Concentrating Solar Power kg kilogram Obligation or solar thermal kV kilovolt RPS Renewable Portfolio CSTP Concentrated Solar kWh kilowatt hour Standard Thermal Power L&T Larsen and Toubro RPSSGP Rooftop PV and Small C-WET Centre for Wind Energy LC Letter of Credit Solar Generation Technology LCR Local Content Programme DCR Domestic Content Requirement SCB Scheduled Commercial Requirement MNRE Ministry of New and DIPP Department of Industrial Renewable Energy Bank Policy and Promotion MoF Ministry of Finance SEC Solar Energy Centre Discom Distribution company MoP Ministry of Power SECI Solar Energy Corporation DNI Direct Normal Irradiance MT metric ton of India EC European Commission MW megawatt SEGS Solar Energy Generating EIB European Investment Bank NAPCC National Action Plan for System EPC Engineering Procurement Climate Change SNA State Nodal Agency and Construction NBFC Non-Banking Finance SPO Solar Purchase Obligation EPIA European Photovoltaic Company SPSA Solar Payment Security Industry Association NCEF National Clean Energy Account EXIM Export-Import Fund STU State Transmission Utility FICCI Federation of Indian NMCC National Manufacturing sq m square meter Chambers of Commerce Competitiveness Council SRRA Solar Radiation Resource and Industry NOC No Objection Certificate Assessment FiT feed-in tariff NPA Non-Performing Asset T&D Transmission and FSR Financial Stability Report NTPC National Thermal Power Distribution FY Financial Year Corporation TF Thin Film GBI Generation based Incentive NVVN NTPC Vidyut Vyapar VGF Viability Gap Funding GBS Gross Budgetary Support Nigam W Watt GDP Gross Domestic Product O&M Operation and Wp Watt peak GEDA Gujarat Energy Maintenance WTO World Trade Organization Currency Conversion: 1 US$ = INR 60 vi Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Acknowledgements The preparation of this report—Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission (JNNSM) Phase I—was led by Ashish Khanna (Lead Energy Specialist, SASDE) and Kanv Garg (Energy Analyst, SASDE), both from the World Bank’s South Asia Sustainable Development Energy Unit. At the request of the Ministry of New and Renewable Energy (MNRE), the World Bank has undertaken a study to document the experiences during the implementation of JNNSM and gather lessons for the implementation of the subsequent phases. The report draws from an underlying study prepared by the staff of Deloitte Touche Tohmatsu India Private Limited, who interacted with government agencies, solar power developers, financial institutions, and other stakeholders in the solar space in India to share data and firsthand experiences. We especially wish to thank Vijay Iyer (Director, SEGEN) and Jyoti Shukla (Senior Manager, SASSD) for their support to the study. The team would also like to thank the peer reviewers—Nataliya Kulichenko (Senior Energy Specialist, AFTG1), Gabriela Elizondo Azuela (Senior Energy Specialist, SEGEN), Silvia Martinez Romero (Senior Renewable Energy Specialist, SEGES), Joerie Frederik de Wit (ET Consultant, SEGEN), Soumya Banerjee (Senior Investment Officer, IFC), Chandrasekeren Subramaniam (Senior Power Engineer, IFC), and Gaetan Tiberghien (Senior Investment Officer, IFC)—for their insightful inputs and assistance during the preparation of the study. We gratefully acknowledge the cooperation and generous help rendered by officials and counterparts in MNRE—Mr. R.N. Watal, Mr. Tarun Kapoor, and Dr. Ashvini Kumar—who provided guidance and technical inputs through the assignment. This team is grateful for the funding received from the Energy Sector Management Assistance Program (ESMAP) for the study. vii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Executive Summary Renewable energy, especially solar power, has capture cost reduction leadership for solar power been garnering a lot of interest from governments, as well. Domestic manufacturing and scale of international development organizations, civil implementation in India can cause a drastic fall society, and the private sector for the last few years. in costs to bring solar power costs to grid parity There has been a huge surge in the popularity of this sooner than other parts of the world. Secondly, important energy source from various stakeholders cleaner energy production through solar power also in India as well. contributes to India’s international commitment in Copenhagen in 2009 to reduce the emissions per In India, with rising levels of technology maturity, unit of its GDP by 20-25 percent by 2020 over 2005 and cost competitiveness, solar power is attracting levels. India is currently the world’s seventh largest investments from the private sector. On the other emitter of global warming pollution and fifth largest hand, solar power presents a formidable option for emissions from fossil fuel combustion.1 for addressing pertinent issues being faced in international geopolitical and national macro- Though the World Bank, India considers all market economic arenas for the Government of India (GoI). segments of solar power to be important; this report specifically looks at the utility-scale grid-connected On the national front, firstly, solar power stands to segment of solar power in India. partially address the issue of shortage of power for economic growth. There is an established positive Achievements of JNNSM Phase I correlation between energy requirement and Gross Domestic Product (GDP) growth. With energy As one of the eight missions under India’s National shortages in excess of 10 percent and with more Action Plan for Climate Change (NAPCC), the than 300 million people without access to energy, Jawaharlal Nehru National Solar Mission (JNNSM) solar power can potentially address the shortage by was launched in January 2010 with the aim of both adding to the grid-connected electricity supply accelerating India’s march toward grid parity in and providing a viable energy solution for off-grid solar power. JNNSM envisages the achievement areas. Secondly, closely related to the first point, of grid parity through long-term and predictable solar power can foster energy security for India by policy, large-scale deployment, aggressive Research reducing dependence on imported fuel. This will and Development (R&D), and domestic production further help in reducing the current account deficit of critical materials, components, and products for the country. Grid-connected and off-grid solar along the value chain. Considering that India is power can partially replace the need for imported blessed with immense solar potential, JNNSM can coal and diesel requirement to power the economy. serve as a crucial element of India’s response to the challenges of energy security and climate change. On the international front, firstly, India has already demonstrated that it is an industrial low- Phase I (2010-13) of JNNSM, still under cost destination worldwide. It has the potential to implementation, experienced enthusiastic 1 http://www.nrdc.org/international/copenhagenaccords/ ix Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I participation from Indian and international the CERC benchmark tariffs. The average levelized investors in the grid-connected segment with tariffs have also declined between the two batches substantial discounts to the benchmark tariffs in Phase I, from INR 12.12 per kilowatt hour (kWh) determined by the Central Electricity Regulatory (US$0.20 per kWh) to INR 8.77 per kWh (US$0.15 Commission (CERC) for 500 megawatt (MW) per kWh). This has made India amongst the lowest each of solar thermal and solar Photovoltaic cost destinations for grid-connected solar PV in the (PV) projects. Power from these solar projects world. Figure E1 illustrates the solar PV and CSP is being bundled with conventional power from tariff in India compared to other leading countries the unallocated quota of power from coal-based worldwide. stations of the National Thermal Power Corporation (NTPC) on equal capacity basis. The bundling In addition to the achievement of lower solar of solar power with cheaper conventional power energy prices, the pace at which solar capacity reduces the tariff impact of solar power on the additions have been accomplished also needs to distribution utilities. be commended. In a span of three years, the total installed capacity of solar power has increased Another unique feature of JNNSM Phase I has from around 30 MW to more than 2,000 MW been the adoption of a reverse auction method for with JNNSM contributing around 500 MW of that awarding projects to qualified bidders. The bidding capacity. process has been able to fully realize the benefits of declining module prices in the global market The Government of India (GoI) took several and declining demand in key economies, leading proactive steps in Phase I of the mission, such to surplus supply in the international market. as offering a bundling of solar power with JNNSM has been instrumental in bringing the unallocated coal-based power through the NTPC purchase price of both PV and Concentrating Solar Vidyut Vyapar Nigam (NVVN), implementing Power (CSP) to a level that is competitive across a Renewable Purchase Obligation (RPO) for the world. The levelized tariffs discovered through solar power, instituting a Payment Security the competitive process have been far lower than Scheme (PSS), and undertaking certain measures Figure E1: PV and CSP Tariff Comparison Across Countries 25 22.68 20 18.90 16.74 16.20 15.66 14.04 15.12 INR pwe kWh 15 12.96 12.42 10.21 10 7.56 5 0 ce ly ia y ca ly l ce co nd an Ita ys an ri ain Ita ga ee oc e rla Fr a la r m Af Sp rtu Gr or itz M G e ut h Po M Sw So PV Tariff CSP Tariff India Batch 2 - PV India Batch 1 - PV India CSP Source: wind-works.org and author’s research. x Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I for promoting local manufacturing, which all 1. Lack of adequate participation of Scheduled combined to ensure the success of Phase I. Starting Commercial Banks in solar financing with the state of Gujarat and buoyed by the success of Phase I, several other states have also instituted Scheduled Commercial Banks (SCBs) mostly shied state-level policies for encouraging solar energy. away from financing projects under Phase I of Gujarat has been a forerunner in solar capacity JNNSM, with export credit agencies, multilateral addition with Asia’s largest solar park located in financial institutions, and some nonbanking Charanka, constituting over 500 MW of multi- financial institutions accounting for the bulk of investor, multi-technology solar capacity addition debt financing over Phase I of JNNSM, as well as for at one location. projects under the Gujarat Solar Policy. Financing of most solar projects also happened on the basis of Amidst developments triggered by Phase I of JNNSM limited to full recourse. and the Gujarat Solar Policy, it is important to keep sight of JNNSM’s overall objectives, which—apart Infrastructure lending in India, in the absence from targeting a capacity of 20 gigawatt (GW) by of an active debt market, has been led by SCBs, 2022—aims at positioning India as a major power which account for more than 80 percent of in solar manufacturing and R&D. Against this such debt disbursements. Taking this financing backdrop, the World Bank, in consultation with the landscape of Indian infrastructure into account, it Ministry of New and Renewable Energy (MNRE), is inconceivable for JNNSM to scale up to the levels instituted a study to identify the key barriers and envisaged under subsequent phases and beyond constraints that could come in the way of scaling up without the active participation of SCBs. the grid-connected solar program to levels envisaged in the subsequent phases of JNNSM. This remains the most significant concern for JNNSM. SCBs consulted during the study indicated The study, which culminated in the submission several risks that they continue to perceive in of this report, is based on consultations with key lending to solar projects, particularly in the absence stakeholders and aims to provide an analytical lever of any risk-reducing mechanisms. They also pointed to GoI in evaluating certain key policy debates that out the crowding out effect of concessional sources have emerged at this juncture. of financing in the form of supplier’s credit and direct lending by development banks, without the Scaling up under JNNSM: Barriers and availability of concessional lines of credit for SCBs. Challenges Phase II of JNNSM is likely to witness a huge Phase I of JNNSM, with a capacity target of scaling up of financing requirement with around 1 GW, was positioned to be a cautious beginning US$4.1 billion required for building 3,600 MW of in India’s ambitious journey toward 20 GW of capacity under the central scheme. Another 6,400 capacity addition by the end of Phase III of JNNSM MW is proposed to be developed under the state by 2022. Viewed in this context, it is essential to schemes which would further increase the financing identify and address the key challenges faced by requirement of the solar sector. the stakeholders, which could prevent the program from reaching and, possibly exceeding, the scaled- 2. Bottlenecks in the enabling environment up targets over subsequent phases of JNNSM. Developers and financiers outline several key Amongst the issues identified as critical by most bottlenecks in the enabling environment, which stakeholders, which require closer attention and have persisted despite significant efforts from resolution, are the following: MNRE and State Nodal Agencies (SNAs). These xi Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I relate to land acquisition and converting land use Compared with this global scenario, Phase designations, delays in approvals and clearances at I of JNNSM saw TF accounting for close the state level, limited field-level data availability to 70 percent of PV installations, due to a on solar irradiation, nonavailability of support combination of two factors. First, a Domestic infrastructure pertaining to water and power Content Requirement (DCR) under the Phase evacuation, limited coordination between the I policy required c-Si cells and modules to central and state institutions, and the absence of a be mandatorily procured from domestic clear mapping of responsibilities of institutions in manufacturers over Batch 2, while waiving the public domain. such requirement for TF owing to the low TF manufacturing base in India. Second, established 3. Payment security for future projects TF suppliers based out of the United States were ready to supply competitively priced TF modules The Phase I policy provided a robust commercial along with the provision of low-cost, long-tenor framework with the bundling of 1,000 MW of solar debt from the Export-Import (EXIM) Bank of power with 1,000 MW of unallocated coal-based the United States. Faced with an economically generation capacity from NVVN, which acted as the attractive option and supply from more counterparty to all contracts, and the institution of a established and proven U.S. suppliers compared PSS, backed by budgetary support from GoI, which with domestic manufacturers, developers opted assisted in guarding the interests of developers widely for TF. against defaults by distribution utilities. DCR, which was intended to promote local Bundling is no longer a major option, with manufacturing, has thus not been able to provide limitations on unallocated power. As per JNNSM adequate support to local manufacturers. Phase II Batch I guidelines, the Solar Energy Corporation of India (SECI) shall set up a payment 5. Beleaguered local solar manufacturing security mechanism to ensure timely payment to environment the developers. The rules to operate this fund will be framed by MNRE. Although the rapidly decreasing An important objective of JNNSM is to develop tariff scenario in solar power and increasing India into a major force in low-cost, high-quality knowledge and exposure of all stakeholders shall solar manufacturing. In Phase I, to provide support reduce the need for PSS over time, payment security to domestic manufacturers, GoI included a DCR remains a concern for Phase II. This is because of for both c-Si and solar thermal-based projects. As the increasing concentration of solar projects in is now apparent, this measure did not contribute some states and the weak financials of distribution significantly to the revival of the domestic solar PV utilities in most states in India. manufacturing industry, which continues to operate at an average capacity utilization of less than 4. Unintended technology outcomes over Phase I 50 percent. PV technology is broadly classified into Crystalline Several solar PV manufacturers in India Silicon (c-Si) and Thin Film (TF). The latter, which currently face issues related to lack of raw emerged as a lower cost option in the era of rising materials, nonavailability of low-cost financing, polysilicon prices, has been steadily losing ground and an underdeveloped supply chain leading over the past few years as c-Si experienced a to high inventory costs. Problems faced by dramatic decline in prices. From a one-time high of local PV manufacturers are multi-fold and about 30 percent market share, TF accounted for 11 have been summarized in the report. Without percent of the global PV market at the end of 2011. a comprehensive industrial policy to address xii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I all fundamental aspects of competitiveness, distribution utilities. This threatens the very basis of DCR alone is unlikely to revive Indian PV JNNSM as well as other renewable energy programs manufacturing. in the country. Local manufacturing in solar thermal is complex, The pricing of solar Renewable Energy Certificates as the value chain is globally characterized by (RECs) is another matter of concern. The current oligopolies with technology and product patents. REC framework has a base price range specified up India holds significant potential for emerging as to 2017, and in a rapidly declining solar tariff regime, a low-cost destination for solar thermal, as it can there are genuine concerns that a purely short-term exploit the linkages this industry holds with more and market-based REC mechanism will not ensure established industries in India, such as automotive, cash flows to justify long-term investments. These glass, metal, chemicals, power equipment, process issues are being examined seriously by MNRE and heat, and construction. This, however, requires CERC and changes are likely in the near future. coordinated ecosystem development, with adequate technology partnerships to move existing industries JNNSM Phase II and Beyond: Essential to commit to such manufacturing. Policy and Design Choices 6. Adequacy of the current approach to developing solar thermal projects 1. Efficacy of public funding: “buying down” tariffs vis-à-vis addressing structural The framework for award of projects under Phase I impediments to financing of JNNSM, similar to that for solar PV, was a reverse auction, which awarded seven projects totaling 470 Adequately structured public funding is essential MW under Batch I. Solar thermal with less than 2.5 to move the solar industry forward, given GW of installations globally is, however, far from the evolutionary nature of solar PV and CSP commercially viable compared with solar PV with technologies, their higher cost, and the risk over 100 GW of installed capacity globally. perception amongst private investors and financiers in this segment. Solar thermal projects require a range of preparatory activities including several clearances Public funding is faced with a choice of two options and consents, detailed field studies as well as on- of supporting the solar program under JNNSM: field Direct Normal Irradiance (DNI) measurement. In the above context and given the initial phase • Buy-down the cost of solar generation by of development of solar thermal technologies in financing the incremental cost of solar. This India, it is worth examining whether the existing is a direct, project-level involvement of the framework for awarding projects is adequate or a government, financed through instruments such different disposition is required. as capital subsidy, Generation-Based Incentive (GBI) or Viability Gap Funding (VGF), and so 7. Enforceability of RPOs and concerns around on; and solar Renewable Energy Certificates • Address or cover risks that are impediments to investments or optimal financing of solar Although several State Electricity Regulatory projects. This could be achieved through Commissions have mandatory regulations structured public debt, risk funds and guarantees specifying RPOs, they have so far been lenient to address specific barriers/risks perceived by the in imposing penalties for noncompliance by lending community. xiii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Buying down the cost of solar power in the A comparative assessment of the impact of such deployment phase, through direct public funding, funding mechanisms on government budgetary leads to the GoI co-financing a large set of private support indicates that, compared with direct public projects. The criticism of this approach is that unless it funding, facilitating public funding (with the justifies significant externalities, such funding simply exception of interest subvention) options have lower translates to unintended (and not so useful) subsidies or zero budgetary requirements (although involving for the end consumers of electricity. Cost reduction by contingent exposure) and consequently offer higher itself cannot be argued to accelerate the deployment leverage on limited public finance. of solar power, as RPO is the basic demand-pull for solar projects under the existing power sector policy The National Clean Energy Fund (NCEF) is and regulatory framework in India. proposed to be used as a VGF measure of the last resort during JNNSM Phase II. In addition, there Capital subsidy, GBI or VGF are all, however, could be a case for the utilization of NCEF for the important funding instruments for technologies, creation of a Non-Risk Guarantee Fund, which can which in the development life-cycle have not take care of the payment risk to private utilities achieved the scale or viability to be deployed widely. under the solar mission. Lack of public funding at this stage can simply impede deployment and diffusion, irrespective of 2. Promoting local manufacturing: DCR vis-à-vis the long-term economic benefits. comprehensive industrial policy actions Given the capital intensive nature of the program and Recognizing the importance of solar the lack of participation of SCBs in it so far, it is more manufacturing, the National Manufacturing Policy desirable for public funding to address structural of 2011 (Department of Industrial Policy and impediments to such financing, so that the sector Promotion (DIPP) 2011) identifies solar energy as transits to nonrecourse-based financing, which has among industries of strategic importance where been absent over Phase I. Transparent disbursements national capabilities are envisaged to be developed through bidding and penalties for not achieving to make the country a major force in the sector. defined performance parameters can be adopted to enhance the effectiveness of direct funding support. India’s existing solar PV manufacturing capacity is, however, limited and does not straddle Access to commercial financing and its pricing the high technology upstream segments of can be improved if risk-reducing instruments the industry, such as polysilicon, wafers and or financial innovations are implemented with ingots. The solar PV manufacturing industry adequate public funding to back such measures. in India was historically export-led until 2011 This set of measures is collectively named but is beleaguered by the global demand-supply “facilitating public funding” and the following situation, and comparative disadvantages in measures are evaluated further in the report: sourcing and cost of raw materials vis-à-vis global players. Solar thermal manufacturing, on the other • Credit guarantee enhancement schemes; hand, will require substantial coordinated actions • Risk guarantee schemes; and technology partnerships to be able to take root • Subordinated public finance to prolong tenor of locally. debt financing; and • Interest subvention or government- Both solar PV and solar thermal offer potential intermediated concessional lines of credit for economy-wide benefits such as job creation. As financial institutions. has been witnessed in the solar PV segment in xiv Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I India, the Indian solar PV manufacturing industry objectives of ensuring long-term energy security, provides jobs to more than 25,000 people, with a ensuring cost effectiveness, and realizing economy- total installed capacity of 1,100 MW of cells and wide benefits. These objectives will need to be 1,800 MW of modules.2 Similarly, solar thermal evaluated to arrive at a set of prioritized actions. possesses immense potential; to have an installed capacity of 10,000 MW by 2022, the total manpower The policy design choices for solar PV and CSP requirement is expected to be 96,000, with 44 will need to take cognizance of local capabilities, percent of this linked with local manufacturing.3 international market situation, and availability of domestic funds. Drawing up clear technology In Phase I of JNNSM, GoI specified a DCR for cells scenarios for solar (PV and CSP) generation and modules for c-Si PV projects and a 30 percent and application would be a key requirement to requirement for solar thermal projects. These were enable a manufacturing roadmap to be finalized limited only to JNNSM, with most state government for India. There is a need for developing a shared policies having no such requirements. understanding of a framework to design specific industrial policy actions for solar manufacturing. India’s PV manufacturing industry is, however, confronted with several root cause issues straddling DCR needs to be aligned with the technology supply-side factors such as relative disadvantages roadmap and prioritized segments of the value in the cost of sourcing raw materials and resources, chain (separately for solar PV and CSP) under a lack of access to technology, inverted duty comprehensive industrial policy action. A phased structure for classes of equipment required for approach (which reduces year on year) to DCR manufacturing, and cost and power. is essential to ensure that the domestic industry moves up the competitiveness curve and is It is essential that the industrial policy aspects are globally competitive over a period. In the absence given due consideration since the DCR addresses of a roadmap for the promotion of preferred demand-side actions and may not be sufficient technologies, the DCR should be applicable on the to make local manufacturing self-sustainable entire value chain (thereby giving the choice of and competitive in the long run. Promoting local least-cost technology path to the investors). manufacturing would require coordinated actions on the supply side, involving specific policy interventions. Without a mission mode focus on increasing domestic value-addition and technology depth, For industrial policy to be effective, comprehensive Indian manufacturing in solar is unlikely to actions as outlined under the National progress far. A Task Force, with representation Manufacturing Policy 2011 are required to build from other concerned government departments on comparative local advantages, create adequate (for example, DIPP) and other relevant forward and backward linkages, and address specific organizations (such as the National Manufacturing input disadvantages faced by Indian manufacturers Competitiveness Council (NMCC) and Planning vis-à-vis their foreign counterparts. Commission) should be set up to identify specific and coordinated industrial policy actions Solar PV and CSP will solicit customized required by GoI to enhance competitiveness of approaches in terms of an industrial policy action solar manufacturing in India. An example of design which will need to consider the overall such a mission mode approach can be seen in the 2 Source: Federation of Indian Chambers of Commerce and Industry (FICCI) Solar Energy Task Force Report on Securing the Supply Chain for Solar in India. 3 World Bank Report - Development of Local Supply Chain: The Missing Link for Concentrated Solar Power Projects in India. xv Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I automobile sector, with the Department of Heavy of coordinated industrial policy actions and Industries and Public Enterprises, GoI, formulating ecosystem development plans to indigenize the Automotive Mission Plan 2006-16 in 2006. production; • Any further capacity development under Phase 3. Solar thermal: public private partnerships II should ideally be undertaken only under a vis-à-vis private-led development deterministic model with site identification, preliminary activities, and techno-commercial A probabilistic model of procurement followed for feasibility completed by a public-sector entity both solar thermal and solar PV projects is more such as SECI, before bidding it out with specific suited for commercial technologies, where upfront technical specifications through a Build Own costs are limited in establishing project feasibility, Operate Transfer (BOOT) or Build Own and knowledge and experience are well-established Operate Maintain (BOOM) route; for developers and financiers. • Gather lessons from Phase I projects to decide on the desirable technology standardization for Solar thermal projects challenged with varying solar thermal projects, which could be adopted technologies and significant upfront costs in into grid connectivity standards of the Central establishing detailed feasibilities are unsuited for a Electricity Authority; and Case 14 kind of probabilistic procurement. • Based on the success of Phase II, decide on a move to a fully private-led model of procuring Stakeholders consulted during the study agree that power from such projects over Phase III of larger public sector involvement in identifying, JNNSM. scoping and undertaking preliminary activities is essential before inviting the participation of private 4. Role of central government: facilitative players. This is more akin to the Case 2 mode of coordination vis-à-vis central sector projects technology and site-specific participation by private players adopted for conventional power The draft Phase II policy document of JNNSM projects in India. presents a differentiated pathway for central and state sector projects, with most incentives and Given the importance and promise of solar thermal support mechanisms under the policy reserved for India, a more hands-on and guided approach only for central sector projects. Only about 3.6 GW from the government is necessary to move the of the 9 GW capacity to be added over Phase II is industry forward in the desired direction. The envisaged in the central sector. following pathway is envisaged for solar thermal under Phase II and beyond: It is important, in this regard, to revisit the role of public support mechanisms under JNNSM. It may • SECI should focus, in Phase II, on developing be more desirable to reorient GoI’s role to assume a demonstration projects with desirable larger and strategic focus of addressing sector-wide technology features such as storage, air-cooled barriers and risks to enable a country-wide scale up condensation, hybridization, and so on. Such of the program. projects are envisaged under JNNSM to be developed through public private partnerships; An alternative vision outlined in the report • A detailed assessment is required of the constitutes the following elements, which could be manufacturing value chain along a framework the focus of GoI: 4 ‘Case 1 Renewable Energy’ procurement, where the location or technology of a renewable power project is not specified by the procurer; ‘Case 2 Renewable Energy’ procurement – location specific renewable, which the procurer intends to set up under a tariff-based bidding process. xvi Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I • All solar thermal projects in Phase II to be • Address solar integration issues and facilitate a developed through the Case 2 mode with the comprehensive national plan that coordinates provision of facilitating financing schemes from generation scale-up, Transmission and GoI; Distribution (T&D) expansion and dispatch • GoI to play an active role in developing solar systems, and draws up a vision for the parks in coordination with state governments. implementation of storage systems. It will ease infrastructure-related challenges faced by developers and ensure coordinated 5. Development through solar parks or transmission planning and deployment of cluster-based approach smart-grid related features at the transmission level. Policy should aim for all projects to be Experiences from Phase I and the Gujarat State developed through such parks; Solar Policy indicate the need for organized • Direct public funding5 can be advanced to development of grid-connected projects. A the solar parks to bring down the cost of such deterministic approach to planning of shared infrastructure for project developers. A standard, infrastructure through the provision of solar parks concessional charge for infrastructure could is the way forward as it optimizes land, water and be specified for all solar park-based projects in evacuation infrastructure, and paves the way for Phase II; and planning and developing transmission and grid • All projects adhering to a robust and sufficiently management features in a coordinated manner. improved standard Power Purchase Agreement MNRE should consider making solar park- (PPA) and set up in solar parks should be able based development the baseline for large, grid- to avail of facilitating public finance through connected solar projects in Phase II of JNNSM. By GoI schemes, such as credit enhancements/ providing public funding support for infrastructure guarantees and/or subordinated public debt. development in solar parks, GoI can prompt states as well as private parties to adopt solar parks as A mapping of institutional capabilities of public the baseline for large, grid-connected solar power institutions under JNNSM Phase I points to development, thus laying the foundation for orderly several gaps in undertaking monitoring, evaluation grid development with optimized use of resources. and coordination activities. The incorporation of SECI is thus a welcome measure and it should be Along with the significant achievements resourced adequately to play a coordination role, of JNNSM Phase I, there are noteworthy including: barriers in solar sector financing, developing a manufacturing base in the country, and so • Develop demonstration solar thermal projects in on, which need to be overcome to meet the its capacity as a nodal agency; long-term objectives of JNNSM. Proactive • Transit program management, monitoring and efforts by all stakeholders in facilitating public evaluation in a phased manner from NVVN; funding, creating an enabling environment for • Coordinate R&D efforts and ecosystem manufacturing, and focusing on cluster-based development efforts; project development would go a long way in • Coordinate the development of solar parks augmenting the outcomes of JNNSM during the throughout the country; and subsequent phases. 5 There is a strong economic rationale in advancing direct public financing to solar parks, with positive externalities such as optimization in infrastructure use, including land, water and evacuation facilities, and provision of scale to use smart-grid features in grid integration of solar power. xvii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I xviii Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 1. A New Sunshine: Achievements of a Grid-connected Solar Sector in India 1.1 Introduction Despite developments in the Indian solar energy space, it is critical to focus on the sector’s long- Solar power, due to its abundant and sustained term sustainability against mission objectives. availability across the globe, has emerged as a Project developers and technology providers promising long-term option for meeting growing will be looking for sustained long-term market global energy demand while addressing the adverse prospects, assured policy continuity from the environmental impacts of conventional fuels. India government beyond the first phase, and availability is blessed with abundant solar insolation and energy of public financing support for subsequent phases. generation potential. Recognizing its importance, Planning for JNNSM Phase II (2013-17), therefore, the Government of India (GoI) launched the becomes crucial and should be based on a sound Jawaharlal Nehru National Solar Mission (JNNSM analysis of lessons learnt from Phase I to provide or National Solar Mission) which targets the required contribution to policy design and 20 gigawatt (GW) of grid-connected solar capacity support. by 2022. Several agencies have analyzed and documented JNNSM Phase I (2010-13) implementation has the developments in Phase I of JNNSM. GoI, on witnessed appreciable scaling up of solar capacities its part, has taken steps to put forth options for in India within a short span of three years. Starting supporting the program in a draft policy document from a negligible base, the total grid-connected for Phase II of the mission. solar photovoltaic (PV) capacity base of the country had reached 2,079 megawatt (MW) by the end of The World Bank, in consultation with the September 2013 and the majority of Concentrating Ministry of New and Renewable Energy Solar Power (CSP) additions (around 500 MW) are (MNRE), instituted a study to undertake a wide also likely to happen by 2014. range of consultations with key stakeholders 1 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I to identify the critical barriers to scaling up 1.2 Jawaharlal Nehru National Solar the grid-connected program in the subsequent Mission: An Overview phases of JNNSM, to provide an analytical basis for addressing some of the key policy debates 1.2.1 Background that have emerged at this stage of the mission. This study is restricted to the large, grid- On June 30, 2008, the Prime Minister of India connected segment and does not address rooftop released the National Action Plan for Climate and off-grid segments, which are each important Change (NAPCC). It outlines a national strategy as subjects of separate studies in the future. on climate change, to enhance India’s ecological sustainability and encourage sustainable energy An extensive stakeholder consultation approach sources. As part of NAPCC, the JNSSM, launched has been followed by conducting interviews with in 2010, is a GoI initiative to promote the a diverse set of stakeholders, namely, developers, development of solar power in India. manufacturers, Engineering Procurement and Construction (EPC) players, financiers and industry JNNSM provides multi-pronged and long-term bodies, besides GoI and industry experts (Annex strategies for harnessing solar energy in India. Its 1). This was followed by two stakeholder workshops implementation is based on a three-phase strategy organized in Delhi and Mumbai in January outlined in Figure 1. 2013 and February 2013, respectively. Certain key public policy and regulatory options for the JNNSM targets to add around 20,000 MW of solar future were debated, aimed at arriving at a shared power generation capacity by 2022. The proposed understanding of issues and possible approaches to roadmap for deploying solar power across application resolving them. segments under the JNNSM is shown in Table 1. This report aims to document the findings of 1.2.2 JNNSM Phase I: Chronology of Events this study and deliberations thereunder with the objective of providing an analytical lever to GoI Since the launch of JNNSM in January 2010, several in its challenging task of evolving guidelines and initiatives were implemented during its first phase, policy for subsequent phases of JNNSM. which are depicted chronologically in Figure 2. Table 1: JNNSM Roadmap Application Segment Target for Phase I Target for Phase II Target for Phase III (2010-13) (2013-17)* (2017-22)* Solar collectors 7 million square meters 15 million sq m 20 million sq m (sq m) Off-grid solar applications 200 MW 1,000 MW 2,000 MW Utility grid power, 1,000-2,000 MW 4,000-10,000 MW 20,000 MW including roof top Source: JNNSM policy document. * Cumulative targets 2 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 1: JNNSM Objective & Strategy Objective Strategy Targets To establish Adopt a three-phase • To create an enabling policy framework for the India as a approach: deployment of 20,000 MW of solar power by 2022 global leader • To ramp up capacity of grid-connected solar power in solar energy, • Phase I (up to 2012-13) generation to 1,000 MW by 2013; an additional by creating • Phase II (2013-17) 3,000 MW by 2017 through the mandatory use of the policy • Phase III (2017-22) Renewable Purchase Obligation (RPO) by utilities conditions for backed with a preferential tariff. This capacity can be its diffusion Review capacity and targets more than doubled—reaching 10,000 MW of installed across the for subsequent phases power by 2017 or more—based on an enhanced and country as at the end of each phase enabled international finance and technology transfer. quickly as (corresponding to plan period The ambitious target for 2022 of 20,000 MW or more possible during 12th & 13th plans), as will be dependent on the ‘learning’ of the first two well as conduct a mid-term phases. evaluation based on emerging • To create favorable conditions for solar cost and technology trends, manufacturing capability, particularly solar thermal, both domestic and global for indigenous production and market leadership • To promote programs for off-grid applications, To protect the government reaching 1,000 MW by 2017 and 2,000 MW by 2022 from subsidy exposure in case • To achieve 15 million square meters (sq m) of solar expected cost reduction does thermal collector area by 2017 and 20 million by 2022 not materialize or is more • To deploy 20 million solar lighting systems for rural rapid than expected areas by 2022 Figure 2: JNNSM Phase I Chronology of Events Jan 2010 Feb 2010 Jun 2010 July 2010 Aug 2010 Launch of Benchmark tariffs - RPSSGP guidelines Batch 1 guidelines RfS for Phase 1 JNNSM CERC issued issued (Batch1) Oct 2010 Dec 2010 Jan 2011 Aug 2011 Nov 2011 PPA for migration Batch 1 bidding Batch 1 PPAs signed Batch 2 guidelines RFP for Batch 2 projects completed issued issued Dec 2011 Jan 2012 Jan 2012 Feb 2013 May 2013 PV (Batch 2) & CSP Batch 2 bidding Batch 2 PPAs signed PV (Batch 1) target CSP (Batch 1) target (migration) target completed COD COD COD CERC: Central Electricity Regulatory Commission; RPSSGP: Rooftop PV and Small Solar Generation Programme; RfS: Request for Selection; PPA: Power Purchase Agreement; RFP: Request for Proposal; COD: Commercial Operation Deadline 3 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 1.2.3 Capacity Allocation Process in JNNSM up to the quantum of capacity earmarked for Phase I each batch; • Discount on a fixed tariff (set at the level of GoI undertook several proactive steps in Phase CERC determined tariffs) used as the evaluation I, such as offering a bundling of solar power with criterion for selecting bidders; and unallocated coal-based power through the National • Bundling of solar power with cheaper Thermal Power Grid (NTPC) Vidyut Vyapar Nigam conventional thermal power to reduce the (NVVN), implementing a Renewable Purchase impact of higher solar tariff on utilities. Obligation (RPO) for solar power, instituting a Payment Security Scheme (PSS), and undertaking Figure 3 provides an overview of the capacity measures for promoting local manufacture of solar allocation process along with the key roles played by power; these initiatives combined to ensure the different stakeholders. success of Phase I. Phase I of JNNSM has witnessed active A summary of the key features of the capacity participation from the private sector in the grid- allocation process followed during JNNSM Phase I: connected segment with substantial discounts to the benchmark tariffs determined by CERC for • Benchmark tariff fixed for each financial year by solar thermal and solar PV projects, respectively. the Central Electricity Regulatory Commission MNRE played the crucial role of issuing JNNSM (CERC), followed by competitive bidding Phase I guidelines to select new solar power projects (reverse auction) to allocate projects to a set of and providing the essential policy framework for successful bidders with the lowest tariffs adding the development of solar power projects under Figure 3: JNNSM Phase I Capacity Allocation Process MNRE Guidelines for selection Ministry of Power NTPC CERC Allocation of power from Notifications of unallocated central quota (from bundling rates NTPC power stations) for bundling with solar power NVVN Power Sale Agreement at Power Purchase Agreement at Benchmark discounted tariff discounted tariff feed-in tariff Utilities allowed to Back-to-back Project use the solar part of State Utility Developer bundled power for meeting RPO Bankability of Power Project/balance Purchase Agreement sheet financing Public and private sector financial institutions 4 units of coal power bundled with 1 unit of solar power for sale to utilities 4 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I the bundling scheme for Phase I of JNNSM. The to continuous reduction in PV prices, the cost of guidelines provided clarity on the bidding process bundled power has also reduced. as well as the technical and financial qualifying criteria for bidders to participate in the bidding 1.3 Key Achievements of JNNSM Phase I process (Annex 2). 1.3.1 Capacity Additions under JNNSM Bidding for solar thermal and solar PV projects was undertaken separately, with each having a clear Capacity allocation under JNNSM Phase I was target (of 500 MW each) under the JNNSM Phase undertaken in two batches—projects under Batch 1 I guidelines. NVVN, a company engaged in the were awarded in January 2011 and those under Batch business of trading of power, was designated as the 2 in December 2011. These projects are in various nodal agency by the Ministry of Power (MoP) for stages of implementation, as shown in Figure 4. entering into Power Purchase Agreements (PPAs) with solar power developers. The power from the JNNSM Phase I implementation witnessed solar power plants is being purchased by NVVN appreciable scaling up of solar capacities within a and sold to distribution companies (Discoms) after short span of three years. Starting from a negligible bundling with power from the unallocated quota base, the total capacity reached 639.3 MW of power (at MoP’s disposal for allocation) from (including projects under the Rooftop PV and Small NTPC’s coal-based stations on equal capacity basis, Solar Generation Programme (RPSSGP)) by the thus effectively reducing the average per unit cost end of July 2013. CSP additions are likely to happen of bundled power. Table 2 shows the average per in 2014 (refer status of CSP projects and key players unit cost of bundled power. It can be seen that, due in Annex 3). Table 2: Cost of Bundled Power under JNNSM JNNSM Scheme Technology CERC Tariff - Discounted Weighted Bundled Power Type INR/kWh Tariff Range - Average Tariff - Tariff Range - (US$/kWh) INR/kWh INR/kWh INR/kWh (US$/kWh) (US$/kWh) (US$/kWh) Migration PV 17.91 (0.299) NA – 5.40-5.72 scheme (0.090-0.095) CSP 15.31 (0.255) NA – 5.31-5.62 (0.089-0.094) Batch 1 PV 17.91 (0.299) 10.95-12.76 12.12 (0.202) 4.34-4.67 (0.183-0.213) (0.072-0.078) CSP 15.31 (0.255) 10.49-12.24 11.48 (0.191) 4.49-4.81 (0.175-0.204) (0.075-0.080) Batch 2 PV 15.39 (0.257) 7.49-9.44 8.77 (0.146) 3.73-4.05 (0.125-0.157) (0.062-0.068) Source: NVVN. kWh: kilowatt hour; NA: not applicable. 5 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 4: Status of JNNSM Capacity Additions—July 2013 500 450 400 350 300 250 200 150 100 50 30 54 48 2.5 140 140 470 50 340 310 0 Migration Migration Batch Batch Batch Scheme PV Scheme CSP 1 PV 1 CSP 2 PV PPA Signed Commissioned Source: Authors’ research. 1.3.2 Solar Tariff Trends in JNNSM Phase I The weighted average bid price for CSP was also lower than the CERC benchmark CSP tariff. Solar PV bidding in Phase I was undertaken in two The range of bidding was between INR 10 per batches. With JNNSM adopting a reverse auction kWh (16.7 cents per kWh) to INR 12.5 per kWh method for awarding projects to qualified bidders, (20.8 cents per kWh). A snapshot of the bidding weighted average levelized tariffs for selected solar trends that emerged in the solar thermal (CSP) PV projects declined sharply between the two segment during JNNSM Phase I is shown in batches in Phase1 from INR 12.12 per kilowatt hour Figure 6. (kWh) (22.4 cents per kWh) to INR 8.77 per kWh (16.24 cents per kWh), making India amongst the The open and transparent reverse tariff bidding lowest cost destinations for grid-connected solar PV process has demonstrated an appreciable in the world. A snapshot of the bidding trends that reduction in the average tariffs for both PV and emerged in the solar PV segment during JNNSM CSP projects. The weighted average tariff rate for Phase I is shown in Figure 5. Batch 1 PV projects is around 32 percent below the benchmark tariff set by CERC while the weighted There was a decline of around 27.6 percent in the average tariff rate for Batch 2 PV projects is 43 weighted average tariff for the projects bid out in percent below the benchmark tariff set by CERC. Batch 1 and those bid out in Batch 2. While the For CSP projects, the weighted average bid tariff tariff range during Batch 1 bidding process was is around 25 percent below the CERC benchmark between INR 10.95 per kWh (18.3 cents per kWh) tariff (refer Annex 4 for chronology of reverse and INR 12.96 per kWh (21.6 cents per kWh), it bidding process adopted and level of participation came down to between INR 7.49 per kWh (12.5 in JNNSM Phase I and the international cents per kWh) and INR 9.44 per kWh (15.7 cents experience for auctioning renewable energy-based per kWh) during the Batch 2 bidding process. power capacity). 6 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 5: JNNSM Phase I Solar PV Tariff Trends JNNSM Phase I: PV segment tariff bidding trends 20 18 16 INR 5.75 (US$0.11) 14 INR per kWh 12 INR 3.34 (US$0.06) INR 6.57 (US$0.12) 10 8 6 4 2 0 PV Bid Tariff Batch 1 Average Tariff Batch 1 Benchmark Tariff Batch 2 Average Tariff Batch 2 Benchmark Tariff Source: NVVN report. Figure 6: JNNSM Phase I Solar Thermal Tariff Trends JNNSM Phase 1 : CSP segment tariff bidding trends 18 15 Benchmark Tariff: INR 15.04 per kWh (US$0.25 per kWh) Average Levelized Tariff: INR 11.71 per kWh (US$0.20 per kWh) 12 INR per kWh 9 6 3 0 Lanco KVK Megha Reliance Aurum Godavari Corporate Energy Engineering Power Renewables Power Ispat CSP Bid Benchmark Tariff Average Tariff Source: NVVN report. The bidding process provided a transparent means the global market, a result of cut backs in demand of determining tariffs in a highly uncertain global from several European economies, increased levels solar PV market and, in the process, benefited of competition on the supply side, and a resultant from rapidly declining solar PV module prices in surplus in supply in the international market. 7 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I This has definitely helped India in driving down leaving the private sector to focus only on solar solar tariffs in the short term and moving closer to project development. achieving grid parity in the long term. The first solar park, developed in Charanka (Patan JNNSM has been instrumental in bringing the district), is currently the largest cluster of solar purchase price of both PV and CSP to a globally capacity in Asia. It provides developed land along competitive level. Figure 7 shows India’s experience with infrastructure, including power evacuation, of very low bid out tariffs against feed-in tariffs roads and water for developers, thus ensuring a fast- (FiTs) across major countries in the world. track development of solar projects. The Gujarat Power Corporation Limited (GPCL) is the nodal 1.4 State Solar Policies agency mandated to develop, operate and maintain the solar park. The state has awarded projects on Several state governments in India have declared first-come-first-served basis at the FiT determined their state-level solar policies to promote solar by the Gujarat Electricity Regulatory Commission generation. The following section provides an (GERC). overview of the developments in various states. Gujarat has also taken the lead in developing a grid- 1.4.1 Gujarat connected solar rooftop program based on gross metering with the rollout of the 5 MW Gandhinagar Gujarat has been at the forefront of solar solar rooftop program in 2011. Developers have development in India. It was the first state to been selected through a competitive bidding declare a solar policy in 2009. It has also initiated process, and a Green Incentive of INR 3 per kWh the development of solar parks, with the provision (US$0.05 per kWh) has been provided to the of publicly developed associated infrastructure, rooftop owners. Figure 7: PV and CSP Tariff Comparison Across Countries 25 22.68 20 18.90 16.74 16.20 15.66 14.04 15.12 INR pwe kWh 15 12.96 12.42 10.21 10 7.56 5 0 ce ly ia y ca ly l ce co lan d an Ita ys an ri ain Ita ga ee oc er Fr a la r m Af Sp rtu Gr or itz M Ge ut h Po M Sw So PV Tariff CSP Tariff India Batch 2 - PV India Batch 1 - PV India CSP Source: wind-works.org and author’s research. 8 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 1.4.2 Rajasthan 1.4.4 Karnataka Rajasthan Solar Policy (2011) aims to develop the The Karnataka State Solar Power Policy (2011) has state as a global hub of solar power with around set the target of achieving 126 MW of solar power 10-12 GW of capacity to be developed over the next up to 2013-14, to meet the RPO imposed by the 10-12 years. Focus areas include grid interactive regulator, of 0.25 percent till 2013-14 from solar solar power projects, decentralized and off-grid sources. A tariff-based competitive bidding process solar applications, setting up of demonstration has been proposed for the selection of developers. projects, developing solar parks, and promoting solar thermal collectors. 1.4.5 JNNSM and State Policies The allocation of generation projects of 100 MW JNNSM provided an overall national plan for solar capacity in Phase I of the state policy was completed power capacity addition which is implemented recently and projects were awarded through a under the aegis of MNRE (GoI). The state-level competitive bidding process along lines similar to policies are designed and implemented by the those used under JNNSM. state governments and work in tandem with the JNNSM. Table 3 shows the capacity targets 1.4.3 Tamil Nadu set under various state policies and a detailed comparison of criteria and processes followed is The Tamil Nadu Solar Policy (2012) has targeted provided in Annex 2. a total of 3,000 MW by 2015. Of this, 500 MW is proposed to be achieved through the newly JNNSM, along with state solar policies, has led to imposed Solar Purchase Obligations (SPOs) on the rapid augmentation of solar capacity in India consumers who receive power from Discoms at within a period of three years. Table 4 shows the more than 11 kilovolt (kV). installed capacity (as on March 2013) under various initiatives across different states. Around 1,000 MW of grid-connected capacity addition is proposed through the competitive The successful implementation of projects under bidding process while another 350 MW would be JNNSM Phase I and Gujarat State Solar Policy generated through solar rooftop projects. has firmly established the solar footprint in the Table 3: Solar Policy Capacity Targets and Status Particulars Gujarat Karnataka Rajasthan Madhya Andhra Tamil Nadu Pradesh Pradesh Period (FY) 2010-14 2013-16 2013-17 2012-13 2013-17 2013-15 Capacity 500 MW 250 MW 600 MW 200 MW 1,000 MW 3,000 MW targets Capacity 972 MW 80 MW 100 MW 200 MW 1,000 MW 1,000 MW invited (up to March 2013) Source: Authors’ research. 9 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Table 4: Installed Solar Capacities (MW) under Various Schemes State State Policy JNNSM RPSSGP/GBI REC Scheme Other Total (MW) Projects Andhra - 11.40 9.75 - 2.00 23.15 Pradesh Arunachal - - - - 0.03 0.03 Pradesh Chhattisgarh - - 4.00 - - 4.00 Delhi - - - - 2.53 2.53 Goa & UTs 6 - - - - 1.69 1.69 Gujarat 824.09 - - - - 824.09 Haryana - - 7.80 - - 7.80 Jharkhand - - 16.00 - - 16.00 Karnataka - 5.00 - - 9.00 14.00 Kerala - - - - 0.03 0.03 Madhya - - 5.25 6.50 - 11.75 Pradesh Maharashtra - 16.00 5.00 9.50 4.00 34.50 Odisha - 5.00 8.00 - - 13.00 Punjab - 2.00 6.00 - 1.33 9.33 Rajasthan - 372.5 12.00 6.85 50.90 442.25 Tamil Nadu - 5.00 6.00 1.055 5.00 17.06 Uttarakhand - - 5.00 - 0.05 5.05 Uttar Pradesh - 5.00 7.00 - 0.38 12.38 West Bengal - - - - 2.00 2.00 Total 824.09 421.9 91.80 23.91 78.91 1,440.6 Source: MNRE website/reports. Indian power sector. Gujarat State Policy received FiT instead of competitive bidding; enthusiastic response and, amongst states, currently • Availability of waste land and government has the highest share of solar power installed support in acquiring this land; Gujarat capacity under state policies due to: had identified a land bank for solar power development (by developing solar parks) from • Gujarat being the first state to award projects wasteland areas available in the state; under its state solar policy even before projects • Gujarat being one of the few states with were awarded under JNNSM; profitable electricity distribution utilities, • Projects allocation being based on the favorable offering high procurer creditworthiness; and 6 Union Territories: Puducherry, Lakshadweep, Andaman & Nicobar Islands. 10 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I • Provision of a transmission evacuation facility by The announcement of JNNSM Phase II and GETCO. state-level solar policies is likely to accelerate development of the solar sector in coming years. The launch of JNNSM provided an opportunity for However, there are certain barriers and challenges states such as Rajasthan (with good solar radiation which need to be addressed in the short to levels and wasteland availability) to procure solar medium term. It is, thus, important, to evaluate power to meet their solar RPO compliance. The the success of JNNSM Phase I, covering broader bundled power offered under JNNSM Phase I objectives and actions points rather than focusing ensured a lower burden on state utilities, compared only on capacity installations. The following to the higher tariff levels of solar power. This has chapters analyze the key barriers and challenges been followed by the separate solar power capacity for the solar sector in India and provide the way allocation through state solar policies. forward to address them. 11 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 12 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 2. Scaling up under JNNSM: Barriers and Challenges There is little doubt that the outcome of the large These objectives have been qualitatively evaluated grid-connected solar PV program under JNNSM in terms of the key actions required to meet has been very encouraging. Most PV projects in them and their outcome during JNNSM’s Phase I Batch 1 were able to achieve financial closure and implementation. Figure 8 shows the summary of our commissioning within the specified deadline. analysis. Projects in Batch 2 have also made good progress in meeting their commissioning schedule in 2013. Viewed in the context laid out in Figure 8, it is JNNSM Phase I, despite its emphatic beginning, essential to identify and address the key challenges is modest in its capacity compared with the faced by stakeholders, which could prevent the overall vision for solar energy under the mission. program from reaching, and possibly exceeding, the Factors such as creation of policy and a regulatory target of 20 GW of grid-connected solar capacity in framework, manufacturing capacity, financing, the country by 2022. and so on, are very important for meeting the long-term objectives of the solar mission. Thus, it Among the various issues identified, the following is essential to view this program in the context of need closer deliberation to help evolve solutions for the overall targets under JNNSM. In order to gain subsequent phases of the mission: a comprehensive understanding of various action points in JNNSM Phase I, the following key JNNSM • Lack of adequate participation of Scheduled objectives require a closer look: Commercial Banks (SCBs) in solar financing; • Bottlenecks in the enabling environment; • Creating a functional policy and a regulatory • Payment security for future projects; framework; • Unintended technology outcomes over Phase I; • Facilitating favorable conditions for solar power • Beleaguered local solar manufacturing production/manufacturing; and environment; • Meeting capacity targets under each phase and • Adequacy of the current approach to developing preparing for the next phase. solar thermal projects; and 13 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 8: Key Observations on Phase I of JNNSM JNNSM Objectives Actions Results Key Observations Optimizing public investment utilization Financing of solar projects is a challenge, CSP in particular is facing problems Creation of Acceptable risk sharing & reasonable Risk sharing framework – project financing still functional policy competition some way off; long-term predictability on pricing and regulatory is uncertain framework Transparency and nondiscriminatory Competitive bidding allowed achievement of allocation transparency in bidding and nondiscrimination in project award and permitting Solar manufacturing capacity additions Limited success in solar manufacturing capacity; during Phase I global uncertainty in solar PV manufacturing Facilitate favorable Manufacturing policy for solar sector Solar policies more focused on power generation; conditions for need for integrated industrial policy manufacturing DCR Under discussion Grid-based PV capacity additions Solar PV has met its targets and witnessed huge participation from diverse players Meeting capacity targets under Phase Grid-based CSP capacity additions CSP – faced certain challenges during Phase I I and preparedness for Phase II Developing framework for Phase II Under discussion Strong Weak Source: Authors’ research. • Enforceability of RPOs and concerns around into four categories: SCBs; nonbanking financial solar Renewable Energy Certificates (RECs). services including infrastructure finance companies; bilateral/multilateral financial institutions including This chapter presents these issues in brief as a their private sector financing arms; and export background to the essential policy and design credit agencies including EXIM banks. choices that are debated in the next chapter, and need to be resolved to ensure the success of the 2.1.1 Scheduled Commercial Banks mission over subsequent phases. Several SCBs participated in solar projects in 2.1 Lack of Participation of Scheduled JNNSM Phase I and in projects under state policies. Commercial Banks in Solar Financing However, their cumulative market share was less than 25 percent and no single SCB featured The financial institutions, which led debt financing among the leading lenders to solar projects. Such to solar developers in Phase I, could be classified financing was also available only to established 14 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 9: Types of Debt Financing Available to Solar Developers Debt financing Domestic sources External sources Nonbanking Financial Scheduled Commercial Banks Multilateral/Bilateral Agencies Export Credit Agencies Services Example Example Example Example • State Bank of India • L&T Infra Finance, IDFC • International Finance • U.S. EXIM Bank • Bank of Baroda • PFC Green Ventures Corporation (IFC) • EXIM Bank of China • State Bank of Patiala • DFC • Asian Development Bank • Canara Bank • IREDA (ADB) • Yes Bank • Overseas Promotion & • IDBI Bank Investment Corporation • Axis Bank (OPIC) corporates, with SCBs exercising discretion in have financed private solar projects in India. While qualifying borrowers for solar financing. SCBs financing by international financial institutions also participated mostly through consortium was a welcome feature of Phase I, it is limited in lending routes, with even small projects of 5 MW its availability for private projects or is tied in being financed by a group of lenders, resulting in nature and cannot form the mainstay of financing prolonged timelines for arranging finance. for scaled up targets envisaged under subsequent phases of JNNSM. 2.1.2 Nonbanking financial services including infrastructure finance companies 2.1.4 Export credit agencies including EXIM banks In India, a Non-Banking Financial Company (NBFC) can either be an infrastructure debt fund, Equipment-linked financing through foreign EXIM a dedicated power sector financing company, or banks had the highest share of debt in Phase I, an investment company. Select prominent NBFCs led by U.S. EXIM bank. This type of funding was such as Larsen and Toubro (L&T) Infra Finance, available for projects that imported equipment. Infrastructure Development Finance Company Although they were technology neutral, a few (IDFC) and PFC Green Ventures financed several suppliers emerged as primary beneficiaries of Phase I projects. this financing. Projects under the Gujarat Solar Policy too benefitted significantly from low-cost, 2.1.3 Bilateral/multilateral financial institutions long-tenor financing available from export credit including their private sector financing arms agencies, including, in particular, the U.S. EXIM bank, which was among the prominent lenders to International Finance Corporation (IFC), Asian solar projects in India. Development Bank (ADB) and Overseas Promotion and Investment Corporation (OPIC) are some Higher dependence on foreign financing creates prominent international financial institutions that mismatches in currency flows, as the revenues 15 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I of the solar projects are all denominated in INR a higher perception of risk. Lack of on-field while overseas debt servicing is in foreign currency. irradiation data in Phase I added to the risk The study also indicated limited or no hedging by perception of lenders; developers which was always fraught with risk, as • Solar projects involving smaller ticket sizes are at indicated by the unprecedented depreciation in a disadvantage when considered within the same INR in 2013. This will affect the future risk appetite sector limits applicable to conventional power for such structures. From this perspective too, projects; participation of domestic banks becomes even more • Concessional sources of financing in the critical for the success of the program in the future. form of suppliers’ credit and direct lending by development banks effectively crowded out The experience from infrastructure financing commercial financing from SCBs, particularly for private sector projects in India shows that without the availability of any concessional lines SCBs have led from the front in the absence of a of credit for SCBs in Phase I; sufficiently active debt market, and account for • SCBs expressed concerns with the bid-out tariffs more than 80 percent of such debt disbursements on several projects, which were considered (ADB 2011). The importance of SCB financing to extremely aggressive and unviable with the power sector can also be ascertained from the commercial finance even under P90 scenarios.7 fact that it showed a compounded annual growth Collaterals and securities were not considered of 42 percent over a six year period from FY2007- substitutes for debt serviceability, as defaults 12 (Reserve Bank of India (RBI) Financial Stability trigger debt restructuring and Non-Performing Report, 2011 & 2012). It is in this context that the Assets (NPAs) that create regulatory issues lack of active participation by SCBs in the Indian for financiers, even if such defaults may be solar program is worrisome. recoverable against securities; • SCBs’ evaluation of projects indicated several Phase II of JNNSM, in which 3,600 MW of capacity infrastructural bottlenecks, which were is proposed to be developed under central schemes, additional sources of risks. These included would require an investment of around US$5.8 factors that are covered in a subsequent section billion (Annex 5) which, at 70:30 debt-equity ratio, in this chapter; and translates into a financing requirement of around • The PSS instituted by MNRE, although well received, was considered to have given US$4.1 billion. Taking the financing landscape substantial discretion to NVVN, leading to lack of Indian infrastructure into consideration, it is of clarity on its enforceability. inconceivable for JNNSM to scale up to the levels envisaged in subsequent phases and beyond without SCBs as well as other lenders, consulted during the the active participation of SCBs. study, raised certain issues with the standard PPA. These are briefly summarized in Annex 6. SCBs consulted during the study pointed to the following reasons for their lack of serious participation in Phase I of the program: 2.2 Bottlenecks in the Enabling Environment • Emerging nature of solar technologies and lack of SCBs’ familiarity with the range of The promotion of solar power generation in JNNSM technologies deployed by developers led to Phase I witnessed a number of key bottlenecks8 7 P90 refers to a probabilistic scenario where irradiation profiles are assumed, on average, to be in the 90 percent confidence range. 8 Bottlenecks identified based on the stakeholder consultation undertaken; PV and CSP supply chain issues not covered. 16 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I in the current enabling environment, spanning commissioning because the State Transmission administrative and institutional readiness, knowledge Utility (STU) had not made the transmission line and capacity of key stakeholders, and limited data ready. Many developers indicated that getting availability. Some of the key bottlenecks are: right of way for laying the water pipeline or power evacuation line is cumbersome and involves • Land acquisition a cumbersome process: Land receiving consent from multiple parties; and acquisition is a major stumbling block for the • Limited state and center level coordination: development of solar power projects. According With no established framework for coordination to developers, converting land use designations between the state agencies and MNRE is extremely time-consuming (involving administered institutions such as SECI, the Solar clearances from Gram Panchayats, Departments Energy Center (SEC) and the Indian Renewable of Rural Development and Revenue, and so on) Energy Development Agency (IREDA), lack causing unnecessary delays; of clear mapping of responsibilities between • Delays due to approvals and clearances: The the various agencies in the public domain, absence of a single window clearance mechanism compels developers to navigate on their own. under the state policy framework further delays Although most clearances and consent must solar project installation as there is limited be obtained at the state level, it is worthwhile coordination between different departments/ for MNRE to establish a procedural roadmap agencies. Frequent policy and guideline changes for solar development with a clear mapping of further complicate the process, leading to lack of responsibilities of intervening public institutions, clarity across different agencies/departments; both at the state and the center. • Limited data availability: Limited availability of data on solar irradiation levels, land availability, water availability, grid loading and availability, 2.3 Payment Security for Future Projects and so on, were bottlenecks experienced by solar projects across regions. A number of JNNSM Phase I offered bundling of 1,000 MW of financers have raised concerns about lack of coal-based generation capacity from NTPC with ground-level technology performance data and solar power of 1,000 MW through NVVN and its effectiveness in the Indian environment, instituted a PSS. The combination of NVVN as a especially related to CSP. MNRE, along with the counterparty to all contracts in Phase I and PSS9 as Centre for Wind Energy Technology (C-WET), a security against defaults by Discoms was seen as has initiated steps to overcome the issue related a robust framework for a fledgling solar industry to solar irradiation levels by setting up Solar characterized by new, emerging players with limited Radiation Resource Assessment (SRRA) stations; financial strength. • Availability of support infrastructure (water/ power evacuation): Timely availability of The PSS is unique to solar10 power and was power evacuation continues to be a concern instituted by GoI in recognition of the infancy and has resulted in delays in commissioning of the solar industry, higher cost of solar with an of solar power projects, including in states that associated higher risk perception of defaults, and have identified land banks. Around seven solar lack of exposure of Indian financial institutions to PV projects in Batch 1 faced similar delays in solar power generation. 9 Concerns were raised by financiers on the discretion accorded to NVVN in defining defaults and in assessing the Solar Payment Security Account (under the PSS). 10 For instance, the successful wind energy program with over 18 GW of installed capacity in India was developed without any government financed payment security mechanism. 17 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Over subsequent phases of JNNSM, however, With a rapidly decreasing tariff scenario in solar bundling is no longer a major option because power and increasing knowledge and exposure of of limited availability of unallocated power all stakeholders, the need for PSS may gradually and, therefore, the continuity of NVVN as the dwindle. For Phase II, however, payment security counterparty is in doubt. shall remain a concern, particularly with the increasing concentration of solar projects in some As per the JNNSM Phase II Batch I guidelines, SECI states and the weak financials of distribution shall set up a payment security mechanism to ensure utilities in most states in India. timely payment to the developers. This fund will have a corpus to cover three months’ payment. The rules to operate this fund will be framed by MNRE. As 2.4 Unintended Technology Outcomes per the draft Phase II policy document, the National of Phase I of JNNSM Clean Energy Fund (NCEF)11 is proposed to be used as a Viability Gap Funding (VGF) measure in the last Phase I bidding took place in two batches12 over resort, ensuring that the minimum possible NCEF August 2010 and August 2011—a period that funds are made available during the project cash-flow witnessed the sharpest decline in module prices timelines to ensure project viability (refer Annex with cut backs in demand from some European 7). In addition, there could be a case for utilization countries, following the Eurozone recession. The of NCEF for the creation of a Non-Risk Guarantee global trend in polysilicon supply, polysilicon spot Fund, which can take care of the payment risk to prices, and module prices over the last few years has private utilities under the solar mission. been detailed in Figure 10. Figure 10: Global Solar PV Market Trends 400 4 350 3.54 3.5 3.25 Polysilicon Price (US$/kg) 300 3 255000 Module Price (US$/W) 235000 250 2.65 2.5 200 159900 2 150 1.5 96000 100 66000 1 52000 0.7 28200 37500 50 26700 31200 0.5 35 16 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (E) Polysilicon Supply (MT) Polysilicon Spot Prices (US$/kg) Module Prices (US$/W) Source: EPIA, REC-SAGE, Bernreuter Research, BNEF, IHS iSuppli Module Price Index, authors’ research. 11 NCEF is expected to generate US$644 million in FY 2012-13. 12 For solar PV technology only. 18 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I The consequent over-supply and build-up of inventory In India, on the contrary, the share of TF in overall affected the prices of cells and modules, resulting in a PV installations over Phase I of JNNSM is close to consistent decline through 2011 and 2012. There has 70 percent (Figure 11). This unintended outcome been an upward trend in the prices of key components (refer Annex 8) is a result of two factors. First, during the first half of 2013. For example, the the Domestic Content Requirement (DCR) for Bloomberg New Energy Finance (BNEF) Solar Spot c-Si required cells and modules to be mandatorily Price Index showing average polysilicon prices just procured from domestic manufacturers over Batch over US$17 per kilogram (kg), up from a low of US$16 2. Owing to a low TF manufacturing base in India, per kg in December 2012. Module prices have also DCR was waived for TFs. Domestic manufacturers risen slightly, with Chinese modules from reputable have struggled to be competitive in a volatile and suppliers widely commanding US$0.75 per watt (W) rapidly declining price environment led by and international modules US$0.86 per W.13 Chinese suppliers. Several suppliers the world over have struggled to Second, established TF suppliers based out of the be cost-competitive in this environment, and PV United States were ready to supply competitively manufacturing continues to experience closures priced TF modules along with the provision of and consolidations. Globally, Thin Film (TF), low-cost, long-tenor debt14 from U.S. EXIM. Faced which once accounted for 30 percent of the market, with an economically attractive option and supply has been losing share steadily. With the dramatic from more established and proven U.S. suppliers decline in Crystalline Silicon (c-Si) prices, the value compared with domestic manufacturers, developers proposition of TF as a lower cost option has eroded opted widely for TF. over time, and it has continued to lose market share resulting in a long list of suppliers shutting down Thus, DCR, which was intended to promote their manufacturing units. It accounted for only 11 the local manufacturing industry, has actually percent of the global PV market at the end of 2011. resulted in a skewed technology choice and Indian manufacturers have derived minimal benefit from the program. Further, both c-Si and TF have Figure 11: relative pros and cons, as various international JNNSM Phase I Solar PV Technologies Used studies have shown, although TF has steadily lost global market share to c-Si. It is currently almost impossible to predict which technology Batch 75% 25% will perform better in the Indian environment in 2 the long run. This uncertainty, combined with the global preference for c-Si as against the preference Batch 55% 45% for TF in India, might cause potential issues in 1 the unforeseeable future for the rapidly growing TF c-Si Indian solar sector. 13 Source: bnef/PressReleases/text/318 – August 2013. 14 Foreign debt has been available for a tenor of 15 years and longer (IFC, OPIC, US EXIM); OPIC/overseas EXIM loans have been available at under 5 percent Fx denominated. 19 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 2.5 Beleaguered Local Solar at an average capacity utilization of less than 50 Manufacturing Industry percent. On the other hand, lack of solar thermal manufacturing experience limits domestic JNNSM embodies the significant objective of technology supply options in the absence of critical developing India into a leader in high-quality, low- locally manufactured components. cost solar manufacturing. In Phase I, to provide support to domestic manufacturers, GoI included 2.5.1 Solar PV a DCR for both c-Si and solar thermal-based projects (refer Annex 9). As is apparent, not only Globally the upstream segments in solar PV did this measure not contribute to the expansion manufacturing are highly competitive, technology- and development of the Indian manufacturing and capital-intensive, and have followed a research- industry (the Indian solar PV manufacturing based learning curve. Only seven companies industry actually contracted in size during this constitute up to 90 percent of the total polysilicon period), but it also did not provide support for market and five companies provide up to 90 making the industry more competitive in the percent15 of the total ingot production in the world. global solar PV market. The domestic solar PV Figure 12 provides a broad overview of the global manufacturing industry continues to operate solar PV production. Figure 12: Global Solar PV Production Overview—2012 Beginning Inventory Total Total Total Total across value 39.82 GW 31.69 GW 31.05 GW 34.00 GW chain carried forward from 2011 to 2012 All Others, 9833 All Others, Daqo, 692 15592 KCC, 846 All Others, All Others, Tokuyama, 1354 17946 19949 LDK, 1692 MEMC, 2102 REC, 2923 Solarfun, 1000 GCL Solar, GreenEner, 1080 4839 Jiangsu, 1200 Kyocera, 775 China Sun, 840 ~5 GW SolarWorld 1300 Motech, 900 Sharp, 905 (2011) Glory Si, 1500 Gintech, 905 Solarworld,950 Hemlock, 4985 Solarfun, 925 Jinko Solar,1050 Renesola, 1505 Canadian S, 1050 Hanwha, 1200 Yingli, 1667 Q-Cells, 1100 Yingli, 1500 Yingli, 1500 Trina, 1550 Wacker, 5213 GCL, 2200 Trina, 1550 Canadian, 1675 REC, 2252 Suntech, 1900 Suntech, 2140 OCL, 5342 LDK, 2400 JA Solar, 2500 LDK Solar, 2250 Inventory Polysilicon Wafer Cell Module Source: GTM research, polysilicon excludes production for semi industry. 15 Exploring the effectiveness of local content requirements in promoting solar PV manufacturing in India, Deutsches Institut für Entwicklungspolitik (German Development Institute), 2013. 20 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I India’s existing solar PV manufacturing capacity is, cells and modules—of the c-Si value chain, has however, limited and does not straddle the high- historically catered to exports. With Chinese and end technology upstream segments of the industry, Taiwanese manufacturers cornering market share in such as polysilicon, wafers and ingots. While c-Si solar PV globally through integrated operations there is no polysilicon manufacturing capability and GW scale installations, Indian exports have in India, technically around 15 MW of ingot and declined significantly. Indian manufacturers have wafer manufacturing capacity exists, although this struggled to be price-competitive in the current is a pilot unit which is not commercial in nature.16 environment, mainly due to high input costs of The Indian solar manufacturing segment is, thus, technology, power, and raw materials. primarily represented by solar cell and module manufacturers, which are tail-end and lower value The PV manufacturing industry in India has also addition segments. not been able to integrate backwards in the areas of wafer and polysilicon manufacturing, thus Figure 13 highlights the attractiveness of the being substantially dependent on imports for raw Indian solar PV industries vis-à-vis international materials and consumables. This has resulted in a benchmarks.17 significantly high cost at cell and module level for Indian manufacturers as compared to competition Indian solar PV manufacturing, restricted primarily from Chinese and other Asian countries, as to the lower value-added segments—namely indicated in Figure 14. Figure 13: Attractiveness of Solar PV Component Industries in India vis-à-vis International Benchmarks Solar Glass Polysilicon TF Material Modules c-Si TF Modules Ingot Wafers Inverter Cells Support Structure India Benchmark Average Source: The World Bank report - Competitiveness Assessment of MENA countries to Develop a Local Solar Industry. 16 This was a testing unit which was made available purely for R&D purposes to an Indian solar facility. 17 Benchmark based on average for eight countries: Chile, China, Germany, India, Japan, South Africa, Spain and the USA. 21 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 14: Cost Comparison—Cell and Module (India, China and other Asian Countries) 34 Cents/ 40.00 Wp 28 cents/ 27 Cents/Wp Wp (India) (India) (Chinese and other Asian 30.00 countries) 19 cents/Wp Cost (Cents/Wp) (Chinese and other Asian countries) 20.00 28 15 22 12 4 10.00 1 2 5 3 1.5 2 1 1.75 1.50 1 0.75 3 2 0.00 1.25 1 Module manufacturing cost Cell manufacturing cost Depreciation Interest (Incl WC) Manpower Utility & Spares Balance of Material (Incl. Duties & Tax) Source: Securing the Supply Chain for Solar in India by FICCI Subgroup on Securing Solar Supply Chain (2013). Wp: Watt peak. The development of an appropriate solar patented. Despite the presence of large power sector manufacturing ecosystem is the key to manufacturing capacity within the country as well enhancing the competitiveness of Indian solar as availability of a skilled labor force, India has not PV manufacturing. However, several solar PV been able to manufacture or produce some of the manufacturers in India currently face issues related critical components for solar thermal projects such to lack of raw materials, nonavailability of low-cost as receiver tubes and mirrors. In some cases, such as financing, and an underdeveloped supply chain in the manufacture of reflecting surfaces, the lack of leading to high inventory costs. Lack of capital natural resources (low-iron sand, in this case) poses also impacts adoption of new technologies and an impediment to indigenization. In other cases, ability to innovate to achieve higher efficiencies and such as in the manufacture of vacuum tubes, the competitive costs. obstacle is the lack of relevant technical know-how that is still proprietary and owned by a select few. The status of Indian solar PV manufacturing and its declining exports have been summarized in Figures 15 and 16 detail the present local Annex 10. manufacturing capability for CSP in India and attractiveness of CSP component industries vis-à- 2.5.2 Solar Thermal vis international benchmarks.18 Local manufacturing in solar thermal is complex as It is well acknowledged that solar thermal products technology suppliers are limited and their products and equipment can be potentially manufactured in 18 Benchmark based on average for eight countries: Chile, China, Germany, India, Japan, South Africa, Spain and the USA 22 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 15: Present Local CSP Manufacturing Capability in India Low or absent Medium High Receiver (PT) Receiver (CR) COMPONENT/MATERIAL Mirror (PT) Mirror (CR) Drive/Tracking (PT) Drive/Tracking (CR) Htf (Synthetic Oil) And Molten Salts Turbines PT: Parabolic Trough, CR: Central Receiver Source: The World Bank Report - Development of Local Supply Chain: A Critical Link for Concentrated Solar Power in India. Figure 16: Attractiveness of CSP Component Industries in India vis-à-vis International Benchmarks Condenser Structure & tracker Generator Storage tank Heat exchanger Steam turbine HTF pumps Solar Salt HTF thermal oil Receiver Mirror Pumps India Benchmark Average Source: The World Bank report - Competitiveness Assessment of MENA Countries to Develop a Local Solar Industry. 23 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I synergy with other industries such as automotive, suffer from immature manufacturing value chains and glass, metal, chemicals, power equipment, process have not been able to achieve sufficient scale to drive heat, and construction. Given the presence of well- down costs. The solar thermal industry is made up developed local players across most of these industries of oligopolies led by technology developers who also in India, the potential for indigenization and cost own significant portions of the supply chain. Most reduction in solar thermal technologies is very high technology developers have created their unique, —provided standardization in configurations, scale, patented products and segments of the value chain with and commercialization are accelerated, prompting alternative uses,19 and experience periodic capacity investments along the value chain. It, however, requires gaps and volatility in prices. The status and key action a coordinated ecosystem development, with adequate points for Indian solar thermal manufacturing have technology partnerships to move existing industries to been summarized in Annex 11. commit to such manufacturing. Solar thermal capacity additions the world over have The importance of developing a local competitive also been developed with substantial public financing, solar industry cannot be understated. It brings us to as appreciation and experience of commercial the important policy debate on the best set of actions financiers of such technologies is mostly nonexistent to make Indian solar manufacturing truly global in (refer Annex 12). character. To fully address the objective of making India a leader in solar manufacturing, GoI will need to Solar thermal projects require a range of preparatory critically evaluate current domestic strengths in solar activities including clearances and consent as well as manufacturing; international market situation and on-field Direct Normal Irradiance (DNI) measurement. competitiveness; and availability of domestic funds. Given the infancy of the solar market, the absence This subject is examined further in the next chapter. of on-field radiation data and a lack of familiarity amongst financial institutions when the projects were 2.6 Adequacy of the Current Approach bid in 2010, JNNSM’s schedule of 28 months for commercial operation date (COD) was ambitious. This to Developing Solar Thermal Projects is particularly so without a public funding roadmap under Phase I, which seems to be the norm globally for The framework for award of projects in Phase I of solar thermal projects. It is not surprising, therefore, to JNNSM, similar to that used for solar PV, was the note that all solar thermal projects bid under JNNSM reverse auction, through which seven projects totaling are running behind schedule. 470 MW were awarded under Batch 1. In the above context, and given the initial phase of Unlike solar PV, which has a range of fully commercial development of solar thermal technologies in India, it technologies with substantial scale of deployment (over is worth examining whether the existing framework for 100 GW installed capacity) as well as manufacturing awarding projects is adequate or a different disposition capacity, solar thermal or CSP with only 2.2 GW is required. of installations globally is far from commercially applicable. 2.7 Enforceability of RPOs and Concerns While solar PV bidders under JNNSM benefitted from around Solar RECs a rapid post-bid decline in module and cell prices, solar thermal has not experienced any significant price RPOs are the cornerstone of renewable energy reductions. Solar thermal technologies continue to capacity development in India, as envisaged under 19 For example, heat transfer fluids were globally in short supply in 2012 resulting in a spurt in their prices. 24 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 17: Solar RPO and Capacity Addition 40,000 3.50% 3.00% 35,000 3.00% Capacity Requirement (MW) 30,000 Solar RPO Targets (%) 2.25% 2.50% 25,000 2.00% 20,000 34,152 1.50% 15,000 1.00% 29,247 24,839 1.00% 10,000 20,885 5,000 15,176 0.50% 7,560 10,127 3,291 5,291 1,536 0.00% 0 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Solar Capacity Requirement for RPO Compliance Solar RPO Source: SECI Presentation: Achievements of JNNSM Phase I and Vision for Phase II (2013). the Electricity Act, 2003 and the National Electricity to 2017, and there is likelihood of solar REC prices Policy. They provide the necessary demand-pull coming down drastically by the end of the current by mandating distribution utilities and obligated control period, that is, FY 2017. This is the key issue entities to mandatorily procure a proportion facing investment or financing of solar projects of their power requirements from renewable through the REC route, given the uncertainty of cash sources, including a specific percentage from solar flows beyond 2017 and the likelihood of decreasing energy. MNRE estimates solar capacity addition revenues beyond 2017, with the gap between average requirement to be 34 GW to achieve the 3 percent power procurement cost of utilities and solar tariffs solar RPO targeted by 2022 under the National narrowing with time. As a consequence, the installed Tariff Policy. capacity for the solar REC market remains negligible and due to demand-supply mismatch, the solar RECs RPOs are enforced by the State Electricity Regulatory have been trading close to the forbearance price of Commissions which have, so far, been lenient in INR 13,400 per REC (US$223.33 per REC). imposing penalties in the event of noncompliance to RPO, although most have specific provisions in These issues have been highlighted by several regulations for imposing such penalties. stakeholders time and again, and our discussions with the government and regulators indicate that The pricing of solar RECs remains a cause for certain concerted measures are being formulated concern in the medium to long term, given the to address them. These include changes being uncertainty attached to the downward cost trends contemplated in the framework of RECs by CERC in the solar sector and the market-based pricing for the period beyond 2017, and a recent petition of RECs. Under the current REC framework, before the Appellate Tribunal for Electricity seeking forbearance and base price range has been set only up stricter enforcement of RPOs. 25 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 26 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 3. JNNSM Phase II and Beyond: Essential Policy and Design Choices 3.1 Efficacy of Public Funding: Buying For public funding to support the solar program, a choice of the following fundamental options is Down Tariffs vis-à-vis Addressing available: Structural Impediments to Financing • Financing incremental costs of solar power, Investments worth approximately INR 10020 thus effectively “buying-down” the cost of billion (refer Annex 13) were deployed for solar generation. This is a direct, project-level Phase I of JNNSM and Phase II would require involvement of the government, financed approximately INR 700 billion (US$11.67 billion). through instruments such as capital subsidy, These requirements are likely to increase as the Generation-Based Incentive (GBI) or VGF, and program is expected to expand exponentially so on; or over the subsequent phases. As public funding is • Addressing or covering risks, which are limited, large amounts of private investments need impediments to optimal financing of solar to be mobilized to meet the mission targets; the projects. This could be achieved through private-led model adopted under JNNSM is thus structured public debt, risk funds and guarantees appropriate and efficient. to address specific barriers/risks perceived by the lending community. Given the evolutionary nature of a range of solar PV and CSP technologies and comparatively higher 3.1.1 “Buying down” Tariffs or Direct Funding of tariffs, public funding in one form or the other Solar Projects has been found to be essential to leverage private investments (refer Annex 14 for key incentive/ In Phase I of JNNSM, GoI structured a bundling instruments for solar power in India). scheme through which 1,000 MW of coal-based 20 INR 100 billion is approximately US$1.67 billion. 27 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I thermal power from NTPC (from the unallocated under the National Tariff Policy is as low as quota, assignable at the government’s discretion) 3 percent by 2022. was bundled with 1,000 MW of grid-connected solar projects and sold as “bundled” power to To achieve the 3 percent solar RPO targeted by distribution utilities. This measure achieved two 2022 under the National Tariff Policy, MNRE objectives: it brought down the cost of bundled estimates the solar capacity addition requirement power to around INR 5 per kWh (US$0.09 per to be 34 GW.22 Even if solar power were to achieve kWh) and avoided any direct funding support the 3 percent RPO target today, it would effectively from GoI for Phase I of the program. The program translate to an average impact of not more than also benefitted immensely from the involvement 15 paisa23/kWh in retail tariffs. This estimate is on of NVVN, the trading subsidiary of NTPC, which the higher side as any such impact will narrow and provided program management support for Phase possibly be bridged with the decline in solar tariffs I and was the counterparty to PPAs signed with all over the period up to 2022, and a corresponding solar developers, on the one hand, and to Power increase in the average cost of power procurement Sale Agreements (PSAs) signed with all distribution for distribution utilities, which is substantially utilities, on the other. dependent on fossil-fuel based sources. With very limited21 unallocated power left for such Against this backdrop, “buying down” the cost of bundling over subsequent phases, GoI is keen to solar power through direct public funding translates substitute it with some form of direct funding to into two outcomes. It leads to the government make solar power affordable for distribution utilities. cofinancing a large set of projects under subsequent phases of JNNSM and to a lower cost of electricity Before dwelling on the efficacy of instruments that from solar projects for distribution utilities and are being discussed in this regard, it is important end-consumers, which reduces the risk of defaults. to highlight the policy and regulatory framework that exists in the power sector today for renewable The first outcome—unless it justifies significant energy. It is apparent that the basic policy and externalities such as acceleration in deploying solar regulatory framework for promoting demand for power with the attendant economic and strategic renewables is focused on the RPO to be enforced benefits envisaged under JNNSM, or addresses upon distribution utilities with tariffs either certain specific impediments that are hindering preferentially set by the State Commission or growth in the current environment—ends up competitively determined (refer Annex 15). simply as unintended (and not so useful) subsidies for the end consumers. Mandatory RPOs create Given the potential of solar power in India and its the basic demand for solar power as they mandate importance in the long-term energy security of the distribution utilities to procure solar power, country, there is a desire to fast track development irrespective of the cost reductions that GoI is without burdening the Discoms or end-consumers attempting to achieve. Thus, cost reduction cannot substantively. While this is an understandable be argued to accelerate demand for solar power goal, analysis indicates that the burden on end- until the RPO targets are met. Since such direct consumers is negligible, since the targeted RPO public funding is intended (MNRE, 2012) only for 21 The Phase II Draft Policy document for JNNSM estimates only1,650 MW of unallocated capacity for Phase II of the program. 22 SECI Presentation: Achievements of JNNSM Phase I and Vision for Phase II (2013). 23 Computed at an average power procurement cost of INR 3.50 per kWh and an average solar tariff of INR 7.00 per kWh with an assumed average distribution loss of 35 percent. The impact of 0.25 percent minimum solar RPO is thus less than 2 paisa per kWh. 28 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I projects selling power to distribution utilities, it also section where the role of facilitating public funding has a limited effect on demand from other segments in addressing structural financing impediments is for solar power. analyzed. On the other hand, lower cost of solar power does Table 5 debates the pros and cons for each of the tend to address certain risk perceptions. First, it direct support instruments, which attempt to ensures lower exposure of financiers to projects, buy-down the cost of electricity. The options being assuming that public funding is utilized on a first considered here are those that have been proposed charge to repay lenders. Second, it reduces the risk under the draft policy document for Phase II of of defaults as cash-strapped distribution utilities JNNSM. are more likely to default to costlier producers of power. Third, lower priced solar power is likely The choice of the public funding instrument should to find third party buyers and is an additional be viewed in the context of the life-cycle of solar security for investors and lenders. For the scale development in the country, in particular, the of the program envisaged, it is unlikely that GoI’s distance the technology has to travel to be purely intention is to swap part of the market debt with commercial in nature and to achieve grid parity, as subsidy on commercial projects. On reducing risk this determines the extent of public funding support of defaults and improving marketability of solar required over the entire program cycle. power, although apparently attractive to investors and lenders, direct subventions can be argued to Figure 18 indicates such a roadmap and outlines the be less efficient than risk-reducing tools in this role of public funding in this developmental life- regard. This is further addressed in the following cycle of a technology. Figure 18: Role of Public Funding in Developmental Life-cycle of Technology Commercial debt/equity/ Commercial debt/ insurance leveraging risk equity/insurance guarantees Commercial debt/equity/ Towards Grid Parity/Financial Viability insurance leveraging risk Calibrate lines of credit, Technology agnostic guarantees risk guarantees & competitive tariff refinancing Risk guarantees, refinancing, lines of Technology specific credit competitive tariff Grants, soft loans, venture capital funds, FiT Grants, public private incubators venture capital funds (developers/ Capital/interest manufacturers) subsidy R&D grants, FiT, capital subsidy (manufacturers) Payment Security Fund, VGF for transmission infrastructure, incentives for exceeding RPO targets, tax incentives on renewable energy equipment, etc. R&D Demonstration Deployment Diffusion Commercialization Direct public payment Facilitating public financing Commercial financing schemes mechanisms (including donor financing) Source: : Authors’ research. 29 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Table 5: Direct Support Instruments Public Funding Pros Cons Instrument Capital subsidy • One-time and easy to disburse for the • Not linked to output and hence does not government. create a positive bias for performance. Not • Investors and financiers find it appropriate for commercial technologies. attractive as it limits exposure of • Risk of compromises in Operation and lenders and lowers tariff of projects – Maintenance (O&M) and asset replacements. reduces risk of defaults and opens up • Seen as going back in time, as the focus option for third-party sale in case of in other renewable segments (e.g., wind) defaults. has moved from capital-based incentives • Projects, once funded, are no longer (accelerated depreciation) to GBIs. dependent on government budget in the future. Generation-based • Output linked; creates a bias for • Outflow from GoI likely to be cumulatively incentive performance. higher than in the capital subsidy mode • Incentivizes not only developers but because of impact of taxes and time value also more efficient equipment suppliers. considerations. • Dependent over a substantive period on government funding. VGF in tranches • Front loaded public funding makes it • Not linked to output and hence does not up to one year post easy to administer and disburse. create a positive bias for performance. commissioning • As in the case of capital subsidy, • Risk of compromises in O&M and asset investors and financiers find it attractive replacements. as it limits exposure of lenders and • VGF scheme in infrastructure was designed lowers tariff of projects – reduces risk of for economically necessary projects, which defaults and opens up option for third- were not commercially affordable. Solar party sale in case of defaults. has already established itself in India to be commercially viable and tariffs reasonably acceptable Source: Authors’ research Capital subsidy, interest subventions, and so on, excessive continuance of public funding in the make sense early in the life-cycle of a technology commercial phase, as it tends to crowd out where the program’s scale and viability are not commercial sources of financing. Similarly, lack of completely established. Once the viability is public funding in the early stages of development of established, market mechanisms should take a technology can simply impede its deployment and over with public funding then switching to a diffusion, irrespective of the long-term economic role of facilitating access to private finance by benefits. addressing residual risks and barriers. This is the most economical basis for promoting It is also important to realistically estimate the likely market development of a renewable technology. time a technology would take to achieve grid parity Governments will also need to guard against before designing direct public payment schemes, 30 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I such as capital subsidy or VGF, as it can otherwise • Risks in the development cycle including delays result in an open exposure of the government to in obtaining clearances and consents and/or lack technology-related risks, which should ideally be of interconnection facilities, and so on. borne by the market functionaries. Solar projects with smaller ticket sizes are being 3.1.2 Addressing Structural Impediments to considered part of the power sector for evaluating Financing sector exposure limits. However, such projects are rarely financed by SCBs that prefer lending to It is now acknowledged that Phase I of the mission conventional projects over several smaller solar missed a roadmap for financing of solar projects, projects. These concerns have reflected in the barring the provision of a payment security fund set average cost of commercial finance for solar projects up against payment defaults. being available at 150-300 basis points more than average cost of financing conventional projects. Given the capital-intensive nature of solar projects, improving access to commercial financing Besides risk perceptions, renewable energy projects sources, and identifying and addressing structural in India suffer from the lack of sufficient long-tenor impediments to such financing are imperatives for finance, which could have potentially reduced achieving the scale envisaged under subsequent tariffs. phases of the program. At the very least, factors which enable nonrecourse financing have to be Access to commercial finance and its pricing can be encouraged, without which private players will find improved if risk-reducing instruments are evaluated it difficult to take on a large number of projects. and implemented with adequate public funding The introduction of adequate risk-mitigating to back such measures. Introducing innovations instruments can also lead to a reduction in tariffs by in financing mechanisms through an appropriate lowering the cost of financing. public financing source could also contribute towards addressing this structural inadequacy in In the course of the study, SCBs highlighted the financing solar projects. A range of initiatives can following specific risks as barriers to financing solar be proposed to address the structural bottlenecks projects: and risks outlined above. These measures can collectively be called as “facilitating public funding” • Risk of untried technologies in Indian conditions mechanisms and can include: and lack of familiarity with such technologies amongst lenders; • Credit guarantee/enhancement schemes; • Risk of payment defaults on account of • Risk guarantee schemes; comparatively higher tariffs of solar power. This • Subordinated public finance to prolong tenor of is exacerbated in the form of concentration debt financing; and of solar projects in a few states, most with • Interest subvention or government- distribution utilities in poor financial health; intermediated concessional lines of credit for • Instances of aggressive bidding by project financial institutions. developers, which render projects unviable without access to concessional sources of Table 6 debates the pros and cons of each of these financing; and instruments. 31 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Table 6: Facilitating Public Funding Mechanisms Public Funding Pros Cons Instrument Credit guarantee/ • In the nature of a guarantee and hence • Risk of free-riding and moral hazard, as enhancement more efficient than direct payment commercial debt can effectively ride on the scheme tools (e.g., FiTs, GBI, VGF, etc.), as they back of public guarantees. This can, however, can leverage bank financing by using be suitably minimized by structures such as little or no public subsidies. partial guarantees, etc. • Credit enhancements can potentially • Can be an opening for transferring commercial improve the credit rating of debt risks to the government. This can again instruments to be issued by borrowers, be minimized by specifying risk-related thus reducing the cost of financing. exclusions, e.g., on account of technology • Credit guarantees can lead to failures, which should ideally be borne by nonrecourse financing structures. the developer (through a guarantee from the supplier). Risk guarantee/ • Addresses specific risks such as • Transfers commercial risk to the government. enhancement payment defaults by distribution Should ideally be linked back comprehensively scheme utilities and, thus, enhances bankability to all forms of government support to of projects. Alternatively, enhances the distribution utilities to protect government credit rating of the borrower through against free-riding by distribution utilities. partial credit guarantees. • More efficient than direct payment tools (e.g., FiTs, GBI, VGF, etc.), as they can improve bankability by using little or no public subsidies. • Can be tailor-made for different phases of technology maturity. Subordinated • More efficient than direct payment • Selective attempt to resolve a problem public finance to schemes as well as guarantees, as credit currently faced by all infrastructure projects in prolong tenor of is recoverable. the country. debt financing • Has significant impact on reducing • Requires substantially larger financial the cost of borrowings and addresses commitment from the government than the asset liability management-related guarantees (as it is in the nature of co issues of commercial banks. financing projects with the private sector) to • Government benefits from the due be effective. Can be raised from bi/multilateral diligence of commercial banks, which development banks. are the senior lenders to the project. Interest • Directly reduces the cost of financing. • Effectively a subsidy scheme attempting to subvention or • Dedicated lines of credit for solar “buy-down” the cost of solar generation. government projects can prompt commercial banks • Concessional finance is limited and unless intermediated to lend to solar projects with a positive leveraged properly, has the effect of simply concessional externality in building capacity of such crowding out commercial finance. There may lines of credit institutions in appraising solar projects. also be the propensity of banks to stop lending for financial when such lines of credit are exhausted. institutions Source: Authors’ research. 32 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 3.1.3 Comparative Assessment Not surprisingly, the options under direct public funding have the highest impact on budgetary For GoI, it will be essential to analyze the extent support, while those under facilitating public of financial commitment that would be required funding have lower budgetary requirements for each of the above financial instruments (direct (and are contingent in nature) while offering public funding and facilitating public funding) to be substantial leverage. It is essential, however, to utilized over Phase II of the program. appreciate that facilitating public finance or risk- reducing mechanisms play only a limited role in A simple analytical framework was developed to reducing costs/tariffs and their true potential lies assess the extent of budgetary support required for in addressing specific long-term risks/barriers each instrument/mechanism operating in isolation. that the industry faces, thus paving the way for a The assumptions underlying the analysis and its market-driven and sustainable cost reduction outcomes are presented in Table 7. over time. Table 7: Analytical Framework for Analyzing Financial Instruments/Mechanism Funding Capital GBI Interest Subordinated Public Credit Instrument/ Subsidy/VGF Subvention Finance to Prolong Guarantee/ Mechanism Tenor Enhancement Extent of INR 4.6 INR 4.8 INR 4.4 million INR 0.8 million INR 3.7 million budgetary million million (~ US$73,333) (US$13,333)# (US$61,667)## support on a per (~US$76,700) (~ US$80,000) MW basis for # Based on the ## Consists of achieving a 0.50 assumption of 5% NPA two components; paisa reduction 5% of NPA and in tariff additional GBI Key additional • Direct Emphasis on Draws • In the nature of debt • Contingent benefits impact on performance commercial funds exposure tariff banks into • Shall depend on the • Can be • Reduces lending extent of commercial raised from capital financing multilateral exposure of • Can be raised development lenders from multilateral banks as loans development banks • Can leverage as sovereign loans investments • Not in the nature of a with zero or subsidy limited public • Refundable capital funding support Key criticism Not Extends • Concessional Attempts to solve a Propensity for appropriate for government finance is larger financing issue free-riding and commercial support over limited encountered on all moral hazard technologies: the life-cycle • Effectively infrastructure projects by financiers/ low emphasis of the project translates Discoms on actual into subsidy performance Source: Authors’ research. 33 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 19 shows the comparison of subsidy support Clearly, segments of JNNSM which are guided required for the various public financing options. by considerations of affordability, such as off-grid Figure 19: Comparison of Subsidy Support for Public Financing Options Comparison of Subsidy Support for each Public Financing Options (to achieve an illustrative INR 0.50 reduction in tariff) Present Value of Subsidy Support 6.0 in INR Million per MW Additional GBI 5.0 assumed to achieve INR 0.50 tariff reduction. 4.0 3.0 1% improvement 2.2 in interest cost 4.8 improves tariff by 2.0 4.6 4.4 INR 0.33; default rate of 5% assumed to be subsidized. 10. 1.5 0.8 0.0 GBI VGF Interest Credit Guarantee/ Subordinated Subvention Enhancement Public Financing to prolong tenor Source: Authors’ analysis and assumptions based on authors’ primary research. Key Assumptions for Analysis: • Capital cost at INR 75 million per MW (~ US$1.25 million per MW) • Capacity utilization factor: 17% with annual degradation of 0.25% • Debt considered at 70% of the overall project cost • Interest on long-term loan at 11.50% with a tenor of 10 years and moratorium of 2 years • All subsidy computations are in present value terms • Subsidy in case of credit guarantee/enhancement and subordinated public financing options is assumed to finance 5% contingent defaults/NPAs • Subordinated public financing results in prolonging the tenor to 18 years with moratorium of 2 years to achieve 50 paisa reduction in tariff • All scenarios are computed to achieve identical internal rate of return for equity holders • VGF has been considered as prescribed under the revised guidelines. However, the quantum of VGF has been considered just adequate to bring down the tariff scenario within comparable limits • VGF, however, if considered as per the prescribed framework in the revised documents is capable of bringing down the tariff by INR 1.46 per kwh Another scenario has been considered within the same framework of capital cost to analyze the quantum of support required to bring down the tariff to INR 5.45 per kwh. In this framework of analysis, it is observed that if a support of INR 33.3 million (US$0.56 million) per MW is considered, tariff can be brought down to INR 5.45 per kWh. In this analysis, the envisaged support of INR 33.3 million (US$0.56 million) is spread over a period of 6 years as envisaged under the revised framework. 34 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I applications, rooftop solar and demonstration and solar thermal technologies is based on the CSP projects, will require some form of direct following considerations: public funding support. The efficacy of direct funding support for promoting the bulk of the • The large and predictable local solar commercial program under solar PV needs, generation capacity addition, envisaged however, to be carefully evaluated by the under JNNSM, offers a significant captive government vis-à-vis other forms of public market that can be leveraged to develop a funding. Transparent disbursements through local manufacturing base, thus contributing bidding, and penalties for not achieving defined to manufacturing output and employment performance parameters can be adopted to generation in the country; and enhance the effectiveness of direct funding • A competitive local manufacturing industry support. The extent of funding and mix of is critical in the technology-intensive solar instruments/mechanisms will also fundamentally industry, as it enhances long-term energy be determined by the availability of funds from security and creates an ecosystem for local sources such as NCEF. innovation and adaptation. Facilitating public financing schemes takes time Recognizing these aspects, the National in designing and monitoring, and the actual Manufacturing Policy of 2011 (Department outcome is determined by the efficiencies of of Industrial Policy and Promotion (DIPP) financial intermediaries. Nevertheless, they 2011), identifies solar energy as amongst the are fundamental in addressing key financial industries of strategic importance where national impediments and in moving solar development capabilities are envisaged to be developed to to a largely nonrecourse financing mode in make the country a major force. India, critical to the scale of development under subsequent phases of JNNSM To promote local manufacturing, Phase I of JNNSM specified DCRs in solar projects. These 3.2 Promoting Local Manufacturing: stipulations, however, were applicable only under Exploring Customized Industrial JNNSM. Larger solar power generation capacities Policy Actions have been added under state solar policies which do not specify DCRs, and this is likely to be the JNNSM outlines an ambition to transform India case over JNNSM Phase II. into a solar energy hub including establishing a “leadership role in low-cost, high-quality solar The unintended outcome of domestic content manufacturing, including balance of system stipulations for solar PV projects in JNNSM components”. Further, the country also desires has already been discussed in the earlier human resource development and enhancement chapter. The form and continuance of of Research and Development (R&D) capabilities domestic content over Phase II of JNNSM has in the solar energy space. since been keenly debated and evokes strong and contrary reactions from sections aligned on The desire to be relevant across the both sides of the debate. It is important, in this manufacturing value chain in both solar PV scenario, to view the role of DCR in the overall 35 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I context of promoting local manufacturing in coordinated actions on the supply side, which the country. are fundamental and address the root of factors impacting long-range competitiveness of the It is necessary that the industrial policy aspects are manufacturing industry. well considered in the current debate on the solar power being centric to the energy security policy Demand-side policy measures such as price in India. DCR thus addresses only one narrow preference or DCR combined with price support segment of demand-side actions, which in itself mechanisms or subsidy from the government are may not be sufficient to make local manufacturing also likely to be construed as “specific”24 to the self-sustainable and address its competitiveness in domestic industry and discriminating against the long term. Obvious industrial policy actions are imports, running the risk of challenges under supply and demand measures, as would happen for the World Trade Organization (WTO). Tariff solar industry anywhere worldwide. barriers on imports, on the other hand, may not be acceptable to state governments, whose policies do Box 1 indicates the range of demand- and supply- not distinguish between domestically manufactured side actions that could be employed by the products and imports. government in promoting local manufacturing. In the above context, GoI will need to debate the Demand-side policy measures focus on form of policy actions it wishes to undertake to providing captive demand and do not address promote local manufacturing. Figure 20 highlights competitiveness vis-à-vis global suppliers. a broad framework to design specific industrial Promoting local manufacturing would require policy actions. Box 1 : Policy Actions for Promotion of Local Manufacturing Possible Policy Actions Demand Side • Price preference/incentives for locally procured equipment • DCR • Mandatory local manufacturing facilities for a larger pipeline of “public projects” • Tariff barriers for imports Supply Side • Rationalization and simplification of business regulations for manufacturing • Financial/fiscal incentives for manufacturers • Addressing backward linkages and input costs • Clustering and aggregation through National Investment and Manufacturing Zones\and Special Economic Zones • Export financial assistance and guarantees 24 Agreement on Subsidies and Countervailing Measures under WTO defines “specificity” of subsidies, which are prohibited under the Agreement. 36 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure 20: Framework to Design Industrial Policy Actions Energy security Solar PV Key Considerations Identify set of prioritized actions in line with key objectives for Which technologies to bet on? • Identify relevant part of value How should next generation • Local capabilities chain for competing Need for a detailed technologies to be promoted? technology roadmap Are there any critical • International • Support manufacturing developed for both components which hold the key? market situation/ industry through addressing PV and CSP competition structural bottlenecks Cost-effectiveness • Availability of • Active promotion of solar promotion domestic funds next generation solar PV Identify trade off between DCR technologies and lower solar tariffs due to • Solar PV & DCR needs to be international competition CSP will solicit aligned with the customized Solar Thermal technology roadmap approaches through an • Need to advance appropriate demonstration projects aimed Economy-wide benefits industrial policy at field evaluation of different configurations Adopt mission Focus on job-creation and mode to focus on leveraging existing industries for • Lead to clearer choices on the increasing domestic value addition across the solar best suited configurations & value addition and value chain facilitate localization technology depth Source: Authors’ research. The design of an industrial policy action in this domestic uptake in manufacturing; focus on regard needs to consider the overall objectives of input-side factors to make domestic industry ensuring long-term energy security, assuring cost more competitive; and effectiveness, and realizing economy-wide benefits • Objective of deriving economy-wide (for example, job creation, sustainable growth, and benefits: Focus on job creation and leveraging so on). Each of these objectives will need to be existing industries for value addition across evaluated to arrive at a set of prioritized actions, as the solar value chain. (For example, the outlined in the example below. Indian solar PV manufacturing industry provides jobs to more than 25,000 employees • Objective of energy security: Active promotion with a total installed capacity of 1,100 MW of next generation solar PV technologies of cells and 1,800 MW of modules.25 In case through R&D, international technology of solar thermal, for an installed capacity collaborations and incentives; roadmap for of 10,000 MW by 2022, the total manpower localization in the CSP value chain; requirement is expected to be 96,000 and • Objective of cost effectiveness: Phased DCR to 44 percent of this would be linked with local benefit from lower global prices while ensuring manufacturing26.) 25 Source: FICCI Solar Energy Task Force Report on Securing the Supply Chain for Solar in India. 26 World Bank Report - Development of Local Supply Chain: The Missing Link for Concentrated Solar Power Projects in India. 37 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I In this context, the country faces policy design for the country, essential for local manufacturing choices in a framework of cognizance of local and services to take root in India. Aspects related capabilities, international market situation, and to the development approach for solar thermal are availability of domestic funds. With solar PV and discussed further in the next section. CSP requiring different manufacturing capabilities and investments, both technologies will require DCR needs to be aligned with the technology customized approaches from the government roadmap and prioritized segments of the value through an appropriate industrial policy. One chain (separately for solar PV and CSP) in a of the key requirements shall be the drawing comprehensive industrial policy action. This should up of clear technology scenarios for solar (PV be promoted in parallel with supply-side measures and CSP) generation and application to enable a to achieve the goals. A detailed assessment of the manufacturing roadmap to be finalized for India. impediments faced by the domestic manufacturing industry and a plan to localize manufacturing Solar PV manufacturing needs to be seen from of critical components are essential to structure the perspective of current global market dynamics supply-side policy measures. as well as the potential it holds in the future for India. The solar PV manufacturing segment has GoI started with DCR (a demand-side measure) witnessed significant developments in the last few as a policy action to promote manufacturing. A years, with a number of manufacturers announcing phased approach (which reduces year on year) bankruptcies. There is also the emergence of to DCR is essential to ensure that the domestic technology advancements in the manufacturing industry moves up the competitiveness curve and is procedures as well as use of materials for solar PV globally competitive over a period. In the absence cells, including commercialization of measures of a roadmap for the promotion of preferred such as single stage purification of silicon, vapor technologies, the DCR should be applicable to the deposition, and so on, which are likely to lead entire value chain (thereby giving the choice of the wave of next generation of technologies in least-cost technology path to the investors). manufacturing. In India too, MNRE and select public sector undertakings involved in PV Without a mission mode focus on increasing manufacturing have been actively looking at the domestic value addition and technology depth, next generation of technologies, which are likely Indian manufacturing in solar is unlikely to to lead the market. It is opportune time to create progress far. A Task Force, with representation a detailed technology roadmap for both PV and from other concerned government departments CSP, which can lead to a more informed policy (for example, DIPP) and other relevant on manufacturing with an appropriate focus on organizations (for example, the National next generation of technologies through R&D and Manufacturing Competitiveness Council (NMCC) appropriate international collaborations. and Planning Commission) should be set up to identify specific and coordinated industrial For a clearer technology roadmap to evolve in policy actions required by GoI to enhance the solar thermal, there is a need to advance the competitiveness of solar manufacturing in India. demonstration projects aimed at field evaluation An example of such a mission mode approach of different configurations for obtaining feedback can be seen in the automobile sector, with the on performance, operability and costs of different Department of Heavy Industries and Public technology streams. This will hopefully lead to Enterprises, GoI, formulating the Automotive clearer choices on the best suited configurations Mission Plan 2006-16 in 2006. 38 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 3.3 Solar Thermal: Public Private experience and demonstration in the Indian environment. It is desirable for such project Partnerships (PPPs) vis-à-vis Private-led developers to invest more in establishing the Development techno-commercial feasibility before launching into design and development. A Case1 type of Phase I of JNNSM adopted a reverse auction probabilistic model of procurement presupposes approach to project selection and development, that a large number of developers have invested which is akin to the Case 1 route followed in the upfront in establishing project feasibility before power sector in India, to procure power from bidding under a reverse auction, which holds only conventional power plants or through competitive a probability of success. It leads to a scenario where bidding from renewable sources (refer Annex 16). either a large number of unsuccessful bidders This approach leaves all activities from project will bear the upfront investment costs without identification, choice of technology, design, economic gains, or the more undesirable prospect development, commissioning and operation in the of bidders bidding without adequate preparation, hands of the developer and focuses on the output, which stands to jeopardize project development selecting developers based purely on the tariffs and the overall program. they quote. When Phase I of JNNSM was bid out, information A solar thermal developer is thus tasked with and on-field data were unavailable. Further, the identifying suitable land, measuring on-site solar reverse auction framework, unlike Case 1 in radiation, obtaining clearances and consents, conventional power, did not require bidders to arranging water linkage, and so on, before thinking demonstrate land availability, technical competence, of design, engineering and construction of the other preliminary activities, and consents and plant. Even if a developer undertakes all the initial clearances for a project,27 as a pre-qualification activities to establish the feasibility of a solar for bidding. It is thus not surprising to find that thermal plant, there is no guarantee of emerging several of the solar thermal projects are currently successful in a competitive environment under the encountering technical and site-related challenges, reverse auction framework. and are delayed. A probabilistic model of procurement such as this Solar thermal is a promising technology for India, is more suited for fully commercial technologies, with its significant indigenization and cost- where upfront costs incurred in establishing reduction potential and its technical ability to be feasibility are limited and the knowledge and hybridized and offer thermal storage. The most experience of developers are well established. It is appropriate designs and standardizations in solar more appropriate where output or capacity addition thermal are yet to be developed with respect to is the focus, leaving the means to be determined by India’s requirements and should, therefore, be the private players. focus of early development work. Fundamentally, the understanding of solar thermal amongst Solar thermal projects, on the other hand, use financiers is, at best, limited and most such projects technologies that are varying and in the initial are not able to obtain financing without recourse to stages of commercialization, with inadequate promoters or suppliers. 27 Except for water availability, which was required under Clause 3.5D of the Guidelines for Selection of New Grid Connected Solar Power Projects for Phase 1 of JNNSM. 39 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I It is, thus, desirable to adopt a more deterministic The approach to grid-connected solar thermal model of development with larger public sector plants proposed for subsequent phases of JNNSM is involvement than that achieved in Phase I of depicted in Figure 21. JNNSM. It is crucial for early developments in solar thermal to build in desirable technology features 3.4 Role of Central Government: and to demonstrate on-field performance to evolve an acceptable pathway for large scale deployment. Co-development vis-à-vis Central Given the significant preliminary efforts involved, Sector Projects it is desirable for the government to share such responsibility and play a facilitating role in tapping The draft JNNSM Phase II policy document financing for such projects. outlines a differentiated pathway for central and state sector projects, with the policy covering Stakeholders consulted during the study agree that incentives and support mechanisms only for larger public sector involvement in identifying, central projects. Only 40 percent of the 9 GW of scoping and undertaking preliminary activities is grid-connected capacity in Phase II is planned to essential before inviting participation of private be developed by the central government, with the players. This is more akin to the Case 2 mode remaining 5.4 GW to be developed by the states. of technology and site-specific participation by private players adopted for conventional power In the federal structure in India, it is fair to projects in India. expect states with solar potential to develop their Figure 21: Proposed Solar Thermal Roadmap for Subsequent Phases of JNNSM Phase PPP II Model II Phase model Private-led Gather lessons from Phase II projects: Decide on desirable technology standardization & standards of Central Electricity Authority incorporate them into grid-connectivity • Project bidding with specific • Evaluate shift to project technical specification under a allocation on a purely private Phase II Projects Develop Demonstration BOOT or BOOM model model. • Deterministic approach with • Under a PPP route with desirable site identification, preliminary technology features such as activities and techno-commercial storage, air-cooled condensation, feasibility completed by a public- hybridization, etc. sector entity, such as SECI • Tap into concessional funding, such • Analyze development in as Clean Technology Fund or other manufacturing value chain & sources available with multilateral explore need for coordinated and bilateral development banks industrial policy actions and eco- systems development plans in order to indigenize areas of solar thermal manufacturing. Phase II Phase III Source: Authors’ research. 40 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I own policies to encourage investments in solar policies, it is still early days in the life-cycle of solar generation. Equally, state governments would development in this country. Progress on solar welcome investments in the state facilitated by thermal projects is far from satisfactory, commercial the central government through incentives or nonrecourse financing has mostly eluded the otherwise. There is, thus, no apparent conflict sector, domestic manufacturing has struggled, between instituting two parallel pathways in and bottlenecks in an enabling environment need developing solar projects in the country, provided to be addressed to scale up the program. These however that they are harmonized in some way. are fundamental issues and need a coordinated, Unfortunately, most state governments pursuing pan-Indian response. GoI, thus, has an important solar policies may not have the fiscal space to facilitating role in all solar projects, irrespective of match the central government with direct public their mode of development. financing mechanisms. In these circumstances, the country will have some 3.6 GW of projects Instead of limiting itself to the 3.6 GW of projects under JNNSM Phase II benefitting from direct under the central scheme, a better role for GoI public funding schemes, and the remaining 5.4 GW could be to outline a coordinated vision of solar without such an advantage. This will lead to a set development for the entire country and to structure of projects with varying tariffs and subsidies which public funding to realize this vision. An alternative will be consequently perceived quite differently by vision of this development could include the distribution utilities, financiers and suppliers. following elements: In this regard, it is pertinent to enquire what the • All solar thermal projects to be developed desirable role of MNRE should be under JNNSM through the Case 2 mode with the provision of and whether more harmonized development should facilitating financing schemes from the central be attempted through the central government government; policy framework. • Central government to play an active role in developing solar parks in coordination with As discussed earlier in this report, the primary state governments and to promote organized policy/regulatory mechanism for creating the development through these parks. This will demand pull for grid-connected solar generation ease infrastructure-related challenges faced by is the solar RPO. The route to capacity addition is developers and ensure coordinated transmission also acknowledged as private-led. Public support planning and deployment of smart-grid related mechanisms thus assume a larger and strategic role features at the transmission level. Policy to aim for of addressing specific barriers and covering key all projects to be developed through such parks; risks in the way of solar development in the country. • Direct public funding28 can be advanced to Viewed in this context, it is questionable whether the solar parks to reduce the cost of such JNNSM Phase II policies should limit focus only on infrastructure for project developers. A standard, creation of 3.6 GW of capacity, for which central concessional charge for infrastructure could support is available. be specified for all solar park-based projects in Phase II; and Despite the overwhelming response of the private • All projects adhering to a robust and sufficiently sector to Phase I of JNNSM and the state solar improved standard PPA and set up in solar 28 It is worth pointing out that there is a strong economic rationale in advancing direct public financing to solar parks, with positive externalities such as optimization in infrastructure use, including land, water and evacuation facilities, and provision of scale to use smart-grid features in grid integration of solar. 41 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I parks should be able to avail of facilitating public several of the roles outlined in Table 8. Strengthening finance through central government schemes, of SECI with appropriate internal resources and such as credit enhancements/guarantees and/or external linkages is critical in this regard. subordinated public debt. Some of the roles that SECI could play in line with The existing public institutions and their role under the gaps identified after review of Phase I are: the solar program are outlined in Annex 17. Table 8 summarizes the existing institutional roles under • Develop CSP (and other semi-commercial Phase I of the program and identifies significant technologies) demonstration projects through gaps which need to be addressed over subsequent private and/or technology partnerships; phases of the program. • Develop solar parks in association with states. Support state governments and SNAs in The mapping (Table 8) shows substantial gaps in providing technical advisory and administrative institutional capacity in MNRE and its institutions support for solar parks; to play the roles expected of them under JNNSM. • Transition program management, Monitoring and Evaluation (M&E) from NVVN in a phased The incorporation of the Solar Energy Corporation manner; of India (SECI) is thus a welcome move and could • Incubate off-grid business models in partnership provide the institutional support to undertake with SNAs and hand-hold SNAs to upscale and Table 8: Institutional Gaps Function Institutions under Phase I Gaps Program • MNRE (NVVN) for large projects • Sustaining capacity developed in Phase I management, • IREDA for RPSSGP is a challenge, as substantive support from monitoring and NVVN was received evaluation • Rooftop, off-grid and solar applications have not progressed much Demonstration • MNRE • Limited CSP demonstration projects; no projects performance data available for CSP • Need an institution with earmarked resources for project development and operation Resource assessment • C-WET • Satisfactory progress Infrastructure • State agencies and developers in • Land, right of way, water and interconnection development Phase I have been significant bottlenecks; SNAs lack capacity • Provision of shared infrastructure necessary – need for dedicated central and state- level institutions to coordinate solar park development Ecosystem • Center/state • No institutional role identified for such development development Source: Authors’ research. 42 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I replicate successful initiatives through private foundation stone for a solar park in Bhadla of partnerships; Jodhpur district of Rajasthan. The solar park with a • Address solar PV integration issue and facilitate proposed generation capacity of 3,000 MW would be a comprehensive national plan that coordinates commissioned in phased manner. In its first phase, generation scale-up, T&D expansion plans, the solar park will generate 1,000 MW. control and dispatch systems, and draws up a vision for implementing storage systems; and Such development (public or private) could be • Besides the above, SECI could also play a promoted through positive incentives in the form coordination role in R&D efforts and in of capital subsidy to partly fund the development of ecosystem development, provided internal the infrastructure. Projects outside such parks may capacities are built in this regard. not be prohibited but could be structured to lose out on such incentives. 3.5 Development through Solar Parks Solar parks also lend themselves to cluster (Cluster-based Approach) development, where appropriate, with co-location of industries with forward and backward linkages. Experiences from Phase I of JNNSM indicate a strong need for organized development of grid- As proposed in the earlier section, MNRE may connected solar projects. A more deterministic consider making solar park-based development the approach to planning of shared infrastructure baseline in Phase II of JNNSM. The alternative of through the provision of solar parks is the way developing large, grid-connected solar plants in a forward to optimize land and water, enhancing fragmented and decentralized mode is sub-optimal grid-connectivity and evacuation infrastructure, and and damaging in the long run, and procedurally developing transmission in a coordinated manner as arduous and risky for developers. The provision envisaged under the green corridor,29 conceptualized of public funding for solar park development by the MNRE. The successful implementation of the will prompt states to adopt solar parks as the first solar park in Charanka, Gujarat (Annex 18), baseline option and expend efforts in identifying demonstrates the potential for future replication of and developing such infrastructure. SECI could such model across other states. The Government provide advisory and administrative assistance in of Rajasthan has also laid (in August 2013) the structuring solar parks. 29 Report on the Green Energy Corridor prepared by the Power Grid Corporation of India Ltd. as part of a study commissioned by MNRE and FOR. 43 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 44 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 4. Way Forward JNNSM has signaled a decisive start with strong envisaged under subsequent phases of the interest from the private sector matched by National Solar Mission. The role of “facilitating bold policy support from GoI. This private-led public funding” in enabling implementation of development model, particularly for grid-connected risk-reducing instruments as well as innovations solar PV, builds a strong base for scaling up the in financing is significant and comes across as program over subsequent phases of JNNSM. an imperative for moving solar development to a largely nonrecourse financing mode in India. An evaluation of Phase I through wider stakeholder The efficacy of direct public funding in “buying- consultations, while indicating several positives, down” the cost of electricity for the bulk of the also points to certain barriers and challenges to commercial program under solar PV needs to be scaling up the program to the levels envisaged carefully evaluated by GoI vis-à-vis other forms under JNNSM and beyond. In this context, the of facilitating public financing. Subordinated report debated certain key policy options to public finance to prolong tenor of debt as well address the existing constraints and to realize the as credit guarantee enhancement schemes ought overall benefits of JNNSM outlined in the mission to be structured and pursued over subsequent objectives. phases of JNNSM. Key conclusions on the way forward are: 2. Comprehensive industrial policy actions for promoting solar manufacturing: GoI’s National 1. Addressing structural impediments to Manufacturing Policy 2011 recognizes solar commercial financing: A sustained participation manufacturing as a strategic industry requiring from commercial lenders is seen as critical the development of national capacities. There is for achieving the scale of capacity addition a need to analyze measures for domestic value 45 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I addition and technology depth to evaluate needs to emerge for solar thermal as well in the the segments of the value chain for domestic country. It underlines the need for advancing the participation and, thus, customized industrial demonstration projects aimed at field evaluation policy approaches will be required for solar of different configurations for obtaining PV and CSP. A shared understanding of a feedback on performance, operability and costs. framework to design these specific industrial This, in turn, will lead to standardization in policy actions for solar manufacturing is configurations, essential for local manufacturing solicited. A mission mode approach is essential to take root and for the government to commit to analyze and increase domestic value to the development of local ecosystems for solar addition and technology depth through the thermal manufacturing in India. creation of adequate forward and backward linkages, addressing specific input (raw 3. Phased DCR: Phase I of JNNSM saw demand- materials and consumables, power, resources, side actions, led by MNRE, such as DCRs technology, and so on) disadvantages faced by or tariff barriers on specific imports. These Indian manufacturers vis-à-vis their overseas measures have not led to the revival of the local counterparts. industry and are subject to challenges under international trade regimes. As far as solar PV is concerned, currently there is immense uncertainty in the global market DCR needs to be aligned with the technology demand-supply situation. The focus is also roadmap, and prioritized segments of the value beginning to shift towards the newer generation chain (separately for solar PV and CSP) under of technologies, which have the potential comprehensive industrial policy action. It may of cost reduction and/or improvement in be advisable to adopt a gradually-tapered DCR, efficiencies. It is appropriate for GoI to evaluate which reduces over time, to allow time for a technology roadmap for solar PV and focus the domestic industry to come up to the scale on the next generation of technologies through and competitiveness of global competitors. active promotion of R&D and international Without a clear technology roadmap, DCR collaborations. Further, in light of recent should be applicable to the entire supply chain, international experience, upstream capital with developers allowed to make the choice intensive investments in polysilicon and solar cell of technology and components, which can be manufacturing need careful analysis before being sourced locally to the extent specified by the replicated in India. Downstream investments in government. The manufacturing industry is also modules and Balance of Systems (BoS), including better served with a more active mission mode applications, seem to promise a better future for focus on industrial policy actions, combining business viability and creation of jobs. appropriate demand- and supply-side measures to make it internationally competitive. Solar thermal, in particular, holds significant potential for India as it can leverage advanced 4. PPPs for solar thermal development: Given the manufacturing processes from conventional local manufacturing capability, dispatchability, industries such as automotive, metals, power possibility of hybrids and storage technologies, equipment manufacturing, and so on, and and cost reduction potential, CSP development develop a local ecosystem for technology holds promise for India. It should be ensured adaptation and cost reduction. For this to that, given the slow development of CSP projects happen, though, a clearer technology roadmap in Phase I, the technology is not penalized 46 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I in Phase II. It is desirable to pursue a more power from such projects over Phase III of deterministic model of development for solar JNNSM. thermal with larger public sector involvement in project preparation than that achieved under 5. Large project development through solar Phase I of JNNSM. There is a need for a more parks: MNRE should consider making solar coordinated and guided approach from the park-based development the baseline for large, government, in terms of more upfront project grid-connected solar projects in Phase II of preparation before bidding, to move the industry JNNSM. By providing public funding support forward in the desired direction. Further, sound for infrastructure development in solar parks, technical due diligence of bidders should be GoI can prompt states as well as private parties undertaken as a pre-qualification exercise. The to adopt solar parks as the baseline for large, relatively long development time of the CSP grid-connected solar power development, thus projects in India stems in part from lack of paving the way for an orderly grid development expertise of the EPCs and lead members of the with optimized use of resources. consortia. The following pathway is envisaged for solar thermal under Phase II and beyond: 6. Enhancing institutional capacity through SECI: The pan-Indian role of MNRE in ensuring ‒ SECI should focus on developing demonstration a coordinated development of the solar industry projects with desirable technology features is fundamental to JNNSM. It was argued that such as storage, air-cooled condensation, incentives and GoI support are better directed at hybridization, and so on. Such projects are measures which address fundamental structural envisaged under JNNSM to be developed and administrative barriers to development through PPPs; of large grid-connected solar projects in the ‒ A detailed assessment is required of the country, rather than being reserved for a manufacturing value chain along an outline fraction of projects to be developed in Phase of coordinated industrial policy actions and II of JNNSM. SECI could play a facilitative ecosystem development plans to indigenize coordination role, encompassing several production; institutional roles relating to M&E of the ‒ Any further capacity development under Phase programs under JNNSM, which were otherwise II should ideally be undertaken only within a being pursued by MNRE. In addition to the deterministic model with site identification, M&E roles, SECI has important roles to play in preliminary activities, and techno-commercial the following aspects: feasibility completed by a public sector entity such as SECI, before bidding it out with specific ‒ Act as the nodal agency for developing technical specifications through a Build Own demonstration CSP projects in JNNSM Phase Operate Transfer (BOOT) or Build Own II. These can be taken up through private/ Operate Manage (BOOM) route; technology partnerships; ‒ Gather lessons from Phase II projects to decide ‒ Assist states in the development of solar parks on the desirable technology standardization for across the country through the provision of solar thermal projects, which could be adopted administrative, advisory and financial support; in grid connectivity standards of the Central ‒ Transition program management and M&E from Electricity Authority; and NVVN for the grid-connected segment; ‒ Based on the success of Phase II, decide on the ‒ Undertake enhanced reliable forecasting and move to a fully private-led model of procuring scheduling of solar farms and work with the 47 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Power Grid Corporation of India on the T&D substantial learnings and experiences to share on expansion plans, and control and dispatching institutional mechanisms, financing, technology, systems or storage implementation; and manufacturing with the rest of the world. The ‒ Play a transformative role in off-grid solar steps taken by GoI in implementing institutional through support for incubation of new business and financing measures to successfully meet the models in association with SNAs, and handhold Phase II targets of installing 10 GW of solar power SNAs in scaling up and replicating the successful and letting the private sector roll independently initiatives through private partnerships; and in Phase III will be closely observed by the ‒ Coordinate R&D efforts and ecosystem international community. Thus, it is imperative development. that the government act on measures to scale up the success already achieved in JNNSM Phase I The Indian solar sector has made commendable while simultaneously addressing the structural progress since the launch of the JNNSM in issues which stand to impede the envisioned 2010. In the international arena, India has growth. 48 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Bibliography • ADB. 2011. Product Innovations for Financing Infrastructure: A Study of India’s Debt Markets, No.6, South Asia Working Paper Series. • The World Bank. 2013. Development of Local Supply Chain: A Critical Link for Concentrated Solar Power in India. • MNRE. 2012. Draft Phase II Policy Document: Jawaharlal Nehru National Solar Mission. • Sahoo, A. and G. Shrimali. 2012. An Analysis of Industrial Policy Support for the Indian Solar Photovoltaic Manufacturing Sector. • Forum of Regulators. 2012. Report on Green Energy Corridors - Transmission Plan for Envisaged Renewable Capacity. PGCIL. • Department of Industrial Policy and Promotion, Government of India. 2011. National Manufacturing Policy (ANNEX to PRESS NOTE NO. 2 (2011 SERIES)). • International Energy Agency. Trends in Photovoltaic Applications. • NREL. 2006. Letting the Sun Shine on Solar Costs: An Empirical Investigation of Photovoltaic Cost Trends in California. • Beck, F. and Eric Martinot. Tech International, Santa Fe, New Mexico. Policies and Barriers-, San Diego - Smart Energy 2020. • FICCI Subgroup on Securing Solar Supply Chain. Securing the Supply Chain for Solar in India. 2013. • Deutsches Institut für Entwicklungspolitik (German Development Institute). 2013. Exploring the effectiveness of local content requirements in promoting solar PV manufacturing in India. • CEEW/NRDC. 2012. Laying the Foundation for a Bright Future Assessing Progress Under Phase 1 of India’s National Solar Mission. 49 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 50 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 5. Annexes Annex 1: Consultative Workshop Details and Key Messages (i) Participants in New Delhi Workshop S No Name Organization S No Name Organization 1 Mr. A.K. Magu NVVN 14 Mr. Jatin P Singh SBI Caps 2 Mr. Anil Mishra GiZ 15 Mr. Michael Richards Energy Unit Chief, US Embassy 3 Mr. Anudeep Yadav IREDA 16 Mr. N. Venkataraman IL&FS 4 Dr. Ashish Kulkarni Nereus Capital 17 Mr. Peeyush Mohit KPMG 5 Mr. Ashwini Aggarwal AMat 18 Mr. Rajiv Jain ISA 6 Mr. Balawant Joshi ABPS 19 Mr. Rakesh Kumar SECI 7 Mr. C. Kannan SECI 20 Mr. Ravinder Raina Astonfield 8 Mr. Deepak Gupta Shakti Sustainable 21 Ms. Ritika Goel BHC Energy 9 Mr. Gaetan Tiberghien IFC 22 Mr. Salil Dutt Thermax 10 Mr. Gopal Lal Somani KVK Energy 23 Mr. Sandip Ghosh Schneider Electric 11 Mr. Hemanshu Sugandhi REC 24 Mr. Satyen Kumar Lanco Solar 12 Mr. Hemant Bhatnagar GIZ 25 Mr. Siddhartha Ghoshal Areva 13 Mr. Girish Narang Azure Power 26 Mr. Sourabh Kaura PTC Financial 51 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... S No Name Organization S No Name Organization 27 Mr. Sudhir Kapoor Country Strategy 35 Mr. P.K. Mahajan NVVN Business Consultant 28 Mr. Sumit Pandey Moser Baer 36 Mr. C. Subramaniam The World Bank 29 Mr. T.C. Arora Visa Ecotech 37 Mr. Rohit Tyagi ABPS Infra 30 Mr. Usha Sunil Energy Unit, US 38 Mr. Ankit Jain SBI Caps Embassy 31 Mr. V.S. Sharma Steag 39 Mr. B. Pandey Cargo Infrastructure 32 Mr. Venkataramani CEO, Indo Solar 40 Mr. Jonas Hamberg CSE 33 Mr. Vimal IREDA 41 Mr. Anurag Mishra USAID/India 34 Mr. Vineeth Panchabuta Vijayaragahavan Participants in Mumbai Workshop S No Name Organization S No Name Organization 1 Mr. A. Shreerang Aurum Ventures 14 Mr. Mehul Desai Yes Bank 2 Mr. Anand Jain Kiran Energy 15 Mr. Pashupathy Gopalan SunEdison 3 Ms. Anita Karnik SBI Capital Markets 16 Mr. Rahul Sankhe SunEdison 4 Mr. Ardeshir Kiran Energy 17 Mr. Rajat Misra SBI Capital Markets Contractor 5 Mr. Balwant Joshi ABPS 18 Mr. Sachin S. Patel Reliance ADAG 6 Mr. C. Kannan SECI 19 Mr. Sanjeev Singhal SBI 7 Mr. Chetan Krishna IIT Delhi 20 Mr. Sanket Joshi Electrotherm Immodo Solar 8 Mr. Dhananjay L&T Infra Finance 21 Mr. Sunil Jain Hero Future Energies Yellurkar 9 Ms. Eva D’Ambrosio US Embassy 22 Mr. Swapnil Wankhede Lauren CCL 10 Mr. Harsh Nanda Goldman Sachs 23 Mr. Vimal Kumar Cargo Infrastructure 11 Mr. Jis George Lauren CCL 24 Mr. Vineeth Panchbuta Vijayaragahavan 12 Ms. Jyoti Mistry Welspun 25 Mr. Vish Iyer Mahindra Cleantech 13 Mr. Ketan Shukla GERC 52 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I (ii) Key Messages from the Workshops held in Mumbai and Delhi Financing Session Lenders’ perspective Financial Support Options • Public financing support was seen as critical to addressing/balancing two objectives: (a) buying down the cost of electricity; and (b) addressing structural barriers and risks which impede the flow of commercial finance to the sector. Five different options were debated for their relative efficiency and efficacy in addressing these twin objectives: • Interest subvention • Provision of prolonging tenor of lending • Credit guarantee • VGF in tranches • GBI; • VGF was seen as attractive in lowering the cost of electricity and thus improving the project economics and risk perception among lenders. Appropriate structuring of VGF and linking it to loan repayments, and so on, were seen as necessary to avoid misuse. It was acknowledged that the leverage of such an option in the hands of the government was minimal and overall cost of supporting the program may be higher for the government in such an option. VGF’s lack of linkages with output and being interpreted as an obvious government subsidy for the project was acknowledged but was not seen as a lenders’ issue; • GBI, while being an attractive option, leaves lenders with generation risk. At this stage, SCBs are particularly concerned with generation risk since solar PV technology is new under Indian conditions with limited ground operating data; • Asset liability mismatch and nonavailability of long-tenor debt were acknowledged by lenders. It was recognized that long-tenor debt would improve project economics substantially and such arrangements can also be optimal for the government compared with direct financial support which is envisaged in the other options. A combination of options from the government enabling long-tenor and lower-cost debt along with direct financial support through VGF/GBI was proposed; • Counterparty risk for the projects was seen as most critical in lenders’ assessment of solar projects, given the comparatively higher tariffs for solar and higher concentration of projects in a few states (which are not necessarily performing well in their distribution businesses). Improving the payment security mechanism and considering SECI as a counter party with back-to-back PSAs with Discoms were some of the suggestions made by lenders; and • Guarantee products would be taken positively if they address commissioning risks and also cover the initial years of operation. REC/RPOs • REC may not be a bankable structure in its present forms for solar. In a market characterized by falling capital cost, newer projects would be comparatively better positioned in selling RECs than the older ones. As such, there is always a re-negotiation risk that older projects could face; and • Stricter enforcement of RPO was absolutely essential. A recent case in the Appellate Tribunal to give more teeth to RPO enforcement. 53 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... Financing Session Developers’ Financing Structure perspective • VGF was not a panacea and fails to address systemic issues. It would make projects dependent on government budgetary support from year to year and could be risky. Since the pool is also limited, it may not be the most optimal structure; • Interest subvention and long-tenor loans were better suited for projects; • PPAs should be made uniform and robust all across, and should be comprehensive and bankable. Address issues of force majeure and termination payment, which are missing at the moment; • No reason for construction period to be so aggressively prescribed by the government, if no support is being provided on preparatory activities; and • Any financing structure should not lead to tying the developer to the project. Developers should be allowed to freely invest in and exit projects. REC/RPOs • RECs have limited takers in the long term. It would be wiser to invest in generating asset than to buy RECs; and • RECs are not legal instruments and they always run regulatory pricing risks—regulators could always change the pricing structure. Technology Session Lenders’ perspective • The appropriateness of the local content requirement provision was debated. The objective of JNNSM to promote local manufacturing for long-term energy security was acknowledged; • Lenders had no bias for either locally manufactured or imported goods on projects. An important consideration, however, was the reliability/bankability of suppliers who are required to offer long-term warranties. The condition/reliability of Indian manufacturers in the current environment was far from good and a matter of concern; • For local manufacturing, GoI needs to have an appropriate plan in place to enhance the competitiveness of the local industry. The local industry was established ahead of the Chinese industry and was catering to global needs until the JNNSM was initiated. Addressing fundamental input-side concerns of manufacturers was far more important than providing a captive market under JNNSM; • Alternative structures were proposed for Local Content Requirement (LCR), if it has to be the way forward to avoid unintended outcomes such as higher penetration of TF in Phase I. The example of South Africa was discussed where a graded LCR of 30 percent was raised to 50 percent in two steps without specifying the category or kind of equipment to be locally sourced. This allowed enough flexibility for the developers to consider the area in which local value addition could be considered; • A cluster-based approach for project development was highly recommended by the lenders and developers. GoI incentives for clusters were seen as a healthy way of promoting its stake in all projects across the country and signaling a clear preference for cluster-based development; and • Federal structure-related issues were also discussed with a focus on the disparities between central and state sector policies in availability of incentives: ‒ Given the fact that India has one central policy and multiple state policies, the aim should be to standardize the fiscal/support instruments to ensure a homogenous development of the sector. Projects fulfilling certain minimum criteria (such as cluster- based development, adherence to a standard model PPA, and so on) could then qualify for incentives from the central government irrespective of which policy they fall under. 54 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... Developers’ Issue of LCR perspective • LCR was not successful in Phase I and had unintended outcomes. Hence, it may not be the correct instrument to promote local manufacturing. Also specifying LCR for modules and cells cannot address energy security considerations, which need investment in polysilicon. Small, largely unreliable players in cells and modules impede rather than aid the program; • LCR should not be enforced with developers, particularly when global prices have been on the decline and manufacturers are unlikely to invest in new capacities. Benefit from cost reduction globally should set up projects in India; • Adopt an ecosystem-based approach to manufacturing. The GoI should tap NCEF for developing an ecosystem for local manufacturing: ‒ Provision of domestic financing using options such as NCEF (to compete with U.S. EXIM bank financing to encourage Indian manufacturers; • The definition of LCR should be revisited and can be made a percentage of the total value of a project rather than restricting it to the module and cell level. The BoS can be another area where India can develop competitiveness; • India can adopt Brazil’s model in which local manufacturers are allocated solar projects for development: ‒ Investors in domestic manufacturing in the approved phased manufacturing program should be granted special allocation for setting up solar plants with preferential tariff under JNNSM. • India needs to develop the ecosystem to make solar equipment manufacturing competitive: ‒ GoI needs to revisit the strategy for enhancing solar manufacturing competitiveness. Manufacturing is the key to energy security, and India needs to learn from China which focused on the complete value chain with emphasis on polysilicon ‒ Industrial policy is the key to enhancing manufacturing competitiveness and manufacturers need long-term clarity on the demand; and • Impact of LCR on financing ‒ It would be difficult for multilateral agencies to support financing of projects where domestic content is mandatory. CSP Requires Support • Governmental support is required for CSP development; • All CSP projects must include storage/hybridization as it will assist India in attaining its objective of energy security as well as grid parity; • CSP projects require high level of precision and quality, and it may not be desirable to include DCR in this. DCR may not work in the initial phase, but as the market develops, India can develop competence in the area; • Developers are not quite comfortable with the Global Horizontal Index data, however, DNI data are still a concern for CSP project developers; and • All CSP projects should be bid out as Case 2 projects with adequate preparation by government agencies upfront. Government Involvement Key for Success of Cluster-based Approach • Land acquisition is a major issue, and the Government’s role is crucial in this regard: ‒ The state should identify the land and let institutions such as SECI/state institutions develop it and allocate it to private developers; and • The aim should be to develop small clusters close to electricity consumption areas. 55 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... Policy/Regulatory Session RPO Compliance Key for Growth • There is a need to enforce RPO stringently and bring credibility to the REC market. • Another option could be the Renewable Generation Obligation rather than a RPO which can be imposed on new generation capacities based on conventional fuels. VGF Allocations Need to be Designed Properly • VGF depends on year on year budgetary approval/sanction of the Central Ministry, which may create a problem: – VGF could take one time financial support from the NCEF to be passed on as a cash subsidy to developers – Import costs should be validated by an authority, as there can be a tendency to inflate cost to get a higher cash subsidy under VGF; there are also concerns around developers not investing adequate equity with upfront VGF – Need to clearly define stringent quality and performance criteria before allotment of VGF. It should be ensured that the developer operates the project for the complete life span; and • It is important to undertake a cost-benefit analysis of all the options proposed in JNNSM Phase II to determine the impact of these on the tariff as well as the overall economics/growth of the sector. Other Options for Incentive Disbursement • Instead of providing upfront subsidy/VGF to the developers in proposed stages, there could be a loan guarantee scheme, under which lenders get paid out from the VGF funds on the successful construction of project. Database Creation • Conventional power plant data is tracked by MoP and is available in the public domain, the same approach should be used for solar projects. PPA Credibility is Important • JNNSM was successful as the procurer of the power was NVVN. Had Discoms procured and signed the PPA, JNNSM would not have had the same credibility for financers. 56 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 2: Comparison of State Solar Policy Framework with JNNSM Table A2 1: Comparison of State Solar Policies with JNNSM Description JNNSM Phase I State Policies Financial Net worth Gujarat criteria • Up to 20 MW - INR 30 • Internal resource generation: INR 12 million/MW (US$0.20 million/MW (US$0.50 million/MW) computed as 5 times the maximum internal million/MW) resources during past 5 years • For capacity > 20 MW • Net worth: INR 20 million/MW (US$0.33 million/MW) - INR 20 million/MW • Annual turnover: INR 48 million/MW (US$0.80 million/MW) (US$0.33 million/MW) Rajasthan & Karnataka • Net worth: INR 30 million/MW (US$0.50 million/MW) Technical Commercially established Gujarat: Experience of developing any project in last 10 years criteria technology with at least 1 with capital costs of not less than INR 30 million/MW (US$0.50 year of successful operation million/MW) with a minimum size of 1 project to be INR 5 million/MW (US$0.08 million/MW) Rajasthan: Same as JNNSM Allocation Reverse bidding Gujarat: Projects allocated on first-come-first-served basis on process Discount to CERC’s FiT GERC’s FiT which provided certainty on revenue flows Rajasthan, Karnataka, Madhya Pradesh, Tamil Nadu: Followed/propose to follow tariff-based competitive bidding route Security/ INR 5 million per MW Gujarat: PBG - INR 5 million per MW (US$0.08 million per MW) Performance (US$0.08 million per MW) Rajasthan: Security – INR 0.5 million per MW (US$8,333 per Bank Guarantee MW); Bank Guarantee (BG): INR 2 million/MW (US$33,333 per (PBG) MW) Evacuation Batch 1: STU’s Gujarat, Rajasthan: Responsibility of the STU for timely completion responsibility; Batch of transmission line after the solar substation switchyard 2: project developer’s Madhya Pradesh, Karnataka: Responsibility of the developer to responsibility lay the line up to nearest STU/Discom sub-station Equity lock-in • No change in controlling Gujarat, Rajasthan: Developer/consortium has to retain shareholding & lead controlling shareholding (51% for first 3 years and 26% from member for a period of 1 thereafter) throughout the term of the agreement year after commencement • Controlling shareholding means at least 26% of the voting rights in the company Financial • 180 days for Batch 1 Same as JNNSM Closure • 210 days for Batch 2 Commissioning • 12 months for PV & 28 • Karnataka: PV - 12 months & CSP - 30 months months for CSP in Batch 1 • Rajasthan: PV - 12 months (for 5 MW) and 15 months (for 10 • 13 months for PV in Batch MW) & CSP - 28 months • Madhya Pradesh: PV - 12 months & CSP - 28 months Source: Respective state solar policies, JNNSM guidelines, authors’ research. 57 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 3: CSP Players and Status of Implementation Details of CSP Players Selected in JNNSM Phase I, Capacity Allocated and Status of Implementation Table A3 1: CSP Projects and Implementation Status S. No Project Name Promoter Capacity Location Technology Supplier/EPC Status* (MW) Contractor** 1 Diwakar Solar Lanco 100 Nachna, PTC with Siemens/Lanco Under Rajasthan storage Solar & Initec construction Energía 2 KVK Energy Lanco 100 Nachna, PTC with Siemens/Lanco Under Ventures Rajasthan storage Infratech construction 3 Megha Megha 50 Anantpur, PTC GE/MEIL Green Under Engineering Engineering Andhra Power Limited construction Ltd. Pradesh 4 Rajasthan Reliance 100 Bikaner, Compact Areva/Reliance Under Suntechnique Rajasthan Linear Infrastructure construction Fresnel 5 Aurum Aurum 20 Porbandar, Linear Sumitomo Shin Under Renewable Gujarat Fresnel Nippon/Indure construction 6 Godawari Power Hira Group 50 Pokaran, PTC Siemens, Schott Commissioned Rajasthan Glass, Flabeg, Aalborg/Lauren, Jyoti Structures 7 Corporate Ispat Abhijeet 50 Pokaran, PTC Siemens turbine Under Rajasthan & receivers/ construction Shriram EPC Source: “Concentrated Solar Power: Heating up India’s Solar Thermal Market under the National Solar Mission”, EEW/NRDC/Shakti Foundation, September 2012. * Authors’ research; ** Data collected from CSP World. 58 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 4: JNNSM Auction Process and International Experience 1. Chronology of JNNSM Phase I reverse bidding-based capacity auction process Table A4 1: JNNSM Phase I—Bidding Chronology Issue of Submission Shortlisting Proposal Evaluation PPA Financial COD Request of Response of Bidders Submission of Signing Closure of for to Request and Proposals Projects Selection for Selection Decision and Issue on Tariff of Letter of Discounting Intent Phase I August September October November December January April 2011 January Batch 1 2010 2010 2010 2010 2010 2011 2012 Solar PV Phase I August September October November December January September February Batch 2 2011 2011 2011 2011 2011 2012 2012 2013 Solar PV Solar August September October November December January April 2011 May 2013 Thermal 2010 2010 2010 2010 2010 2011 Source: Authors’ research. 2. Level of participation in JNNSM Phase I Table A4 2: Level of Participation—JNNSM Phase I S. No Batch/Technology No. of Bids No. of Projects Selected Total Capacity 1 Batch 1 – PV 299 30 150 MW 2 Batch 2 – PV 183 26 350 MW 3 CSP 66 8 470 MW Source: Draft JNNSM Phase II Policy Document, MNRE. 59 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I 3. International experience: Capacity auction structure Table A4 3: Capacity Auction Structure—International Experience Country Type of Auction Design of Auction Penalties for Noncompliance Domestic Content India Reverse auction Technology specific Clearly defined penalties For Batch 1 of Phase I, (JNNSM) (ceiling price fixed by Forego the PBG (for delays it will be mandatory for the regulator) up to 3 months) projects based on c-Si Liquidated damages for technology to use the delays beyond 3 months modules manufactured in India. For Batch 2 of Phase I, all projects will have to use cells and modules manufactured in India Brazil Hybrid auction: Could be Flexible: A 4-year rule offers 60% of the cost of First stage – reverse technology some flexibility by allowing equipment spent locally clock auction to specific, alternate producers to accumulate determine ceiling price energy auction or and carry over productions Second stage – sealed technology specific within some limits to make bid auction Last auction was up for under production technology neutral risks in future years Contract termination for delays greater than 1 year South Two stage bidding: Technology specific Contracts will be Weightage given to Africa First stage - bidders terminated for bidders domestic content in the have to meet minimum who fail to meet their final evaluation of bids criteria related to legal, commitment under the PPA financial, technical and environmental requirements Second stage - sealed bid auction 70% weightage to price and 30% to economic development including local content Morocco Two stage bidding: Technology specific Penalties for delay and 30% of the plant’s capital First stage – pre- underperformance cost (local equipment qualification including determined in PPA manufacturing, O&M, experience, financial Guarantee paid at R&D) and technical capability signature of PPA Second stage - sealed Termination of PPA as bid auction last resort China Sealed bid auction Technology specific No clear penalties for 50% domestic content (site specific as noncompliance for wind in 2003, well) increased to 70% in 2005; abolished in 2009 Source: IRENA Report: Renewable Energy Auctions in Developing Countries (2013). 60 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 5: Funding Requirements for JNNSM Phase II Solar lending is considered a part of power sector Phase II policy document, around 3,600 MW solar lending by commercial banks. The comparative power capacity is proposed to be added under the transaction costs for smaller solar capacities are central scheme. higher compared to those for large conventional power plants, and with concerns around few public Table A5 1 provides an indicative detail of funding sector banks reaching their sector caps, imposed requirement to support 3,600 MW of capacity. by them in keeping with prudential norms, the availability of funding from domestic commercial Adding solar power capacity only under the central banks becomes an issue. scheme would require around INR 340 billion (US$5.67 billion). At a debt: equity of 70:30, this is JNNSM Phase II is envisaged to add higher capacity an estimated at INR 238 billion (US$3.97 billion) of in comparison to Phase I. As per the draft JNNSM debt financing. Table A5 1: Indicative Funding Requirement for Phase II (Central Scheme) Type Indicative Cost Capacity Funding Requirement Rooftop & @ INR 80- 90 million 200 INR 16-18 billion small solar PV (US$1.33 - 1.50 million) per MW (US$270 -300 million) Ground-mounted @ INR 70- 80 million 2,320 INR 162-186 billion solar PV (US$1.17-1.33 million) per MW (US$2.7- 3.1 billion) Solar thermal @ INR 120- 130 Million 1,080 INR 130-140 billion (US$2.00- 2.17 million) per MW (US$2.17- 2.33 billion) Total 3,600 INR 308-344 billion (US$5.13-5.73 billion) Source: Authors’ research. 61 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 6: PPA under JNNSM Phase I – Key Concerns 1. Review of JNNSM Power Purchase Agreement • Limitations on solar dispatch/assurance on power off-take; Under the JNNSM framework, selected • Conditions of liquidated damages and penalty; developers have to enter a PPA with NVVN • Performance guarantees; which, in turn, signs to a PSA with respective • Creditworthiness of utilities; distribution utilities. • Payment security mechanism; and • Termination and exit provisions. Developers and financiers expressed broad concerns with regard to the PPA in the following areas: These areas are summarized in Table A6 1. Table A6 1: PPA under JNNSM Phase I—Key Concerns S. No. Particulars Details 1. Limitations on solar Under the PPA, NVVN is not obligated to purchase any additional solar energy dispatch generated beyond the amount corresponding to 21% capability utilization factor from the PV project. Further, there is no compensation for the grid/procurer’s inability to evacuate or transmit solar power, leading to its backing down. Given the lower capacity utilization factors of solar power plants, nonavailability of the grid can be a serious risk for such projects. This is particularly exacerbated by the fact that solar projects have been feeding into primarily rural areas of the state transmission and sub- transmission grid, which are known to suffer from maintenance and availability related issues in several states. 2. Liquidated damages & Conditions for meeting the Scheduled Commissioning Date in the PPA are penalties supplemented by liquidated damages and penalties to be paid by the developer in the event of delays. The developer is required to forego the PBG of INR 5 million per MW (US$83,333 per MW) submitted in the event of delay beyond 3 months. In case of further delay, the developer is required to submit INR 0.1 million (US$1,667) per day per MW as liquidated damages. Key hurdles in solar project development are land acquisition and laying down transmission lines for evacuation. As land acquisition is a state subject, the chances of projects getting delayed are higher. The bankability of PPA is marred by such stringent timelines coupled with serious monetary implications. 3. Performance Under the PPA, the developer is required to submit PBGs to the extent of INR 5 guarantee million per MW (USD$0.08 million per MW). This is perceived to be very high in a market characterized by falling project costs and with several smaller companies participating, since it locks in much higher amounts than equity in the project, as bankers insist on margins to extend such guarantees. 62 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... S. No. Particulars Details 4. Creditworthiness of State utilities are the procurers of the solar power under JNNSM and are required utilities to pay as per the provisions of the PSA. The creditworthiness of the state Discoms on timely payments for conventional power purchase has not been impressive so far and, therefore, the lenders view the payments from such utilities as a riskier proposition. The role of NVVN in Phase I had a beneficial effect, given the direct and indirect influence NTPC and NVVN have on distribution utilities. With bundling no longer a sustainable option, NVVN’s role over Phase II is in doubt and raises issues on the creditworthiness of the overall program. 5. Payment security Under the PPA, the payment security mechanism is structured as a Letter of mechanism Credit backed by an Escrow mechanism. NVVN is albeit under no obligation to make payments to the developer in the event of default by the utilities. To mitigate such risks, the JNNSM framework identified a PSS by way of creation of a Solar Payment Security Account (SPSA). To this effect, MNRE has set aside budgetary support of INR 4,860 million (US$81 million) for the period of 2011-15. This third tier of payment security is a fall back arrangement in the event of exhaustion of the payment security as defined in the PPA. This mechanism, however, provides complete discretion to NVVN in terms of administering PSS and was pointed out by several lenders as ambiguous. 6. Termination The PPA can be terminated by NVVN on account of the developer not meeting payments and exit the conditions subsequent in the stipulated time period of 7 months from the arrangements effective date without giving any further extension. The PPA does not provide any exit arrangements for the developer or recovery of cost in the event of termination resulting in default by NVVN or the utilities, and is not on an equitable footing. 7. Charge on bundled Banks have echoed concern that banks do not have a charge on the bundled power power. There should be a scenario in some suitable form for recourse to the bundled power for the lenders to the solar project under the JNNSM. 63 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 7: Payment Security Scheme and NCEF Payment Security Mechanism in JNNSM Phase I30 A GBS of up to INR 4,860 million (US$81 million) will be provided to MNRE for the implementation The core component of the PSS is to create a Solar of the PSS, which has been estimated for a default of Payment Security Account (SPSA) financed from 35 percent and based on capacity utilization factors the Gross Budgetary Support (GBS) to MNRE to on a normative basis. ensure availability of adequate funds to address all possible payment-related risks in case of defaults by The funds for each year shall be allocated by MNRE distribution utilities for the bundled power. to SPSA which could be deployed in the approved liquid securities with the approval of the PSS As per available provisions of the PPA, NVVN Management Committee. However, resulting returns will raise a provisional bill on the last day of the would be treated as accretion to the SPSA after month. Utilities would get 2 percent rebate if the taking into account the management fee of 1 percent payment is made on the next working day. The due of funds handling, to be provided to NVVN. date of payment would be 30 days from the date of billing. If payment is not made by the 30th day, National Clean Energy Fund NVVN can notify default and encash the amount from the Letter of Credit (LC). Utilities would Announced in the Union Budget of 2010-11, the open the LC for six month equivalent amount NCEF is a nonlapsable corpus under the Public which would be backed by an escrow account. In Accounts of India formed through the levy of a addition to encashing the LC, NVVN has the right clean energy cess of INR 50 per ton (US$0.83 per to divert and sell the bundled power in the spot/ ton) on coal produced domestically and imported short-term market. In case the realized amount to India. The cess came into effect from July 2010. from the market is lower than the cost of bundled power, the difference is to be paid from SPSA, NCEF has collected revenues to the tune of INR provided under the PSS. Alternatively, NVVN can 10,660 million (US$177.67 million) in FY 2010- continue to supply power to the utility since the LC 11, an estimated INR 32,490 million (US$541.50 has six months’ equivalent amount. Even in case of million) in FY 2011-12, and is expected to generate diversion, the defaulting utility is not absolved of a further INR 38,640 million (US$644.00 million) the liability to pay capacity charges. in FY 2012-13. 30 Source: Press Information Bureau of India, 64 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 8: Technology Factors in JNNSM Phase I JNNSM Phase I has featured the following compared with CSP at 2.2 GW. CSP projects have technology and price characteristics: primarily been demonstration and semi-commercial projects with substantial public funding. • Equal capacity distribution under Phase I of the mission for development of both PV and CSP; CSP refers to a range of technologies (parabolic • TF more desirable than c-Si in Phase I of the trough, linear fresnel, solar tower, stirling dish, mission; and and so on), which are relatively less mature and • Aggressive price bids followed by the global glut currently more expensive than PV. in the solar market. CSP, given its promising potential, including 1. Equal capacity distribution under JNNSM its ability to operate with thermal storage and Phase I for development of both PV and CSP be hybridized with other fuels, has been widely researched. Most developments so far have also The grid-connected solar capacity under JNSSM been extensively supported by public financing Phase I was divided equally between PV and CSP sources and seen participation of public financiers (500 MW each), in contrast to the global share and international development banks, including the of CSP and PV technologies; the total installed European Commission (EC), European Investment capacity of solar PV is as high as 100 GW currently, Bank (EIB) and the World Bank. Figure A8 1: Global PV & CSP Capacity 100 90 80 70 60 100 50 40 70 30 20 40 10 23 15.5 9.5 0 2007 2008 2009 2010 2011 2012 Global PV (GW) Global CSP (GW) Source: EPIA. 65 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Box A8 1: EC and EIB Support to CSP EC’s support for CSP started with the fourth EU Framework Program in 1994. • Fourth Framework Program (1994): allocation of €29 million for development/implementation of CSP technologies. • Fifth Framework Program: €15 million on three major full-scale MW size demonstration projects to: ‒ PS10: 11 MW CR CSP in southern Spain ‒ Andasol: 50 MW parabolic-trough collector (PTC) CSP with storage ‒ SOLAR TRES: 15 MW CR CSP with salt storage • Seventh Framework Program: looking for scaling up of promising CSP technologies. EIB has partnered EC with an investment of over €70 million between 2004 and 2012. Source: European Commission. Solar thermal has suffered globally through has been declining in the last few years and was at comparison with solar PV, the latter experiencing 13 percent of all PV in 2011. exponential growth between 2004 and 2009 due to the demand from rooftop solar programs in Japan TF technology historic to current scenario and Germany, followed by a dramatic decline in prices thereafter. Since 2009, solar PV has seen In the past, TF was considered a very promising a consistent decline in polysilicon and module technology with a lower efficiency than c-Si but with prices due to substantial over-capacities across the substantially lower cost. TF’s market share was as manufacturing value chain and the emergence of high as 30 percent during the late 1980s but started large-scale, integrated and low-cost suppliers in declining thereafter with industry consolidations. China. Technological advancements returned the focus on TF after 2003; this phase lasted until 2008. However, Solar thermal, on the other hand, has not reached with the dramatic decline in c-Si prices since 2009, a level where scale and competition can affect the value proposition of TF has narrowed and it has price reductions. CSP technologies are, at best, continued to lose market share resulting in a long at the initial stages of commercialization with list of suppliers shutting down their manufacturing the dominance of a few suppliers who also own units. significant parts of the supply chain, restraining competition. Thin Film growth vis-à-vis polysilicon pricing i. TF more desirable than c-Si in Phase I of the mission It may be argued that market share shifts or global interest in TF are cyclical in nature but the Within PV technology, JNNSM Phase I has correlation between the decreasing cost of c-Si and witnessed a higher demand for TF compared with decreasing growth of TF cannot be ignored. It can be c-Si. This is a contrast to the current global scenario. seen in Figure A8 2 that year on year growth in TF Globally, the share of TF in total PV installations also decreased as polysilicon spot prices decreased. 66 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure A8 2: TF Market Growth and Polysilicon Spot Prices 400 160% 300 Year-on-year growth (%) 200 80% US$/kg 100 0 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 Historical Polysilicon Spot Prices Historical TF Year-on-year Growth (%) Table A8 1: Comparison of PV and Thin Film Technologies Modeled Data kWh/KW Performance Assumed Efficiency Performance Performance from PVSyst LA Performance vs Base Efficiency Adjusted Adjusted & Efficiency System Penalty Efficiency Adjusted Penalty Poly c-Si (Base) 1,647 100.0% 14.5% US$ 14.5% US$ Mono c-Si 1,696 103.0% 15.0% US$ (0.02) 15.4% US$ 0.05 a-Si 1,731 105.1% 6.5% US$ 0.91 6.8% US$ 0.83 CIGS 1,748 106.1% 12.5% US$ 0.12 13.3% US$ 0.07 Cadmium 1,838 111.6% 11.7% US$ 0.18 13.1% US$ 0.08 telluride (CdTe) Source: GTM research. Decreasing cost competitiveness of TF advantage of TF being cheaper is not easily visible in the future, unless technological advancements The decline in TF’s share globally is a result of its drive down costs. decreasing cost competitiveness. As shown in Table A8 1, the performance and efficiency adjusted India, on the other hand, has a completely different penalty is higher for TF because of larger area and scenario; the share of TF in PV is not only high but also BoS requirements with this technology. The overall increasing. As can be seen in Figure A8 3, the share of 67 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I TF between 2000 and 2011 was quite low globally but Glut in solar PV market quite high in India under JNNSM Phase I. This was driven largely by the availability of low-cost financing Solar PV has been witnessing a sharp drop from U.S. EXIM for U.S.-based TF supplies. Large on the back of heavy supply and inventories. U.S.-based suppliers with proven track records were Polysilicon makes up around one-third of the also preferred by developers and lenders over relatively total cost of a solar PV cell. There have been smaller suppliers of c-Si, which had to be domestic huge investments in the polysilicon industry manufacturers on account of the DCR for c-Si. over the last five years, leading to over-capacity and build-up of inventories, resulting in a ii. Aggressive price bids followed by global glut in sharp decline in prices, thus pushing down the solar market prices of solar PV modules. This price decline continued well into 2012 and the first few The world has been experiencing a secular trend months of 2013. of decline in the cost of generation from solar technologies. The reverse bidding mechanism in Aggressive bids vis-à-vis DCR JNNSM Phase I (Batch 1 in August 2010 and Batch 2 in August 2011) facilitated the emergence of price Aggressive bid price demands availability of either bids that are amongst the lowest globally. Access to cheaper solar modules and system equipment or low-cost financing and technology choice, which is low-cost financing. DCR under JNNSM requires usually a challenge with such tariffs, was facilitated developers to use locally manufactured cells and by a few factors outlined below. modules (for c-Si technology). Figure A8 3: Share of TF in Overall PV Installed Capacity 100% 75% 80% 55% 60% 40% 13.50% 17% 20% 10% 9% 7.50% 10.50% 13% 11% 6.50% 5% 5% 6% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 JNNSM JNNSM Batch 1 Batch 2 Global TF share in solar PV Indian TF share in solar PV Source: Navigant consulting and authors’ research. 68 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I The possibility of local modules being cheaper Compared with this domestic scenario, TF than imported modules is low considering the suppliers out of the United States were ready to offer smaller scale of India’s manufacturing capacity competitively produced modules along with low- and fierce competition from Chinese modules. cost, long-tenor financing from the U.S. EXIM bank. Even after paying import duty, the selling price of a Chinese cell is lower than an Indian one, because Substantially higher penetration of TF over c-Si is of the availability of low-cost local wafers and thus an unintended outcome of the DCR stipulation lower processing cost due to lower electricity and combined with the low-cost financing which financing charges in China. accompanied U.S.-made TF products. 69 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 9: Domestic Content Requirement The domestic/local content requirements under suppliers. The main aim of using the LCR criteria the power procurement contracts compel the under the policy framework is to promote local renewable energy power developers to source a manufacturing as well as attain tangible local particular percentage of equipment from the local economic benefits. 1. National Experience Table A9 1: National Experience, DCR Description JNNSM Phase I State Policies Domestic PV Gujarat Content • Batch 1 : c-Si - mandatory • No obligation on domestic content use of domestic modules • Batch 2: c-Si - mandatory Rajasthan use of domestic cells & • No obligation on domestic content modules • Separate scheme for promoting local manufacturing: Solar • TF not under DCR producers under this scheme required to source solar PV purview modules from their own manufacturing units in Rajasthan ‒ Target 200 MW power capacity & 500 MW manufacturing CSP capacity (TF/c-Si) by 2013 • 30% domestic content ‒ Selection through tariff-based bidding (not initiated) mandatory Madhya Pradesh • Domestic content clause (exception: TF modules) Karnataka • No obligation on domestic content A review of the implementation of solar PV projects 2. International Experience under the state policy of Gujarat (with no obligation on domestic content) indicates a TF share of Table A9 2 provides brief overview of the international close to 50 percent (for 492.61 MW capacity), in experience across select countries in the area of indicated in Figure A9 1. renewable energy with local content requirements: 70 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure A9 1: Solar PV Technology, Gujarat 1.62% 31.74% 50.20% 49.80% 16.44% C-Si CIGS CeTd a-Si Source: Sunrise in Gujarat (2013), RESolve Energy Consultants. Table A9 2: International Experience, DCR Country Experience Ontario FiT The FiT Program was enabled by the Green Energy and Green Economy Act, 2009. The Ontario Program31 Power Authority is responsible for implementing the FiT Program. A price-based program, the FiT aims to attract renewable energy companies to the province by providing guaranteed pricing for certain forms of renewable energy projects. The FiT contract requires wind projects greater than 10 kW and all solar projects to include a minimum amount of goods and services that come from Ontario. The minimum requirements are: • 50% for wind projects greater than 10 kW; and • 60% for all solar projects. Brazil - In the first and second phase of the Program of Incentives for Alternative Electricity Sources, LCRs (so- Wind32 called ‘nationalization indices’) were stipulated for equipment and services of 60% and 90%, respectively. Nevertheless, there are no similar measures to be found in the Portarias approving the guidelines on the tenders held in 2010, and no nationalization index is required to take part in the tender process. However, the nationalization index of 60% remains as a condition to access funding from the Brazilian development bank, and since its financing comes at a lower cost, this condition established a de facto LCR similar to the ones stipulated under the Program of Incentives for Alternative Electricity Sources and the Portarias or the wind-only auction. China - Wind Wind projects approved by China’s National Development and Reform Commission from 1996 to 2000 were required to source at least 40% of their content from local manufacturers, which was increased to 50% in 2003, and then to 70% in 2004. The DCR was discontinued in 2009, as it was no longer needed as most turbines exceeded the DCRs.33 31 Source: Report on FiT Program Overview - Ontario Power Authority, 2012. 32 Source: Report - Analysis of the regulatory framework for wind power generation in Brazil (REEEP/GWEC). 33 Source: Policy Brief - Sustainable Prosperity (2012). 71 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 10: Solar PV Manufacturing in India Solar PV manufacturing in India constitutes While there is no polysilicon manufacturing an installed capacity of approximately 2,000 capability in India, technically 15 MW of ingot MW of modules and 1,000 MW of cells of and wafer manufacturing capacity exists, although which, as on date, only about 50 to 60 percent is this is a pilot unit which is not commercial in operational. The manufacturing ecosystem for nature.34 The Indian solar manufacturing segment solar thermal generation is yet to develop and is is thus primarily represented by solar cell and mostly restricted to small Stirling dish engines for module manufacturers. A few projects have been industrial applications. Manufacturing of power announced to undertake manufacturing of other block equipment is well established in India for components in the value chain such as polysilicon, conventional power generation and can adapt itself ingots and wafers; however, none of these have to solar power generation. made progress on the ground on account of viability concerns in the current global pricing 1. Solar PV manufacturing in India scenario. This section covers primarily the experience of solar While there has been marginal growth in the PV manufacturing in India. installed capacity for solar modules, the average Box A10 1: Indian Manufacturing Landscape Polysilicon Wafer • India has no polysilicon manufacturing capacity • There is no significant wafer manufacturing • To sustain 20 GW of installation (including capability in India central and state policies), India would need an • Around 2,000 MW per annum of wafer annual capacity of approximately 14,000 metric manufacturing capability would be required for ton of polysilicon sustaining 20 GW of installation Cells Modules • Around 1,000 MW of cell manufacturing • Around 2,000 MW of domestic module capability exists in India manufacturing capability exists • Policy framework in place to push consumption • This capability could be ramped up depending on of cells manufactured in India viable local availability of input materials • Economically priced wafers would increase the prospects of domestic cells 34 This was a testing unit which was made available purely for R&D purposes to an Indian solar facility. 72 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Installed Indian Solar Manufacturing Capacity • Capital subsidies available under Special Incentive Package Scheme of 20 percent in Ingots & Wafers: 15 MW Special Economic Zones and 25 percent outside Solar PV Cells: 1,000 MW the zones are not at par with those provided by Solar Modules: 2,000 MW China and Taiwan, which are in the range of 50 percent of capital costs; capacity utilization for the industry has decreased • Provision of reliable and uninterrupted power over the years and is currently at about 50 percent. at concessional rates is critical to wafer and cell manufacturing. Most Indian manufacturers Historically, Indian solar PV manufacturers have resort to the use of diesel/gas-based captive relied on exports. The balance of payment for generators during production, as supply quality this segment until FY 2011 was positive. Exports, is poor, adding to the cost of production however, declined significantly over FY 2012 and significantly. Co-location and provision continue to do so over FY 2013. This points to a of manufacturing with cheaper sources of significant erosion in the cost-competitiveness generation have not been explored in the Indian of Indian manufacturers in the face of rapid environment; price competition from Chinese and Taiwanese • Most of the raw materials and consumables for manufacturers, in particular. On the other hand, cell and module manufacturing are imported. domestic demand for solar products picked up This includes all gases, silver paste, ethylene over FY 2012 but has been catered to by imports, vinyl acetate, and so on. A domestic ecosystem primarily in the TF segment. needs to be developed which can make the most of locally accessible components, minimizing The lack of integrated operations covering wafers supply chain challenges and also exercising and ingots and of GW scale manufacturing, adopted control over random price fluctuations; and by Chinese competitors, has started eroding the • While import of solar modules/cells does not cost-competitiveness of Indian manufacturers in attract duties, manufacturers claimed that the c-Si segment. Among the differentiating input import of certain key input material used for side factors, which need to be addressed by GoI to solar cell manufacturing attracts import duties. make Indian PV manufacturing competitive, are the Further, where export-oriented units (such following: as Indo-solar) propose to sell their output in Table A10 1: Performance of Indian Solar PV Manufacturers Commodity Export (in US$ Million) Import (in US$ Million) 2009-10 2010-11 2011-12 2012-13* 2009-10 2010-11 2011-12 2012-13* Solar cells/PV cells 290.17 511.69 163.06 77.08 213.75 252.63 1,348.48 449.01 whether or not assembled in module/panel Other photo cells 31.72 37.85 11.76 3.80 22.48 11.19 73.53 53.10 Total 321.89 549.54 174.82 80.88 236.23 263.82 1422.01 502.11 *April- December; Source: Department of Commerce, Government of India. 73 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I the domestic market (domestic tariff area), Company Capacity manufacturers are required to pay excise duty Bonfiglioli 400 MW which makes them less competitive vis-à-vis ABB 500 MW duty-free imports. Schneider 400 MW 2. BoS manufacturing AEG 400 MW With a rapid decline in the cost of solar PV modules, the proportion of BoS in the capital this segment, with several global solar inverter cost of solar PV plants has started rising and manufacturers setting up facilities in India currently accounts for almost 40-50 percent in recent times. Structures, connectors and of the total capital cost of installations. India mountings are low value items and are usually has done well in localizing manufacturing in locally procured by developers. 3. Solar PV market – Global and Indian Table A10 2: Solar PV Market—Global and Indian Component Global Market Competition Indian Context Polysilicon 90% of the total polysilicon No polysilicon manufacturing capability in India feedstock market supplied by the top 7 companies Ingots and The top 5 companies cater to Limited presence in the segment wafers 90% of the total market Cells Fragmented market. Top 10 Heavily dependent on imports (nearly 100%), resulting in higher producers produced 50% of the cost compared to Chinese and other Asian countries (28 cents/ world demand in 2008 watt peak (Wp) in India, compared to 19 cents/Wp outside) Module Very fragmented market. Very heavily dependent on imports (about 90% of the value Overlapping segment with cell is imported). Higher costs compared to Chinese and other manufacturers. Differentiating Asian countries (34 cents/Wp as compared to 27 cents/Wp, factor is the efficiency on the respectively) module Inverters Market dominated by a few Huge base of nonsolar inverter manufacturers in India global players. Economies (estimated at about 3,200 MW manufactured every year). With of scale required to build a some technology back up, Indian inverter manufacturers will be production line able to easily manufacture solar PV inverters Battery Existing battery manufacturers High dependence on imports will easily be able to supply solar PV batteries Transformers Mature and competitive market Mature market with room for growth System Mature market Need to develop a network of system integrators integration Sources: FICCI Solar Energy Task Force Report on “Securing the Supply Chain for Solar in India” (2013), German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE): “Exploring the effectiveness of local content requirements in promoting solar PV manufacturing in India”; Green Rhine Ltd., 2013; Fraunhofer ISE (2012, 11-12); IRENA (2011, 7-8), authors’ research. 74 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 11: Solar Thermal Manufacturing in India One of the biggest drivers of cost reduction in power generation but have not been custom-built the solar energy space is the availability of scale for CSP). However, the Indian industry is definitely across the complete solar manufacturing supply not geared to the development of a scaled up chain as well as the associated ecosystem. Scale of version of a CSP supply chain. operations and the ability to source all components without price shocks will be the biggest drivers of To realize the CSP potential in India, existing Indian solar cost reduction in the future. India lags behind industries must identify the opportunities and react in this regard. proactively to participate significantly in supplying CSP components and systems. Many traditional The recent World Bank report titled Development of industries such as glass, metal, automotive, power Local Supply Chain: A Critical Link for Concentrated and process heat, machine tools and robotics, and Solar Power in India has mapped the current local chemical industries can play an active role in the manufacturing capability for CSP in India. There is development of the Indian CSP industry. Many only an almost negligible presence in the production of need a modest effort to adapt their manufacturing the key components of the CSP supply chain. Some processes to the demands of the CSP industry. components such as the power block or evacuated tubes might be available in the Indian market (for The study also proposes an action plan to stimulate example, power block components are available due local manufacturing of CSP components in India as to the presence of established players in thermal shown in Figure A11 1. Figure A11 1: Action Plan for Local Manufacturing of CSP Components (India) Section Action Plan Supportive Y1 Y2 Y3 Y4 Y5 Responsibility Long-term Year-wise allocation for Concentrated Solar MNRE policy Thermal Power (CSTP) power projects framework Regulatory support & tariff mechanism for MNRE & for CSTP solar thermal hybrid projects CERC development Renewable energy certificate mechanism CERC for solar thermal energy generation Planning Adequate payment security mechanism Ministry for payment using the coal cess funds of Finance security (MoF)/MNRE Low-cost Enablement of low-cost financing for CSTP MoF financing from banks & separate exposure limits for CSTP projects Financial Concessional customs duty and zero excise MoF planning of duties for materials and components used subsidies for manufacturing of solar systems and Fiscal incentives for sponsored research MoF incentives and in-house R&D expenditure 75 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I contd... Section Action Plan Supportive Y1 Y2 Y3 Y4 Y5 Responsibility Development and maintenance of a public MNRE repository of knowledge Mechanism Development of quality and specification MNRE for standards promotion Establishment of an R&D framework on a MNRE of R&D and public-private partnership basis innovation Development of solar energy courses MNRE Sponsored research projects in educational MNRE institutions Source: Development of Local Supply Chain: A Critical Link for Concentrated Solar Power in India. 76 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 12: International Experience in CSP Projects Two major markets of CSP, the U.S. and Spain, have 1. Development of CSP in Spain been growing with broadly similar approaches of initially applying technology push instruments Figure A12 1 shows the chronology of events in such as demonstration projects, public financing, shaping Spain as a market for CSP. It has been R&D, and so on, and thereafter (after proving shown that, initially, public funding was utilized the technology) utilizing market or demand pull on research and demonstration projects and, instruments such as FiT, Renewable Portfolio subsequently, FiT was introduced to upscale the Standard (RPS), and so on, to facilitate the market with commercial and private projects. The deployment of commercial projects. The difference R&D projects35 were implemented to proof the in approach, however, exists in terms of choice technology and push the supply chain into the of market instruments. The U.S. is using the RPS market. Later, government-funded demonstration mechanism whereas the FiT instrument is being projects were commissioned. utilized in Spain. Table A12 1 highlights the details of incentives available in Spain and the U.S. for Public funding for CSP development in Europe: development of CSP. Since 1994 (Fourth Framework Program of EC), the EC has spent some €29 million on the development Also realizing that CSP technology has still a and implementation of CSP technologies. An long way to go to match the commercial scale of additional €15 million has been spent on supporting operation enjoyed by PV technology, both countries three major full-scale MW size demonstration use public funding or federal incentives to facilitate projects under the Fifth Framework Program development of projects. (1998-2002): Table A12 1: International Experience, CSP Projects S No Country/State Supply or Technology Push Instruments Demand or Market Pull Instruments and Federal Incentives 1 Spain • Several R&D projects funded by EC • FiT • EC funding for development of MW scale projects – PS 10, Andasol 2 U.S. Total • Government funding for demonstration • Accelerated depreciation projects • Investment tax credit • Institutional and private risk capital • Federal loan guarantees investments backed by government energy • Clean energy renewable bond procurement 3 U.S. California NA • RPS 33% by 2020 • Tax credit/property tax exemption Sources: OECD Environment Directorate 2004, The World Bank report on CSP in developing countries, European Commission. 35 List of EC funded R&D projects can be accessed at http://ec.europa.eu/research/energy/eu/index_en.cfm?pg=projects#results 77 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure A12 1: Development of CSP, Spain Royal Decree 841 – Royal Decree 661 increased Spain becomes the first CSP FiT to €0.269 per kWh country in the world to & provided a FiT escalation introduce FiT for CSP, at annual inflation FiT for CSP fixed at minus 1 percent point. The €0.12/kWh for plants decree also increased CSP between 100 kW & target to 500 MW by 2010 Andosol1 Spain adds 417 MW 50 MW commissioned in 2011 2004 2007 2010 2002 2007 2008 2011 2012 Royal Decree 436 increased CSP FiT to PS10 commissioned Spain adds 400 MW Spain stops all FiTs and €0.18 per kWh to cover higher costs and in 2010 subsidies for renewable risks of CSP projects. It also guaranteed this energy including CSP tariff for 25 years with annual adjustments with increasing average electricity price Royal Decree 436, also provided a premium on top of the FiT of €0.18 per kWh – this effectively implemented the Royal Decree 436 also allowed CSP rate of €0.21 per kWh for the first 200 plants to use 12-15% natural gas as MW of CSP on the ground. This led to back-up fuel for maintaining storage development of around 600 MW of CSP and heat transfer fluid temperature projects by 2010 during non-sunshine hours. Source: CSP Today, USA 2012. • PS10: 11 MW solar thermal power plant in late 1970s and early 1980s. A consortium of southern Spain; government, national labs, and industry built this • Andasol: 50 MW parabolic trough plant with 10 MW steam power tower project (1982) for thermal storage; and demonstration purposes. • SOLAR TRES: 15 MW solar tower with molten salt storage. Thereafter, Luz International Ltd. built a series of nine solar electric generating systems, from 1984 to In addition to the applicable FiT regime in Spain, 1990 in the Californian Mojave desert, ranging from CSP research is one of the priorities of the Seventh 14 to 80 MW electric unit capacities and totalling Framework Program (FP7, 2007-2013) of the EC. 354 MW electric of grid electricity. The EC is committed to continue supporting the scaling up of promising CSP technologies from The US$1.2 billion was raised for these plants research, development and demonstration scale from private risk capital investors and institutional to a pre-commercial feasibility phase in the multi- investors (notably subsidiaries of East Cost utilities). MW range. These ventures were significantly aided by federal and state tax incentives (from 35 percent in 1984-86 2. Development of CSP in the U.S. to 10 percent in 1989) as well as attractive long-term power purchase contracts. With no further R&D in The Solar 1 CSP plant was designed with funding the technology, the development of the market was provided by the Department of Energy in the stalled for more than a decade. 78 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Figure A12 2: Development of CSP, U.S. SEGS 6, 7 & 8 (30 MW each) SEGS 1 SEGS 3 & 4 SEGS 9 Tessera (Stirling Dish (14 MW) (30 MW each) (80 MW) 1. 5 MW) 1982 1984 1985 1986 1987 1988 1990 1998 2006 2007 2010 Solar 1 SEGS 2 SEGS 5 Solar 2 Saguaro Announced Solana goes up (30 MW) (30 MW) goes up (1 MW) (parabolic trough – 280 MW) and Ivanpah (tower) 392 MW with federal loan guarantee Source: CSP today, U.S. 2012. SEGS: Solar Energy Generating Systems. Continued R&D and demonstration projects: Federal loan guarantee in the U.S.: A majority of Recognizing that the industry could not establish project developers in the U.S. found it difficult to CSP projects for more than a year, the U.S. achieve nonrecourse financing for their CSP projects Government decided to continue to install under the prevalent RPS mechanism. The federal demonstration projects. Projects such as Saguaro loan guarantee scheme (with a corpus of US$10 (1 MW) and Tessera (Stirling Dish 1.5 MW) were billion for renewable energy efficiency and other demonstrated. segments) has enabled projects of Brightsource Energy and Abengoa to achieve financing. 79 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 13: Overall Funds Requirement for JNNSM Phase I JNNSM Phase I (Batch 1 and Batch 2) developers This is in addition to about 970 MW of solar would need over INR 110 billion (US$1.83 billion) projects that have signed PPAs and are under to implement the conceived 480 MW of solar PV development in Gujarat and several other states that and 470 MW of solar thermal. At a debt: equity of have come up later with their own policies. 70:30, this is an estimated INR 76 billion (US$1.27 billion) of debt financing. Table A13 1: Overall Funding Requirement for JNNSM Phase I Category Indicative Cost Capacity Funding Requirement Solar PV • @ INR 110 million (US$1.83 • Batch 1: 140 MW • INR 15.4 billion (US$260 million) million) per MW (Batch 1) • Batch 2: 340 MW • INR 34 billion (US$570 million) • @ INR 100 million (US$1.67 million) per MW (Batch 2) Solar thermal @ INR 120 million (US$2.00 Batch 1: 470 MW INR 56.4 billion (US$940 million) (without storage; million) per MW parabolic trough) INR 105.8 billion Total (US$1.77 billion) Sources: Authors’ research. 80 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 14: Key Incentives/Instruments for Solar Promotion in India Table A14 1: Key Incentives for Solar Promotion in India S No Scheme Name Details 1. GBI 36 • A GBI of INR 12.41 per kWh is provided to the state utility, on a first- come-first-served basis (the first 100 MW of capacity will be eligible) • Eligibility criteria – rooftop and small ground mounted (100 kW to 2 MW) connected to High Tension (HT) 33 kV and below lines (provided under JNNSM Phase I) 2. Various tax exemptions37 • No customs and excise duty on cells and modules but some raw materials required to manufacture cells and modules attract 5% customs duty and countervailing duties • Import of plant and machinery for the setting up of solar power projects is exempted from additional custom duty and the total custom duty leviable has come down from 9.35% to 5.15% • Goods required for manufacturing of solar cells and modules have been exempted from additional custom duty and the total custom duty leviable has come down to 9.35%. 3. Accelerated depreciation • Accelerated depreciation of as high as 80% of the asset value 4. VGF 38 • Tariff fixed at INR 5.45/kWh (INR 4.95/kWh for projects not availing of (draft for discussion) accelerated depreciation). • A VGF of 30% of project cost subject to a maximum of INR 25 million/ MW will be provided by MNRE • Developer needs to put in his equity of at INR 11.5 million/MW • VGF will be released in three phases: 25% at time of delivery; 50% at the time of commissioning; and 25% after one year of successful and satisfactory operation 5. REC • CERC has fixed a solar REC price band of INR 9,300 to INR 13,400 till FY 2017 • Solar REC not issued to solar power developers having PPAs with distribution utility at preferential tariff or at a tariff determined under section 62 or adopted under section 63 of the Act by the Appropriate Commission Sources: Author’s research. 36 Press Information Bureau of India release, dated December 16, 2011. 37 MNRE presentation: Grid Connected Solar Power in India. 38 MNRE Policy document for Phase II of JNNSM. 81 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 15: Regulatory and Policy Provisions for Renewable Energy Section 86 1(e) “promote cogeneration and generation of electricity from renewable sources of energy by Electricity providing suitable measures for connectivity with the grid and sale of electricity to any Act, 2003 person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licence” Section 5.12.2 “……Such percentage for purchase of power from non-conventional sources should be made applicable for the tariffs to be determined by the SERCs at the earliest. Progressively National the share of electricity from non-conventional sources would need to be increased as Electricity prescribed by State Electricity Regulatory Commissions. Such purchase by distribution Policy companies shall be through competitive bidding process. Considering the fact that it will take some time before non-conventional technologies compete, in terms of cost, with conventional sources, the Commission may determine an appropriate differential in prices to promote these technologies.” Section 6.4 (1) “Pursuant to provisions of section 86(1)(e) of the Act, the Appropriate Commission shall fix a minimum percentage for purchase of energy from such sources taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the National SERCs latest by April 1, 2006. It will take some time before non-conventional technologies Tariff Policy can compete with conventional sources in terms of cost of electricity. Therefore, procurement by distribution companies shall be done at preferential tariffs determined by the Appropriate Commission.” The National Tariff Policy was amended in January 2011 to prescribe solar-specific RPO be increased from a minimum of 0.25 percent in 2012 to 3 percent by 2022. 82 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 16: Competitive Bidding for Renewable Energy Projects Guidelines for tariff-based competitive bidding have submitted the requisite proposal to the process for grid-connected power projects based concerned administrative authority responsible on renewable energy sources, December 2012 for according final approval in the central/state government, as the case may be; 1. Case I: renewable energy procurement, where iv) Water linkage: For solar thermal and hybrid the location or technology of the renewable power power projects, the bidder shall have acquired project is not specified by the procurer approval from the concerned State Irrigation Department or any other relevant authority for To ensure serious participation in the bidding the quantity of water required for the power process and timely commencement of the supply station; and of power, the bidder, in case the supply is proposed v) Technology tie-up: The bidder shall be required from a power station to be set up, should be to provide proof of the technology tie-up for the required to submit along with the bid, documents renewable power project. in support of having completed specific actions for project preparatory activities in respect of matters 2. Case II: renewable energy procurement for mentioned below: the location-specific renewable, which the procur- er intends to set up under a tariff-based bidding i) Site identification and land acquisition: The process requirement of land would be considered as indicated in the proposal filed with the To ensure timely commencement of supply of competent authority for issuing the No electricity being procured and to convince the Objection Certificate (NOC) for the project. bidders about the irrevocable intention of the In case of land is to be acquired under the procurer, it is necessary that various project Land Acquisition Act 1894 or its equivalent, preparatory activities are completed in time. For the bidder shall submit copy of the notification long-term procurement for projects for which issued for such land under Section 6 of the pre-identified sites are to be utilized, the following Land Acquisition Act 1894 or its equivalent. project preparatory activities should be completed In all other cases, the bidder shall furnish by the procurer or an authorized representative documentary evidence in the form of certificates of the procurer, simultaneously with the bidding by concerned and competent revenue/ process adhering to the milestones indicated below: registration authority for allotment of the land; ii) Environmental clearance for the power i) Site identification and land acquisition: If the station: The proposal for obtaining NOC should land is required to be acquired for the power have been submitted to the competent authority station, the notification under section 6 of the responsible for providing final approval at the Land Acquisition Act, 1894 or its equivalent time of submission of the Request for Proposal should have been issued before the publication (RFP) bid; of RFP. If the provisions of section 17 of the iii) Forest clearance (if applicable) for the land Land Acquisition Act, 1894 or its equivalent for the power station: The bidder should regarding an emergency have not been applied, 83 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I the award under the Land Acquisition Act or its iv) Water linkage: For solar thermal and hybrid equivalent should have been declared before the power projects, approval from the concerned PPA becomes effective; State Irrigation Department or any other ii) Environmental clearance for the power relevant authority for the quantity of water station: The application to the competent required for the power station should have been authority for grant of NOC should have obtained; and been submitted before issuing the RFP and v) Requisite solar radiation, hydrological, the NOC should be in place before the PPA geological, meteorological and seismological becomes effective; data necessary for the preparation of the iii) Forest clearance (if applicable) for the land Detailed Project Report, where applicable: for the power station: The requisite proposal The data should be made available to the bidders for forest clearance should have been submitted during the RFP stage, that is, at least 30 days before the concerned administrative authority prior to the submission of the RFP bid. The responsible for according the final approval in bidder shall be free to verify geological data the central/state government, as the case may be, through its own sources, as the geological risk before the issue of the RFP; would lie with the project developer. 84 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 17: Institutional Framework for the Solar Sector Key Areas of Institutional Interventions Institutional intervention at the central level is required to overcome these issues, with to • Program implementation establish a well-coordinated arrangement with The MNRE undertakes various solar energy SNAs. specific programs. The SNAs act as the program implementation agencies at the state level. • Coordination arrangement However, at central level, MNRE has been State and center coordination: There is no directly overseeing program implementation established framework for coordination between until now. The SECI has been recently formed to the SNAs and the MNRE’s administered assist MNRE in undertaking solar programs. institutions such as SEC, SECI and IREDA. There are a number of solar energy programs • Monitoring and evaluation which are undertaken and coordination is M&E of the rural solar energy programs has limited to the specific programs. Institutional been an area of concern. Issues related to lack of intervention at the central level can facilitate O&M expertise and equipment availability are in establishing a framework to facilitate state faced by the rural solar programs. SNAs, due to and center coordination aimed at solar sector their limited capabilities/resources, are not able development, to leverage synergies across to overcome these issues on a sustainable basis. different programs; Figure A17 1 : Central Institutions with Solar Sector Department of Institutions associated with the Solar Non-conventional Segment Energy Sources SEC Alternate Hydro Institutional Energy Centre Creation of Sardar Swaran Creation MNRE C-WET Singh National Institute of of IREDA Renewable Energy SECI 1982 1987 1992 1993 1998 2003 2004 2006 2008 2010 2012 Electricity National Act 2003 Tariff JNNSM Policy Policy MNRE Policy Preferential and Tariff Tariffs for NAPCC Guidelines Renewable Energy from Science and Engineering Research Councils Source: Authors’ research. 85 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Coordination among MNRE institutions: SECI • The SEC will have multiple roles to execute, has been mandated to undertake program namely, of being a premier center for technology implementation and set up projects in the area R&D, support the GoI in its solar testing, of solar energy. In this respect, it will need calibration and benchmarking initiatives, offer support from other MNRE institutions such knowledge services and, in the long run, facilitate as SEC, IREDA and C-WET on areas like solar technology commercialization initiatives; and radiation data, site attractiveness, technology • Currently, SEC is organized as a division of attractiveness, and financing which will form MNRE. However, SEC being a division (directly) a major factor in implementation of solar under MNRE may pose a challenge for SEC programs (grid and off-grid). in undertaking substantive multi-institutional participation (having diverse contractual Institutional intervention is required from MNRE arrangements, especially with the private sector) administered institutions on aspects related and establishing itself as a self-sustainable and to planning/implementation of evacuation accountable institution. infrastructure in regions (high potential), facilitating approval and clearances for strategic Role of SECI projects. Most issues are related to state-specific implementation. However, the involvement of • A newly formed organization with a focus on central-level institution can be crucial in the success solar technologies; of solar projects strategic to sector development. • Established as a Section 25 company which provides for institutional autonomy; GoI is The solar energy segment has an adequate number expected to hold a 100 percent equity stake in of institutions to undertake the mandates required the company; for the growth of the sector: • Roles and responsibilities: ‒ To function as a solar development • SEC and C-WET to focus on technology implementation institution and assist the demonstration, resource assessment; MNRE as an executing arm for meeting goals • SEC to assist MNRE in implementation of solar ‒ Only institution in the renewable energy programs (grid as well as off-grid); sector with a large scope of mandate to • State level implementation by the SNAs; and implement solar projects in grid as well as off- • IREDA to facilitate financing. grid setup (under program administration as well as project management Role of SEC ‒ SECI to play an active role in the implementation of power evacuation arrangements; The SEC is the primary entity for undertaking • Expected to be a stepping stone for overcoming activities in the area of technology R&D, testing, issues related to program implementation at the evaluation and standards: central level and other related implementation aspects; and • The JNNSM envisages that the MNRE- • SECI is expected to tackle issues pertaining to administered SEC will become part of the planning, management and implementation National Center of Excellence. It is expected that, with a professional and holistic approach. increasingly, SEC will need to move towards Other MNRE institutions such as SEC, C-WET being adequately autonomous in its decision- and IREDA are expected to support SECI in making and flexible in adopting processes and the achievement of JNNSM and other sector systems to meet its own requirement; requirements. 86 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Role of IREDA for renewable energy including solar energy in the state. SNAs are responsible for grid as well as off- IREDA is a public limited government company grid solar power project/program implementation. established in 1987, under the administrative control of MNRE, to promote, develop and extend The main roles and responsibilities of the SNAs in financial assistance for renewable energy and energy the area of solar energy include: efficiency/conservation projects. • Policy formulation support: Advocacy It has developed norms to undertake its lending of policies, legislation and enforcement functions covering aspects such as loan application mechanisms for promotion of solar energy; registration, project appraisal, sanction of loan, • Implementation: Project registration, security creation, and disbursement and recovery facilitation in approval and clearances, of loan. In the solar energy segment, IREDA has coordination with state and central departments; also played the role of program administrator for • M&E: Supervision, monitoring and evaluation of the GBI under the RPSSGP scheme in JNNSM the solar energy programs; Phase I and is responsible for project allotment and • Resource assessment: Survey and mapping of disbursement of GBI. resource potential and subsequent dissemination to encourage project installation; and Role of State Nodal Agencies • Awareness generation and capacity building: Undertake activities to raise public awareness SNAs play an important role in the implementation and disseminate information related to of central as well as state-level policies/programs solar energy. 87 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Annex 18: Gujarat Solar Park—A Case Study Gujarat Solar Park is the world’s first multi-developer, Figure A18 A: multi-facility, multi-technology and multi-beneficiary Gujarat Solar Park Layout Plan solar park; it is located in Charanka village, district Patan, Gujarat. It was implemented speedily with the entire park becoming operational in one year, starting with land acquisition to commissioning of 214 MW solar projects. Background In September 2009, the Clinton Climate Initiative signed a Memorandum of Understanding with the Government of Gujarat for setting up of solar parks. The implementation of the solar park concept was proposed in several phases with the aim to make Gujarat a hub for solar power generation and also GPCL was appointed as the nodal solar park to bring in manufacturing and R&D facilities to development agency for the execution of solar parks support this goal. in Gujarat. It has played a crucial role in ensuring the implementation and operations of the Charanka The initial solar projects in Gujarat had faced solar park. problems in terms of private land acquisition leading to legal issues and procedural delays, Key Features conversion of agricultural land, transmission connectivity issues, procedural delays due The solar park presents a plug and play model for to multiplicity of the agencies, and so on. potential investors, by designating and developing Considering all these difficulties, the solar park was one or more blocks of land as a concentrated zone conceptualized with the purpose of: for solar development. Individual solar plants share common power evacuation facilities, reducing costs. • Developing a concentrated zone for solar project The major interest in these concentrated hubs has activities; and been due to their ability to achieve economies of • Providing all the primary infrastructure such scale by developing shared infrastructure facilities as land allotment, roads, power evacuation for each business located in the zone. In addition, network, water supply system, and so on, for they reduce unforeseen risks for investors by acting ease of operation and rapid development of the as a single-window clearance agency and providing solar project at a single location. certainty with respect to investment and relevant policy, regulatory and incentive frameworks. The Charanka site in Patan district was identified These zones also serve as centers for targeted for the development of first such solar park focused social development by virtue of their location in on generation, the foundation stone was laid in underdeveloped/backward regions. In this manner, December 2010, and 214 MW was commissioned these parks provide economic and employment by January 2012. opportunities for specific regions. 88 Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I Gujarat Solar Park has large concentration of solar Key Benefits power generating units in a single location in Asia. It has a capacity potential of more than 500 MW, The park has been able to benefit various covering a land area of 2,024 hectares, comprising stakeholders such as government agencies, private government land (1,080 hectares) and private land developers, financial institutions and the society at (944 hectares). large. Some of the benefits include: The park has been able to attract more than 21 • Savings in terms of clustered infrastructure developers from India and abroad with varied development instead of segregated development capacities ranging from 1 MW to 25 MW. The park for individual projects as well as cost savings due comprises a mix of technologies, ranging from TF to sharing of common infrastructure cost; PV, c-Si, tracker-based, and so on. • Overall emission reduction and avoidance of Right of Way issues for transmission evacuation; The park provides a multi-facility infrastructure to • Single window clearance ease for developers; the developers, including: • Due diligence assistance for financial institutions; • Requisite size plot allotment; • Unique smart grid features incorporated in the • Approach and access roads; design; • Smart power evacuation network up to the • Development of government wasteland; project premises; and • Social uplift around solar park site and local • Water supply system. employment generation; and • Intangible benefits in terms of increase in The solar park provides infrastructure facilities such vegetation cover and water conservation. as roads, water pipeline, water and sewage treatment plant, helipad, fencing, leveled land, fire station, The successful implementation of the solar park telecom network, 400/220/66 KV sub-station and 66 concept in Gujarat is likely to pave the way for the kV auxiliary sub-station. The within park distribution development of bigger and better infrastructure network development cost for infrastructure and facilities for solar projects in other parts of India. land in the solar park is around INR 5,500 million MNRE is already working on a plan to set up five (US$91.67 million). The land allotment has been done ultra-mega renewable energy parks across different by the nodal agency (GPCL) through a transparent states. These solar parks are likely to come up in process. The developers have to pay processing fees, Rajasthan, Gujarat and Jammu & Kashmir. The first allotment fees, security deposit and a development ultra-mega solar park of 4 GW capacity is being set charge based on the area occupied. up in Sambhar, Rajasthan. 89 Notes Energy Sector Management Assistance Program (ESMAP) 1818 H Street, NW Washington, DC 20433 USA Tel: 1.202.458.2321, Fax: 1.202.522.3018 Internet: www.worldbank.org/esmap Email: esmap@worldbank.org Photo credit: Fortum Corporation Disclaimer: The information and opinions presented herein are meant only for factual purposes and do not intend to reflect the situation or circumstance of any country or entity. While all efforts have been made in gathering information from reliable sources, neither ESMAP nor the World Bank should be held responsible for the accuracy of the data presented. The report has been discussed with the Government of India, but does not necessarily bear their approval for all its contents, especially where the World Bank has stated any judgment/opinion/policy recommendation. © Copyright 2013