Public-Private Partnership Stories India: Gujarat Solar Gujarat province in India has a long-term goal of making its capital, Gandhinagar, a solar-powered city. With over 300 sunny days per year and supported by the Indian government’s commitment to reducing carbon emissions, it plans to install 500 megawatts (MW) of solar capacity by March 2014. As a first step, the government of Gujarat turned to IFC to help it with an innovative 5 MW solar rooftop public-private partnership (PPP) project to add power generating capacity, develop contractual models for further solar projects, and demonstrate the technical and economic feasibility of rooftop-based solar power. Azure Power and SunEdison each won 25-year concessions for 2.5 MW solar rooftop projects. Under the agreement, the developers will install solar photovoltaic panels on the rooftops of public buildings and private residences and connect them to the grid. Besides attracting $12 million in private investment, 10,000 people will benefit from increased access to power and 7,154 metric tons of greenhouse gases will be avoided per year. The project agreements were signed in April 2012. This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. Gujarat Solar will benefit 10,000 people, improving energy services IFC Advisory Services in Public-Private Partnerships at affordable prices with virtually no state subsidies. 2121 Pennsylvania Ave. NW Washington D.C. 20433 ifc.org/ppp BACKGROUND clusters, each with 2.5 MW of installed capacity. Most of these The state of Gujarat, located in western India, has embraced the will be on public buildings, such as schools, hospitals, and offices. idea of renewable energy. With over 300 sunny days per year, the The remaining panels will be placed on private residences, which government of Gujarat plans to develop 500 MW of solar power will receive rental income for hosting the panels. The developers capacity by March 2014 to meet its energy needs. It also plans will then connect power generated by the panels to the city grid. to make its capital, Gandhinagar, a model solar city. However, Total project cost is estimated to be $15 million, all of which many technical, regulatory and commercial challenges lie ahead. will be provided by the winning bidder. The government of The government of Gujarat needed assistance in selecting the Gujarat will provide access to roofs of buildings it owns, facilitate most appropriate technology, and suitable agreements between purchasing agreements with the power procurer for the electricity government, private investors, and the power procurer had to be generated, and guarantee a subsidy if required. concluded. The developer will be responsible for identifying private buildings To pave the way for large-scale solar power development, the that will participate in the project, producing solar power and government sought private sector participation to finance and delivering it to the grid. build two 2.5 MW pilot solar projects in Gandhinagar that will generate a total of five MW annually through rooftop solar panels. Although modest, the project will address issues constraining the BIDDING adoption of solar power, provide extra power capacity to the grid, Interest in the project was strong, with 38 firms submitting and contribute to the reduction of greenhouse gas emissions. expressions of interest. The winning bidders were those quoting the lowest tariff. IFC’S ROLE Azure Power and SunEdison each won one of the two 2.5 MW IFC was appointed lead transaction advisor to execute the pilot projects. The project agreements, including the power purchase project by Gujarat’s Department of Energy and Petrochemicals. agreements (PPAs), were signed on April 20, 2012. Besides providing transaction advice, IFC’s role included technical, legislative and analytical support. IFC’s support included: EXPECTED POST-TENDER RESULTS • Improved access: 10,000 people will benefit from • Analyzing the technical options for solar panels, for example, improved energy services at affordable prices with using concentrated solar power or photovoltaic solar panels; resolving connectivity issues, and determining maintenance virtually no state subsidies. requirements. IFC recommended using solar panels mounted • Mobilization of private sector investment: the on rooftops; transaction will attract $12 million in private invest- • Reviewing social, legal and commercial issues related to renting ment. rooftop space from residential and commercial buildings, and then developing terms for the rental agreements; • Climate change: reduces carbon emissions by 7,154 metric tons annually. • Organizing an investors’ conference to discuss the project with potential investors and obtain their feedback. Over 40 firms • Proof of concept: demonstrates the technical, attended, demonstrating strong interest in the project; regulatory, and financial viability of rooftop solar • Leading discussions with the client and the local private distri- panels, which will create a market for solar power bution company, Torrent, on the power purchase agreement. in Gandhinagar and elsewhere in India. As a result IFC helped broker the terms so that Torrent would purchase of this initiative, IFC has already signed mandates electricity generated by the rooftop panels. to advise on similar initiatives in five other cities in IFC also recommended a transaction structure and managed the Gujarat. bidding process, including preparation of bidding documents and evaluation of bids. 04/2013 TRANSACTION STRUCTURE IFC recommended a 25-year build, own, operate (BOO) concession. Under the agreement, the winning bidders will place thousands of solar panels on rooftops throughout the city divided into two