Economics of setting up a MW scale solar power plant in India

[rotam]

Thread: Economics of setting up a MW scale solar power plant in India

CPS

Could you explain in detail how you assumed an output of 1.5-1.7 Mil. Units per year from the 1MW plant ?

[abhipiyu]

Good discussion

My dad and his few business associates are planning to set a 5MW plant in Maharasthra.
Can some one throw some light on the state policy for Maharashtra.

[shilpa]

Hi CPS,
I am also thinking about setting up a 1MW solar plant in Andhra Pradesh. Based on my research so far, I have come to similar conclusions as you did. One major difference is break even point if RECs complete expire after June 2017.

You mentioned that majority of investment will be recovered by June 2017. Here are rough numbers I came up with. Assuming total investment is 8Cr and you take a loan of 5Cr, EMI would be around 10L per month.

Total Investment : 8 Cr
Loan : 5 Cr
EMI : 10 Lakhs per month = 1.2 Cr per year (based on 14% interest rate)
Maintenance costs: 1L per month = 12 L per year.

Total per year costs = 1.3 Cr

Fixed panel installation can generate around 15L units per year

Assuming REC floor price 9.3 and power price at 5. we can get Rs.14.3 per unit

So total income per year = 2.1 Cr

Profits per year = 0.8 Cr

Assuming 3 years for REC total profits = 2.4 Cr.

After June, 2017, If power price is 6 rupees per unit and REC drops to zero,
Annual income: 15L X 6 = 90 Lakhs
Annual expenses: 1.3 Cr.
Deficit = 40L

I don't see how this whole project is feasible based on these numbers. Are there special interest rates for solar? Or am I missing something here? Thanks for your help.

--msr

--adding to above..
annual expenses after 6 years (loan period) will be only 12L.the deficit 40 L for 3 years will be covered in 2 years after 6 years ..we can expect actual returns after 10 years...
we are planning to set up 1 MW plant but seeing all discussions..i am lil scared..Anything can happen anytime in india especially when govt is involved.

[jafar.hpc]

MW Solar Power Plant in INDIA

We can surely help you.Just give me your contact details

[ASHOK ANEJA]

Hello natureworx and Shailb. I've shared my experiences so far. What has your experience been so far? Anything that I'm missing? If you have any questions I can help with let me know.

am interested in settingup 1 mw solar plant in punjab india
any help

[jafar.hpc]

MW Solar Power Plant in INDIA

I totally agree to what CPS says regarding MW solar power plant in INDIA.Your experience & way of approach is very good, but I would like to share my experience.I feel that it would be good if you sell SOLAR Products like: SOLAR UPS, MODULES,INVERTERS, BATTERIES, SOLAR LIGHTS, SOLAR LANTERNS, SOLAR STREET LIGHT.

This would give you a push in line of business, it will be a marketing for your company and on the long run it would like a back up for you.

Best Regards
JAFAR

[CPS]

Dear CPS, I have gone through your posts and data posted since last 4 months.

1. I am too interested in setting up a plant of 1 MW in Haryana or Punjab.

2. As far as economics presented by you seems ok, but the trend of REC in exchange has seen a downfall. No doubt there is a floor price of 9300 but the market is flooded with excessive REC and nobody to buy them.

3. There is no set mechanism for DISCOM to buy electricity form private players unless they have a MOU signed before hand at the rates mutually agreed upon. This kind of MOU is being implemented atleast in Haryana & Punjab, but after floating the tenders for it and asking for the lowest rates!

4. The prices for buyback by Punjab in recently held tendering has been a Rs.7.50 as the lowest and Rs. 8.59 as the highest, but as i said it all went through tendering. Secondly I am not sure whether the producer can avail REC after it as this seems to be a preferential tariff and producers being paid preferential tariffs can not avail the REC benefit.

5. Although you have not included carbon credits in the revenues, I wonder how helpful they can be.

I would be glad if you can share my views and come out with some optimistic figures so that the feasibility of the project can be seen.

Regards

Deep

Dear CPS,


. If you browse through the online data for purchase of power it varies between Rs2.00 to Rs.3.40 for various regions of India, except Punjab, which is in troubled waters and buying power at Rs.8/50 per unit. So these figures are also frustrating for the solar plant to be viable!

Regards

Deep

I too am planning for a 1 MW plant but even after a week of study of economics I am not convinced of the tariffs and the returns. Any thing concrete?

The IEX has started offering to members for selling off the REC @20/- per REC. This does not seem to be a healthy sign. Any suggestions?

Regards

Since the Renewable Purchase Obligations are not being enforced right now there is an oversupply of the RECs. Without the RECs a solar power project is not currently viable.

Instead of selling power to the Discoms for Rs. 2 - Rs. 3 per unit it is better to find a private party and do a PPA with them for Rs. 4 - Rs. 5 per unit but without some revenue from the REC it will not be a viable project.

When you sell power to the state government through the tendering process you will not earn RECs. The tariff level only makes sense if you can utilize the accelerated depreciation. That is why you'll primarily see big companies bidding since they can use the AD.

The IEX is offering the Rs. 20 incentive since PXIL did something similar in the past and overtook the IEX in traded volumes. They just want to be able to say that they are the largest exchange for RECs.

[russ]

Everything is a business model. It's just what amount of it you do want to participate in.

I prefer to stay away from the Al Capone/Al Bore type of business models. You know, the steal from the poor and put it in your pocket type of models.

[bonaire]

Companies like tesla made big money on CARB zero emission vehicle credits in Q1 and Made millionaires out of stockholders in Q2. They would have had a quarterly loss in Q1 without. Who pays for that? Those repressed by government regulations and those who shorted against the whole idea that it was plausible. Everything is a business model. It's just what amount of it you do want to participate in.

[deep]

REC or wRECk........?

The only people who will make money on carbon credits is the Governement and Brokers like Al Bore who invented the SCAM. Both make money on every trade made called the spread (Buy - Sell price difference) Like any commodity. Difference is something like Gold, Silve, Rice, and wheat you can hold in you hand and has real value to everyone and will never be worthless. Carbon credits are just a bunch of Air that you exhale and cost nothing to breath you SUCKER.

very true..........

[Sunking]

The government (Indian or American) doesn't have the funds to support throwing money at solar for no real gain.

The only people who will make money on carbon credits is the Governement and Brokers like Al Bore who invented the SCAM. Both make money on every trade made called the spread (Buy - Sell price difference) Like any commodity. Difference is something like Gold, Silve, Rice, and wheat you can hold in you hand and has real value to everyone and will never be worthless. Carbon credits are just a bunch of Air that you exhale and cost nothing to breath you SUCKER.

[russ]

The government (Indian or American) doesn't have the funds to support throwing money at solar for no real gain.

[Sunking]

The IEX has started offering to members for selling off the REC @20/- per REC. This does not seem to be a healthy sign. Any suggestions?

Cash out and take your losses before it goes to ZERO. It is a SCAM.

[deep]

rec mechanism seems to be failing!

Hello,

I am planning to set up a grid connected crystalline solar module MW scale solar power project in India and wanted to share my experience with the group and also invite any input.

The cost per MW is ~ Indian Rupee (INR) 7 – 8 Crores (~ US $ 1.5 Million). A 1 MW plant in a suitable location will generate ~ 1.5 million – 1.7 million units of power a year.

I am planning to set up the project under the Renewable energy credit (REC) scheme. Under this scheme the government gives you a renewable energy credit - solar that is traded on the Indian Energy Exchange. The government has set a floor price of INR 9.30/unit and cap of INR 13.40/unit. This floor and cap is in place till March 2017. The buyers of the REC are power distribution companies (DISCOMS) and industrial users of power. These companies have renewable purchase obligations - solar (RPO - solar) that have been set by the various state governments. These RPOs increase every year.

In addition to this you get ~ INR 2.50/unit - INR 5.00/unit by selling the power.

The risk factor as I see them are -

1. Over capacity - Just because there is a floor and cap it doesn’t guarantee that you will get a customer for your REC. If the government doesn't enforce the RPO stringently with harsh penalties the buyers will not buy them.
2. What will the REC floor/cap be for the remaining 21 years of your plant. If the REC price drops rapidly in 2017 the economics are impacted.
3. The base power charge will be paid to you by (DISCOMS). Most of them are in very bad financial health. So there is default risk.

In regards to point 2 – A majority of your money will be recovered till 2017 so even if the REC drops to Rs. 0 the business case makes sense. Also the base power charge will probably go up 2017 so you gain some there.

In regards to point 3 – If you can find an end customer for the power then you will get a higher tariff and you also don’t need to deal with power companies. Another way to mitigate this risk is to set up the power plant in states where the DISCOMS are relatively in good health such as Gujarat, Andhra Pradesh, Maharashtra, etc.

I haven’t figured out if there is a way to mitigate the oversupply risk though so that’s one I'll have to live with.

I also evaluated the various state policies but it looks like the majority of the companies participating in the reverse bidding are doing so to take advantage of the 80% accelerated depreciation (AD) benefit. If you take the AD out of the picture it is not feasible to sell solar power at INR 6/unit or INR 7/unit. Since the AD is not of benefit to me I decided that the REC mechanism offers me the best return.

I'm also looking at KW scale rooftop projects. They are smaller in size but give good returns if you can scale up to decent volumes.

That's my experience so far!

CPS

The IEX has started offering to members for selling off the REC @20/- per REC. This does not seem to be a healthy sign. Any suggestions?

Regards

[deep]

carbon credits

currently one carbon credit is trading @ 3.5 euro on the indian exchange

and for 1 mw of power how many carbon credits do you earn? Or is there any other bench mark for the same?