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

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

    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
    Last edited by russ; 03-26-2013, 05:25 AM. Reason: Added information

  • #2
    I don't do it here much but when I want to be snarky regarding green, I ask people "what's the best way of going green?" The answer is simple - don't have any children. If a society can do that for say 60 years, you will have a very green planet.

    That doesn't go over very well.

    We do the best we can. There are ways not to be wasteful and dumb. I think the biggest non-green thing going is government. They're not green, they support paying people to *have* children, they don't support self reliance and responsibility. The greenies should go after government as their number one arch enemy. That might open up free markets further. Trouble is, green organizations find friends in government to help pay for their means to an end. That end is not entirely community-oriented - usually it is only a personal goal. Putting up solar on a house isn't a community good. It just means you'll pay less for electricity by pre-spending it on equipment. The power companies need to provide grid-tied homeowners power should there be a cloudy hot summer day or snowy day so their reserve power must always be there. The only way to be "green" with solar is to go off-grid. And that takes a lot of green (dollars) - but slowly getting cheaper.

    I have two kids - that's one more than I personally wanted. But at least it wasn't 7-8-9 kids like some guys in some countries have now. Per-wife. Yeah - that's sustainable. Testosterone beats green every time. For now.
    PowerOne 3.6 x 2, 32 SolarWorld 255W mono

    Comment


    • #3
      Originally posted by CPS View Post
      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.

      CPS

      Hi CPS good points ,

      I am also thinking in similar lines and am currently considering Andhra pradesh

      I would like to connect with you , Can you please drop me a line.
      Last edited by Jason; 04-08-2013, 03:20 PM. Reason: You can IM a fellow member that wants to make contact.

      Comment


      • #4
        Hello,

        Mod note - advertise and troll for suckers elsewhere
        Last edited by russ; 04-09-2013, 01:36 AM.

        Comment


        • #5
          Originally posted by natureworx View Post
          Hi CPS good points ,

          I am also thinking in similar lines and am currently considering Andhra pradesh

          I would like to connect with you , Can you please drop me a line.
          Originally posted by Shailb737 View Post
          Hello,

          Mod note - advertise and troll for suckers elsewhere

          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.

          Comment


          • #6
            Originally posted by CPS View Post
            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
            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

            Comment


            • #7
              You need to watch a movie title Dumb & Dumber
              MSEE, PE

              Comment


              • #8
                Originally posted by Sunking View Post
                You need to watch a movie title Dumb & Dumber
                How about being constructive and helpful rather than sarcastic?

                Comment


                • #9
                  Originally posted by msr View Post
                  How about being constructive and helpful rather than sarcastic?
                  As the drowning scorpion said to the dying frog, "It is my nature."

                  (In fairness, I have seen Dereck be quite polite and helpful when asked in the right way, and sometimes you do have to get somebody's attention before you can help them.)
                  SunnyBoy 3000 US, 18 BP Solar 175B panels.

                  Comment


                  • #10
                    Wholesale in India you are competing with cheap coal fired power - and I do mean cheap coal - 30% ash content. I know the prices we pay and it would be tough for commercial solar.
                    [SIGPIC][/SIGPIC]

                    Comment


                    • #11
                      Originally posted by msr View Post
                      How about being constructive and helpful rather than sarcastic?
                      A little hint about Sunking
                      He has forgotten more than a lot of us know.
                      He will smack you upside the head with a sledge hammer (metaphorically speaking of course) to get your attention.
                      However once you pay attention he is a most helpful person and has probably saved more people from huge mistakes than the rest of us combined.
                      Listen Grasshopper wisdom will be passed if you are smart enough to listen.
                      Rich
                      WWW.solarsaves.net

                      NABCEP certified Technical Sales Professional

                      http://www.solarpaneltalk.com/showth...Battery-Design

                      http://www.calculator.net/voltage-drop-calculator.html (Voltage drop Calculator among others)

                      www.gaisma.com

                      Comment


                      • #12
                        Originally posted by CPS View Post
                        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.
                        So please tell us why the users or rate payers should be forced into buying artifially inflated energy prices? Pleas answer that.

                        India is a dirt poor country and most of the residence cannot even afford cheap coal and fossil fuel electricity. The buck does not stop there. It also means everything connected with electric energy will go up and passed onto the citizens. What about manufacturing have to pay higher prices that have to compete globally. You cannot sell your widgets if other countries can sell their widgets at a lower cost. We call it the free market and competition in the USA. Any business has two major objectives:

                        1. Make money
                        2. Put your competition out of business so you can make more money.
                        MSEE, PE

                        Comment


                        • #13
                          Originally posted by msr View Post
                          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
                          MSR,

                          Your EMI number is way off. Plug the parameters in to any EMI calculator available online and redo the numbers.

                          Comment


                          • #14
                            Originally posted by Sunking View Post
                            So please tell us why the users or rate payers should be forced into buying artifially inflated energy prices? Pleas answer that.
                            They shouldn't be forced into this as well as many other things they are forced into but this is the government policy. This will just force businesses to move out of the country into neigbouring countries like China, Bangladesh, Pakistan, etc. where I guess the government doesn't force them to do anything.

                            Based on the government policy I see a potential opportunity to invest my money and make returns. If this government policy didn't exist I'd look elsewhere. If some one isn't happy about the government policy then should petition the government to change it or then vote the government out in the next election.

                            Comment


                            • #15
                              Originally posted by CPS View Post
                              MSR,

                              Your EMI number is way off. Plug the parameters in to any EMI calculator available online and redo the numbers.
                              I did. Based on 14% interest and 72 month loan (typical for commercial loans in India) EMI for 5 Cr loan comes to Rs 1030286.97. 84 month loan would come to 937000.58.

                              Comment

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