working paper on financing the solar photovoltaic (pv) paper - financing...title working paper on...

Financing the Solar Photovoltaic (PV)

Rooftop Revolution in India

Working Paper on

TITLE Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India

YEAR January, 2016

AUTHORS Nitin Sukh, YES Institute (YI), YES BANK Raghavendra Mandavilli, YES Institute (YI), YES BANK

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Executive Summary 7

1. Current State of Solar Rooftop PV Systems in India 9

1.1 Institutional Structure – Stakeholder Mapping 11

1.2 Solar Rooftop Projects in India – Challenges 11

1.3 Policy Landscape 12

1.3.1 Promising Central Government Incentives 12

1.3.2 State Governments 13

1.3.3 International Rooftop Solar Programs 13

2. Implementation Models for Rooftop Solar Systems 15

2.1 Straight Forward Sales Model or CAPEX Model 16

2.2 Renewable Energy Service Company (RESCO) Model 17

2.2.1 Rooftop Leasing 17

2.2.2 Power Purchase Agreement 17

2.2.3 Local Micro Utility Model 17

3. Financing Solar Rooftops 19

3.1 Financing Programs for underdeveloped off-grid markets 20

3.2 Financing Intermediates – Communities/Village Scale Projects 21

3.3 On-bill Financing 21

3.4 Alternative Stock Exchange Markets 22

3.5 Power Purchase Agreements (PPAs) 22

3.6 Renewable Energy Certificates 22

3.7 Feed-in Tariffs 22

3.8 Energy Service Companies (ESCOs) 23

3.9 Yield Companies (YieldCos) 23

4. The Way Forward 25

Contents

6 | Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India

Working Paper on Financing the Solar Photovoltaic (PV) Rooftop Revolution in India | 7

India is running one of the largest renewable energy capacity expansion programs in the world, with solar energy being the core focus and expected to generate 100 GW by 2022. Solar power installed capacity has increased from only 3.7 MW in 2005 to about 4060 MW in 2015, with a CAGR of more than 100% over the decade.

Rooftop solar PV is expected to play a prominent role in meeting the ambitious target with an installed capacity of 40 GW by 2022, and addressing energy demands across segments. It has already achieved grid parity for commercial and industrial consumers, and is fast becoming attractive for residential consumers as well. As a result, multiple state governments have taken necessary steps to kick-start implementation of rooftop solar PV projects.

However, there are still various challenges to scale-up rooftop solar energy generation in the country namely, technical, operational and financial. The aim of this paper is to highlight interesting business and financial models currently in operation across the world, and their applicability to the Indian context. Engaging with key stakeholders through surveys and face-to-face interviews, the paper hopes to identify interventions that could promote extensive development of the sector.

Therefore, YES Institute in collaboration with IIT-KGP takes this study forward with the belief that the policy support and greater private sector investment will foster the growth of rooftop solar PV in the country.

Executive Summary


Current State ofSolar Rooftop PV Systems in India

1

India has huge potential for generating solar power using unutilized space on urban rooftops. Given the limited availability of land for ground-mounted solar power projects, rooftops provide an alternative to meet the targeted solar power generation in the country. Solar power generated by each individual household, industrial, institutional, commercial or any other type of building can be used to partly fulfill the requirement of the building occupants and surplus, if any, can be fed into the grid.

1 Current State of Solar Rooftop PV Systems in India

Advantages of Solar Rooftop PV SystemsThe rooftop solar PV market in India is being driven by a mix of national targets and support schemes at various legislative levels. Recently the government of India has expressed its intent to achieve 100 GW of solar capacity in the country by 2020, of which 40 GW is expected to be achieved through decentralized and rooftop-scale solar projects.1

Today it is possible to generate solar power from solar rooftop systems at about Rs.6.50/kWh2, relatively cheaper than diesel generator based electricity generation. It is also cheaper than the cost at which most distribution companies (DISCOMs) would make power available to the industrial, commercial and high-end domestic consumers.


Social

Greater consumer participation and investment High employment generation and entrepreneurship

Technical

Savings in transmission & distribution losses Last-mile support to grid stability, w.r.t voltage & reactive power support Creates a strong case for smart grids

Administrative

Widely accepted and saves valuable space Low gestation time to commission Lower investment in distribution infrastructure Can improve distribution grid capacity

1 A Big Boost for Solar Rooftops in India, Press Release by Ministry of New & Renewable Energy on Press Release 30th Dec, 20152 A Big Boost for Solar Rooftops in India, Press Release by Ministry of New & Renewable Energy on Press Release 30th Dec, 2015


3 India Solar Handbook 2015, Bridge to India4 Gujarat Electricity Regulatory Commission, Order No. 3 of 2015

The growth of rooftop solar has been relatively slow in India with only about 350 MW of installed capacity, largely due to a lack of clear policy thrust. Maharashtra, Tamil Nadu and Gujarat are the leading states with close to 30% share (>100 MW) of total rooftop capacity.3

Spurring private sector finance participation in the rooftop solar market can facilitate its rapid development, upsacling and thereby achieving the ambitious solar targets. However, forming a well-balanced complementary relationship between public and private sectors is challenging, and can have consequences impacting a wide range of stakeholders. The process needs to be carefully managed through adequate planning and implementation.

1.2 Solar Rooftop Projects in India – Challenges

a. Difference in Capital Costs between Ground-mounted and Rooftop Solar PV Plants

Capital costs per megawatt of rooftop solar PV systems are higher than that of large-scale PV projects, given the factors such as higher installation costs, lower economies of scale, and a small base to spread fixed costs. Some state electricity regulators have provisioned higher tariffs for rooftop solar as compared to large-scale projects. For example Gujarat Electricity Regulatory Commission has a higher tariff rate for kilowatt scale solar rooftop as compared to megawatt scale projects.4

b. Availability and Cost of Debt Finance

Despite the recently announced policy of treating renewable energy projects as a priority sector for lending (PSL), debt appetite for rooftop solar projects including availability and cost of debt is expected to be a key challenge. It might also take a long time for lenders to consider rooftop solar projects for non-recourse finance.

c. Quality Concerns

The rooftop solar market in India is very competitive. Excessive cost pressure and poorly trained technicians often lead to poor quality of installations with numerous reports emerging from the market. A negative feedback for performance of rooftop solar projects by early adopters can also be detrimental to the market in the long term.

1.1 Institutional Structure – Stakeholder Mapping

Policy and GovernanceInstitutions

Ragulator TechnicalAuthority

Fundingagencies

Others

Policy

Centralnodal

agency

Statenodal

agency

MNRE

NVVN & SECI

SNAsI

CERC&

SERCs

CEA

IREDA,nationalised/

private banks,housing loancompanies,

multi/bi-laterals

Consumer

Solardeveloper and

installer

Equipmentmanufacturerand supplier

Utilities

DISCOMS


d. Legal Enforcement of Contracts

This challenge is pertaining to the Build-Own-Operate (BOO) model for rooftop solar projects. The legal enforceability of contracts in India is not very robust. The problem is more pronounced for solar, with long pay-back period and power purchase contract of over 15 years. Due to this, a model similar to the US based SolarCity is still struggling to find its feet in the Indian market. Such BOO projects account for only around 40 MW (12%) of installed capacity in India.

e. Lack of Sustainable Business Models

Although the technology for rooftop solar systems is well proven, the market lacks sustainable business models. Individual households as well as commercial rooftop owners lack knowledge, information, and financial incentives to install these systems to optimal standards. India lacks pilot projects developed jointly by public and private sector, to serve as proof-of-concept to encourage future segment growth.

f. Net Metering Economies, Billing & Settlements

Rooftop solar projects have, thus, far been implemented in India under either gross metering arrangements or on captive consumption arrangements. For a grid connected net-metering arrangement to foster, there is a need for a well-defined regulatory and commercial framework address issues such as

Non availability of clearly defined technical standards and guidelines for grid connectivity, metering, safety and security, etc

Lack of energy accounting and commercial settlement guidelines for grid connected solar rooftop projects

Lack of clarity on applicability of charges relating to wheeling, open access, cross-subsidy etc.

1.3 Policy Landscape

Ministry of New & Renewable Energy (MNRE) is responsible for implementing a ‘Grid Connected Rooftop and Small Solar Power Plants Programme’ to support projects ranging between 1kWp and 500 kWp5 using policy interventions such as capital subsidy and accelerated depreciation. Though the policy interventions have been in force for a while, there has been limited success. Going forward, greater provisioning of debt-financing and net-metering are expected to be the main policy tools in the sector.

The Cabinet Committee on Economic Affairs has recently scaled up the budget allocated from Rs. 600 crore to Rs. 5,000 crore for implementation of Grid Connected Rooftops systems over a period of five years upto 2019-20 under National Solar Mission (NSM)6. The increased budget is expected to support the installation of 4200 MW Solar Rooftop systems in the country in next five years.

1.3.1 Promising Central Government Incentives

a. Capital Subsidy Model: The model has been used by MNRE and Solar Energy Corporation of India with limited success largely to implementation issues and lack of funds. The model is expected to be discontinued in the coming months.

b. Accelerated Depreciation: Accelerated Depreciation (equivalent to 25% of the capital cost of the system) is expected to continue at least until March 2017.7 A company can claim 80% depreciation in the first year of installation. This benefit is equivalent to 25% of the capital cost and can be claimed by profitable corporate entities.

5 Off-Grid and Decentralized Solar Application Scheme: Operational Guidelines for Grid Connected Rooftop and Small Solar Power Plants Programme, Ministry of New & Renwable Energy, 26th June, 2014.6 A Big Boost for Solar Rooftops in India, Press Release by Ministry of New & Renewable Energy on Press Release 30th Dec, 20157 India Solar Handbook 2015, Bride to India


8 India Solar Handbook 2015, Bride to India

c. Interest rate subvention: The central government is working with KfW, Asian Development Bank (ADB) and World Bank to provide financing support in the form of interest rate subvention for rooftop solar in India. This scheme will provide debt at a lower cost of about 8.50% in comparison to the current cost of 12-12.5%. More than $2,100 million is known to have been committed by these developmental banks for the scheme.8

1.3.2 State Governments

State Governments have also been supportive to promote solar rooftop projects and close to 25 states and union territories have already put in place net-metering guidelines (draft and approved) for rooftop solar installations. Annexure I gives a comparison of the incentives provided by major states for solar rooftop developers. While net-metering guidelines are available in most states now, local implementation authorities are not sufficiently trained in handling execution and technical issues, thus slowing the rapid implementation of projects.

1.3.3 International Rooftop Solar Programs

A key driver of rooftop solar PV development across the world has been the design and implementation of innovative models combining policy and regulatory measures with market dynamics to deliver bankable and sustainable projects. Such international experiences also indicate that several administrative and institutional challenges need to be addressed to allow each stakeholder to participate in the transition to a mature self-replication phase.

Solar Rooftop Program: International Perspective

Germany Japan USA (California)

Incentive Structure - Feed-In-Tariff, periodically updated

- Capital subsidy- Renewable Purchase Obligations

- Capital Subsidy- Tax credits, rebates

Long-term project viability

- Long-term Feed-In-Tariff guarantee- Public participation to enhance financing- Streamlined interconnection & permitting processes

- Soft financing- Streamlined interconnection and approval process

- Third party service providers, who assume risk and performance of systems

Metering arrangements

- Gross metering till now- Piloting net metering

- Net metering - Net metering

Implementation Models

- Income from preferential tariff

- Savings in electricity bill

- Savings in electricity bill for rooftop owners- Lease payments and tax benefits to project developers or owners

Reasons for Programme Structure

- Encourage solar project development independent of captive load of the consumers

- Encourage solar project development independent of captive load of the consumers

- Facilitate development of decentralized solar systems- Limited cooperation from electric utilities

Source: YES Institute Analysis


International Solar Alliance (ISA) launched at the UN Climate Change Conference in Paris by India Prime Minister Narendra Modi and French President Francois Hollande, is a global alliance of solar resource rich countries to address their special energy needs and provide a platform to collaborate on dealing with the identified gaps through a common, agreed approach. The mission of the alliance is to provide a platform for cooperation among solar resource rich countries where global community including bilateral and multilateral organizations, corporates, industry and stakeholders can make a positive contribution to the common goals of increasing utilizing of solar energy in meeting energy needs of ISA member countries in a safe, convenient, affordable, equitable and sustainable manner.

The objectives of the ISA are following:

Promote solar technologies and investment in the solar sector to enhance income generation for the poor and global environment

Formulate projects and programmes to promote solar applications

Develop innovative Financial Mechanisms to reduce cost of capital

Partnering to develop innovative financial mechanism to access low cost, long tenure financial resources from bilateral, multilateral agencies and other sources

Building a common Knowledge e-Portal

Facilitate capacity building for promotion and absorption of solar technologies and R&D among member countries


Implementation Models forRooftop Solar Systems

2


Rooftop solar systems could be broadly segregated as ‘Grid Connected’ and ‘Off-Grid’, each catering to a specific requirement and geographical location.

Grid Connected: Grid-tied systems are the most common type of solar rooftop PV systems. They allow for rooftop owners to use solar energy as well as electricity from the grid. Such systems are often located in built up areas, and supply electricity directly to the household (net metering) or to the electricity grid (gross

2 Implementation Models for Rooftop Solar Systems

metering). When power is directly supplied to the grid, the home owner or the developer usually receives a credit or a payment for that electricity called as feed in tariff (FiT).

Off-Grid: Such systems are independent of the electricity grid and generally meet only partial demand of a household. Such systems are more complex in nature and less flexible as compared to grid-tied systems.

2.1 Straight Forward Sales Model or CAPEX Model


It is the most common business model for rooftop solar where a consumer pays 100% of the PV system cost upfront. The key advantage of this model is that it allows industrial and commercial consumers to own the system and claim tax depreciation benefits. Majority of the solar rooftop growth in the country has been on this model. Due to the high capital costs, a customer might not have the required liquidity to finance

Rooftop Solar Segment

Grid Connected Off-Grid

GrossMetering

Sale to Grid

NetMetering

Self-Consumption

StandaloneMini-Grid

Rural

BI-lateral Sale

RESCO


a system upfront or get the best debt terms. In addition, customers usually do not have access to the skills to maintain these PV systems.

2.2 Renewable Energy Service Company (RESCO) Model

Under the RESCO model, a third-party company finances, installs, operates and maintains the rooftop solar panels. The advantage of this model is that the consumer can install a solar PV system and also have the choice whether or not to consume the electricity. Based on the consumption choice, the model is further divided into two types – Rooftop Leasing and Power Purchase Agreement (PPA). The key drawback in this model is the shifting of building owners from time to time. In case the owner of the building sells the building and the new owner would not like the roof to be utilized for solar, the project developer might have no other option but to shift the system to another location. Shifting an existing system to another roof would create significant additional costs and would push back the viability of solar power.

2.2.1 Rooftop Leasing

In this case the project developer would be paying a fixed lease payment to a building owner over the time of the lease period for installing the solar panel on the rooftop.

2.2.2 Power Purchase Agreement

Here the project developer could sell the power back to the building owner in favor of a lower solar power tariff. The excess power could be sold by the developer to the utility.

2.2.3 Local Micro Utility Model

A local micro utility model involves giving solar power generators easy and cheap access to the distribution grid and allowing them to sell power directly to third parties. This model helps reduce the off-take risk for a RESCO investor and allowing for leasing of large, bundled roof spaces from building owners in a designated area, install PV systems and sell the power generated to the rooftop owners, other consumers or the DISCOMs at a pre-negotiated tariff. This model also allows project developers to bundle rooftop space in a community and thereby minimize the legal, commercial and technical transaction costs by increasing the size of individual plants. This makes the model especially useful for the deployment of solar for residential consumers. Building owners will be able to generate new income through leasing their roofs for a period of time (e.g. 15 years).

Straight Forward Sales or CAPEX Model

SolarEnergy

Self-finance,Installation,O&M

Sell Excess Energy

Payment forExcess Energy

RooftopSolar PV

BuildingOwners

StateDISCOM

RESCO – Rooftop Leasing Model

Use of Rooftopfor Installation

Rooftop SolarPV Systems

BuildingOwners

StateDISCOM

Finance,Installation, O&M

RESCO

Rooftop fees forspecified periods

PaymentSellEnergy

RESCO – Power Purchase Agreement Model

Use of Rooftopfor Installation

Rooftop SolarPV Systems

BuildingOwners

StateDISCOM

Finance, Installation,O&M

RESCO

Sell Energy @Fixed Rate fordefined period

Payment Sell ExcessEnergy


RESCO based local micro utility models have the potential to unlock a greater number of residential rooftops for PV systems, by providing economies of scale to developers and easy income to a rooftop owner. However there lacks a regulatory support for selling distributed power directly to end customers or utilities in India. The city of Gandhinagar in Gujarat, has initiated a pilot project that has some characteristics of the solar rooftop leasing model described above.


Financing Solar Rooftops

3


Growth of rooftop solar capacity is largely dependent on its financial competitiveness vis-a-vis grid power. While the government has been proactive on its commitment by announcing encouraging financing initiatives (priority sector lending, interest rate subvention) improving availability and cost of debt financing to go along with wide ranging net-metering policies, there are still many roadblocks that have to be addressed to achieve 40 GW rooftop solar targets. In particular, the traditional models of financing pose various challenges for investment in renewable energy due to:

Most renewable energy installations are of a scale that will not attract interest from traditional financial institutions, as transaction costs would be too high.

Most regions where solar rooftop systems could provide energy access have high risk attached to financial investments. Fragile economic viability, political instability, and/or underdeveloped energy and financial infrastructures struggle to secure financing within the traditional banking system.

Traditional financial systems only rely on credit ratings and collateral-based financing of infrastructure.

3.1 Financing Programs for underdeveloped off-grid markets

a. Microfinance: Microfinance systems provide alternative loans to individuals and small businesses lacking access to traditional banking and financial services. A wide variety of microfinance products and services have rapidly expanded to renewable energy installations and infrastructure, helping to bring new energy online in previously underserved communities.

b. International Bank Financing: Various international and regional banks such as The World Bank, Global Environmental Facility, Green Climate Fund disburse large loans for renewable energy projects. In addition, agencies such as United Nations Development Program (UNDP), United Nations Environment

3 Financing Solar Rooftops



Program (UNEP) provide funding and technical assistance for small off-grid projects. Such grants play a large role in initiating renewable energy programs and they catalyze and expedite the renewable energy market investment.

c. Margin Money Finance: It involve providing support in the form of margin money finance to borrowers who are unable to provide the down payment required for traditional loan products. In effect, margin money financing bootstraps investment, as new owners use the benefit of their first installation to purchase additional units under their own financing.

d. Business-in-a-box for Micro-entrepreneurship: Business-in-a-box is a tool to support “micro-entrepreneurs”, circumventing traditional avenues of finance by providing solar kits for solar charging or solar light businesses and repay a central provider company over time. r company over time.

3.2 Financing Intermediates – Communities/Village Scale Projects

Intermediate scale renewable energy development permits consideration of more financing options than for rural non-grid installations. In terms of return on investment, greater the size of the project, more likely it is to attract resources, hence the need for community/village scale projects.

a. Community Microgrid Projects: Instead of decentralized solar rooftop projects, electricity distribution through microgrids at a village/town level will attract more traditional investors to finance significant portions of a project. Institutional electricity customers may be able to raise funds from commercial sources more readily and can carry a higher debt-capital ratio than can an individual customer, making investment more attractive. As critical infrastructure receives power, additional opportunities for smaller community customers emerge to capitalize on the expanded capacity. Microgrids have numerous benefits in terms of resilience, efficiency and reduced maintenance costs, so much so that there is currently a movement in developed nations to redevelop along the lines of a micro-grid model.

b. Distributed Finance – Internet Lending: The Internet is rapidly creating new avenues for fundraising and investment. Individual borrowers can now present their ideas directly to individual lenders, circumventing traditional financial institutions. Direct connections between lenders and borrows promotes transparency while reducing transaction costs.

c. Peer-to-Peer Funding: Peer-to-Peer (P2P) lending allows individuals and companies to invest without going through a traditional intermediary such as a bank. Peer-to-Peer (P2P) lending allows individuals and companies to invest without going through a traditional intermediary such as a bank.

d. Crowd Funding: Crowd funding has also been successfully used to finance solar power projects. Crowd funding aggregates numerous individuals through an Internet lending source to support a project. Individual loans may be small, but in the total aggregated amount may be a substantial loan. Under this model of crowd funding, as solar projects produce and sell electricity, investors are paid back with interest. However, crowd funding rules in India are yet to be defined, but must urgently be done so to unlock the public’s goodwill as well as serious investment appetite.

3.3 On-bill Financing

Under on-bill-financing, the utility or municipality provides, in effect as a loan, the initial capital to install renewable energy that is so often hard to raise. Repayment of this loan is then amortized and distributed as a charge on the customer’s monthly utility bill or, in the case of municipality financing, a surcharge on the property tax. Often the energy savings from the financed energy efficiency or renewable measures can offset the repayment charges in whole or in part.

a. Property-tax Assessed Clean Energy Investment

In this case the municipalities arrange the upfront financing for solar rooftop equipment to the property owners, which is repaid over a specified period through additional surcharge on property taxes. The key advantage is that even after the ownership of equipment the building changes, the surcharge could still be collected.


b. Electricity Bill Assessed Clean Energy Investment

Pay As You Save (PAYS), is a variant of bill financing in which the customer agrees to pay a monthly surcharge which is lower than the independently verified, estimated savings. PAYS systems circumvent traditional barriers to finance by providing the upfront capital requirements. Participants do not take on any debt obligation for energy installations; making PAYS an attractive option for residential and business customers who may not be in a position to obtain a loan to pay for the upfront capital costs of the installed measures. As an independent system, PAYS does not require credit checks or liens. Here, all obligations are attached to the meter, and dependent upon efficiencies.

3.4 Alternative Stock Exchange Markets

Pioneering stock markets have taken a role in creating sources of capital for renewable energy projects. In addition to basic listing requirements, several stock markets have added requirements for social responsibility including environmental practices. This allows the growing number of ethical investors to buy stock with confidence in the company’s virtues. In an era where there are a growing number of large funds divesting from fossil fuel investments, social value stock markets could streamline changing reinvestment patterns and spur investment in renewable energy. The Social Stock Exchange trades shares of companies that contribute to social or environmental projects. This model takes the traditional benefits of raising capital through public trading and focuses on investments in companies promoting socially beneficial values such as renewable energy production.

3.5 Power Purchase Agreements (PPAs)

Power Purchase Agreements are contractual arrangements in which a wholesale energy company may purchase exclusive rights to all or part of an energy provider’s electricity. PPAs allow the facility owner to secure a revenue stream from the project necessary to finance the project and determine the quality of credit. PPAs are a standard financing mechanism for the grid-based power market, enabling wholesale purchasers, retailers and customers to buy and sell electricity through a distribution system. Innovations to these contracts are providing an excellent tool to augment and encourage renewable investment.

3.6 Renewable Energy Certificates

Renewable Energy Certificates (RECs), represent the “property rights to the environmental, social and other non-power qualities of renewable electricity generation.” By enabling producers to sell the rights separately from the underlying physical electricity associated with renewable generation, organizations can support renewable energy development and protect the environment when green power is not locally available.194 RECs have become a staple system to finance the production and sale of renewable power in the United States.

3.7 Feed-in Tariffs

Feed-in tariffs (FITs) are government mandated renewable energy subsidies requiring utilities to purchase renewable energy at a subsidized rate. Feed-in tariffs have played an important role in incentivizing customer uptake of renewable energy. These subsidized rates incentivize market participation from individual customers to add renewable electricity to the grid.

FITs legally obligate utilities to purchase electricity from renewable energy producers at favorable, higher-than-market rates. The government, for a certain period of time, typically guarantees the favorable rates assured by FITs. However due to a wider popularity of the reserve action process of Govt. of India, the FITs may be discontinued in the near future.


3.8 Energy Service Companies (ESCOs)

Energy Service Companies or ESCOs have also emerged as viable market participants supporting investment in renewable energy. ESCOs can serve a variety of functions. They can actively participate in the electricity generation market by developing installing, and arranging financing for energy projects. ESCO essentially arranges the project, while the tenants or owners pay the project costs, usually over a seven to twenty year term. The ESCO arrangement helps to catalyze renewable investment by shifting qualification for financing on to an ESCO specializing in renewable energy or energy investment installations.

3.9 Yield Companies (YieldCos)

Yield companies, or “YieldCos,” are publicly traded corporations that own and operate wind and solar power plants. As a publicly traded corporation, a YieldCo enables sophisticated investors to own a share in renewable energy production. Ownership of renewable energy plants provides YieldCos with a steady stream of revenue at low cost. The steady revenue stream helps the Yieldco buy new plants from developer partners at favorable terms. The relationship between a YieldcCo and a renewable energy developer allows developers to “recycle” their capital. Selling an existing plant to a YieldCo makes it cheaper to raise equity for subsequent plant investments. Since the YieldCo owns a variety of renewable energy plants, investors are able to reduce risks by benefiting from diversification.


The Way Forward

4


Innovation in financing mechanisms to spur investment in renewable energy programs, be it ground-mounted or rooftop, is rapidly evolving – ranging from microfinance in off-grid rural applications, on bill financing of community renewable energy programs, to YieldCos acquiring increasingly larger scale generation capacity. The progress thus far has been extremely encouraging and aiding the growth in the renewable energy sector. As the cost of infrastructure decreases and access to cheap financing becomes more readily available, renewable energy will become an even more viable force in helping to bring global emissions from the power sector within safe and sustainable levels.

While the financing market adjusts itself to the evolving business models and market dynamics, there is an urgent need to address various administrative, regulatory, operational and social challenges to supplement growth of the solar PV rooftop models.

4 The Way Forward



Stability in Legal / Regulatory

Framework and Public Policy

Protection of Property Rights

and Credibility of Institutions

Access to Long Term Finance at reasonable cost

Reduction of transactions costs

Suitable physical and operational infrastructure

Social Acceptance

Laws and regulations must be transparent and stable over time

Short duration of policy cycle compared to the recovery period of investment requires public policy stabilty

Title to essential assets of the project must be robust and ensure peaceful use by the developer

Permissions and authorizations that have been duly given in adherence to current legislation must not be revoked without clause

Energy projects have high capital costs and therefore require moderate interest rates over long term

Basel III norms will restrict the abiity of banks to lend long-term, hence new models that combine different soures of funding should be explored

Individual projects must achieve a certain scale to attract private sector financing on economic terms

Individual projects that do not meet this criterion should be aggregated to reduce transaction costs

Need for a robust distribution and smart metering system

Need for a well-trained workforce to maintain the PV systems

RE must be accepted as a reasonable cost solution and must be on equal footing with conventional energy generation technlogies

Development of renewable energy projects must represent long-term benefits for communities in which they are implemented


Annexure - I

Incentive offered to solar Rooftop Projects

Delhi Andhra Pradesh

Haryana J&K Jharkhand Karnataka Kerala Rajasthan

Banking - Applicability

Silent 100% allowed; however no banking for energy produced being consumed on the same day

Allowed for one year

Banking for captive use or/and for 3rd party sale provided for 2 months.

100% allowed Permitted Conditional Banking facility to captive generators after considering system constraints.

As per the RERC regulations.

Banking Charges

No Banking Charges

Developer to pay 2% of the banked energy towards banking charges

Silent - But charges applicable presuming banking being allowed

Applicable as per norms

Banking of 100% of energy during every financial year permitted subject to certain conditions

Charges to be applicable as determined by KERC form time to time.


As per the RERC regulations.

Wheeling charges

No wheeling charges

• No wheeling charges for captive use/third party sale within the state through 33KV system subject to industries maintaining their demand within its contracted demand.

As per HERC Regulation 2010 with amendments

Applicable as per J&K SERC for sale of Power within or outside the state

• As per wheeling charges specified by JSERC for wheeling within or outside the state• State Govt. grant of 4% of the wheeling charges, in terms of energy injected, and the balance to be borne by the developer

Charges to be applicable as determined by KERC form time to time.

Not applicable for the Captive Solar generators within the state - i.e. Applicable for Non Captive Solar generators

Silent - But charges applicable presuming the incentive has not been specifically declared

Transmission Charges

No Transmission Charges for solar plants commissioned during the Operative Period of the Policy

Transmission charges for sale outside the state will be as per APERC regulations.

As per HERC Regulations/Orders

Applicable as per J&K SERC for sale of Power within or outside the state

Developer to pay transmission charges to JSEB / Discom, in case of sale of power to third party consumer/distribution licensee/JSEB or its successor Discoms, subject to the regulations of JSERC.





Incentive offered to solar Rooftop Projects

Delhi Andhra Pradesh

Haryana J&K Jharkhand Karnataka Kerala Rajasthan

Cross Subsidy charges/Surcharges

No Cross Subsidy charges/Surcharges for solar plants commissioned during the Operative Period of the Policy

Not applicable for Open Access obtained for third party sale within the state subject to the industries maintaining their demand within its contracted demand with the DISCOMs and for captive use



Open access charges applicable as approved by JSERC from time to time

Charges shall be applicable as determined by KERC form time to time.

No open access charges for wheeling the power within the state.

Open access charges applicable as approved by RERC/CERC from time to time

VAT and Entry Tax exemption

VAT and entry tax Exemption over the devices purchased for the installation of solar plants in Delhi during the Operative Period

VAT for all the inputs required for solar power projects refunded by the Commercial Tax Department.


No entry tax to be levied on Power generation/transmission equipment and building material used for SPPs

Equipments purchased for installation of Solar power plants shall be exempted from VAT and entry tax.

Tax concessions in respect of entry tax shall be as per Karnataka Industrial Policy



Reactive Power Charges


Applicable as per APERC norms

As per Grid Code of CERC

Applicable as peras per JKSERC order.

Applicable as per as per JSERC norms

Applicable as peras per KERC norms


To be charged by RVPN as per the RERC orders

Stamp duty Silent - But charges applicable presuming the incentive has not been specifically declared

Refund of Stamp Duty and Registration charges


Exemption from payment of stamp duty and court fee for registration of documents

Exemption in stamp duty in case the Developer purchases private land

Stamp duty and Registration charges applicable as per Karnataka Industrial Policy.



Electricity Duty exemption

Electricity Tax exempted for solar energy units generated, whether for self-consumption or supplied to the grid.

Exempted for captive consumption and third party sale within the state


Electricity duty for self consumption /sale to third party/ sale to licensees’ @4 paisa/unit.

50 % electricity duty and cess for a period of 10 years from the date of commissioning.• Captive plants to have 50% exemption on electricity duty for 5 years.


Energy generated from the plants fully exempted from paying the Electricity duty


YES BANK, India’s fifth largest private sector Bank with a pan India presence across all 29 states and 7 Union Territories of India, headquartered in the Lower Parel Innovation District (LPID) of Mumbai, is the outcome of the professional & entrepreneurial commitment of its Founder Rana Kapoor and its top management team, to establish a high quality, customer centric, service driven, private Indian Bank catering to the future businesses of India.

YES BANK has adopted international best practices, the highest standards of service quality and operational excellence, and offers comprehensive banking and financial solutions to all its valued customers.

YES BANK has a knowledge driven approach to banking, and offers a superior customer experience for its retail, corporate and emerging corporate banking clients. YES BANK is steadily evolving as the Professionals’ Bank of India with the long term mission of “Building the Finest Bank of the World in India” by 2020.

YES Institute, a new practicing think-tank, has been established as a division of YES BANK, to focus on India’s sustainable and inclusive socio-economic growth and development.

YES Institute will focus on six core areas of (1) Smart Urbanization; (2) Sustainable Economies; (3) Design, Innovation, Creativity & Entrepreneurship; (4) Co-operative Federalism; (5) Doing Business in India and (6) Culture & International Relations.

The Institute believes that India’s economic growth must adopt a low carbon pathway, leapfrogging to a scenario of unique and resource-efficient high technology manufacturing, sustainable agriculture and services and also that India’s glorious past and rich culture that is anchored in arts, crafts, frugal innovation and diversity must be leveraged to define the country’s growth trajectory along a knowledge driven pathway.

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