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Scaling Rooftop SolarPowering India’s Renewable Energy Transition with Households and DISCOMs

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July 2018 |

Citation: Neeraj Kuldeep, Selna Saji, and Kanika Chawla (2018) ‘Scaling Rooftop Solar: Powering India’s Renewable Energy Transition with Households and DISCOMs’, June

 

Overview

The research, in collaboration with the Delhi electricity distribution company (DISCOM), BSES Yamuna (BYPL) proposes three innovative utility-led business models to overcome prevailing market challenges, accelerate deployment of rooftop solar systems in the residential sector and create a conducive environment for households, DISCOMs, and developers. With the trend of decreasing prices of solar systems, and the possible cost reduction with DISCOM involvement in aggregation and facilitation, these three business models can address market challenges and understand the domestic consumer segments.

Households owning rooftop solar systems could save up to 95 per cent on their electricity bills and households buying solar electricity from a community solar PV plant via a subscription plan could save up to 35 per cent on their electricity bill. The solar electricity tariffs have declined significantly in recent years making rooftop solar a lucrative investment for commercial and industrial consumers. However, despite a 30 per cent government subsidy, only about 400 MW of rooftop solar has been installed by households across the country.

The research proposes three business models – community solar model, on-bill financing, and solar partner model. While the community solar model provides a way for households living in apartment buildings with shared roofs or with no roof access to avail the benefits of a rooftop solar system through a shared system, the solar partner model allows even renters to subscribe to solar energy for shorter periods. Both models benefit from the availability of large roof spaces in public and private buildings, and pass on the benefit to residential consumers.

Community solar model - Subscription method

Source: CEEW Analysis

Community solar model - Upfront payment

Source: CEEW Analysis

Solar partners model

Source: CEEW Analysis

The on-bill financing model, on the other hand, targets consumers with roof access and who need access to easy financing. The combination of the three models extends the rooftop market to all residential consumer segments. The involvement of DISCOMs with well-planned rooftop programmes can eliminate the various market challenges and provide the momentum that the sector currently lacks.

On-bill financing model

Source: CEEW Analysis

Key Recommendations

Community solar model

  • DISCOMS should introduce the community solar programs in strategic locations, given the high proportion of consumers who live in apartments.
  • Subscription payment option along with upfront payment method would encourage more consumers to take an interest in the program as it eliminates any financial burden on them.
  • Differentiated subscription tariff is necessary to make the model financially viable to all domestic consumer segments.

On-bill financing model

  • DISCOMs should aggregate consumers and partner with financial institutions who can offer loans below market rates.
  • The repayment collection on electricity bill would reduce the risk of defaulting and this should make it possible for the banks to offer better terms of debt.

Solar partner model

  • DISCOMs should aggregate large roof spaces and tender them out to reduce the overall system installation cost which can bring down the solar tariff.
  • DISCOMs can also procure systems at lower prices and install them in their office buildings as well as in other public or private buildings in their area with large roof areas.

Households owning rooftop solar systems could save up to 95 per cent on their electricity bills.

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Risks in Renewable Energy Markets in Emerging EconomiesSpotlight on South Africa and Indonesia

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June 2018 |

Citation: Kanika Chawla, Manu Aggarwal, Anjali Viswamohanan, Arjun Dutt, and Neeraj Kuldeep (2018) ‘Risks in Renewable Energy Markets in Emerging Economies: Spotlight on South Africa and Indonesia’ June

 

Overview

This study aims to present the risks of renewable energy investment in two sample emerging economies, one in Asia (Indonesia) and the other in Africa (South Africa), from the perspective of financiers as well as other important stakeholders such as policymakers and developers.

Developing an understanding of the risks constraining renewable energy investment is essential to design strategic de-risking interventions aimed at increasing the flow of private capital into the sector. Most of the world’s increase in energy demand is expected to come from developing and emerging economies, driven by rising incomes and electrification rates. Therefore, it is critical to understand and underwrite the risk in countries where the transition pathway includes adding renewable energy capacity, even as there are competing investment opportunities being offered in conventional energy markets. Further, renewable energy deployments in developing countries face higher risks compared to developed countries for a variety of reasons including lower institutional capacities or support for deployment, fewer bankable projects, and insufficient domestic financing capacity.

Source: Pixabay

Key Findings

  • In South Africa, there was found to be gross overestimation of demand by the off-taker. However, stakeholders consulted did not list demand risk as a major concern as it was seen to be the responsibility of the offtaker.
  • Out of all provinces, Northern Cape (having highest solar potential) is the most constrained in terms of evacuation capacity. Interviewees mentioned the unpredictability in the charges for the evacuation infrastructure as one of the risks but not the presence of evacuation infrastructure as a whole.
  • Macro risks mostly related to the credit downgrade of South Africa and dependency of the South African economy on commodities. Interviewees mentioned the credit downgrade risk.
  • A vertically integrated power utility is the single largest off-taker for all power projects, and is poses one of the highest risks.
  • The renewable energy market in South Africa does not face major political risk since the government guarantees energy payments to the power producers within 40 business days of the first written demand. Most interviewees thought it was manageable.
  • Unlike South Africa where tariff is determined by market forces, the tariff determination for RE in Indonesia is surrounded with uncertainty due to a change in regime from stand-alone FiTs to thermal-linked FiTs. It appears to be the major risk posed to Indonesian renewables. Retail tariffs were also frozen by regulators for the years 2018 and 2019.
  • Similar to South Africa, electricity demand planning is not very robust. The national agency’s estimates consistently overshot the actual consumed electricity in the last few years.
  • Similar to any other developing country, unclear land records appear to be a moderate risk to infrastructure projects, including renewable energy projects. Benefits of the implementation of a land procurement scheme still remain to be seen.
  • Other risks such as fragmented grid infrastructure (600 isolated grid networks), and lack of local industries to cater to large projects further constrain RE development in Indonesia.

It is critical to understand and underwrite the risk in countries where the transition pathway includes adding RE capacity, even as there are competing investment opportunities being offered in conventional energy markets.

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CEEW Series: Rethinking Renewable Energy Power Purchase AgreementsCurtailing Renewable Energy Curtailment

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June 2018 |

Citation: Anjali Viswamohanan and Manu Aggarwal (2018) ‘Curtailing Renewable Energy Curtailment’ June

 

Overview

This brief, the first in The Council’s series on Rethinking Renewable Energy Power Purchase Agreements (PPAs), examines the issue of curtailment for technical and commercial reasons, and its impact on stakeholders; must-run status for renewable power; and the prospective role of granting compensation for grid unavailability and instability. This brief identifies the evolution of PPAs so far, considers the impacts of these steps, and points out the drawbacks of the solutions being implemented.

The brief recommends that risk be allocated to the party best able to control and manage it. It discusses how to structure compensation if the risk is not adequately contained, such that neither the developer nor the offtaker is unfairly impacted. This brief aims to solve one piece of the puzzle of curtailment risk – identify remedies to the power purchase agreement (PPA) by re-examining the contractual structure entered into between the renewable energy generator (REG) and the offtaker.

Source: Dina Lydia/Unsplash

Key Findings

The issue around curtailment is two-fold:

  • The nature of curtailmant risk is rapidly evolving from the commercial to the technical. The risk of commercial curtailment was high previously, when RE tariffs were significantly higher than other sources of power and DISCOMs were relatively financially worse-off.
  • Must-run status for REGs is untenable, owing to the fluctuating nature of renewable power and the inability of the grid to take on high quantities of fluctuating power. Most renewable energy PPAs either explicitly or implicitly do not provide for compensation for curtailment or the failure to comply with the must-run status. The quantum of compensation in case of failure by the transmission licensees to comply with the prescribed standards of performance is limited to the transmission charges.
  • There is no clear way to identify if the reason for curtailment was technical (linked to the maintenance of grid safety and security). The underlying reason for this issue is that the data needed to verify the state of the transmission infrastructure at a substation level is barely available for any RE rich states, barring Gujarat.

Robust Power Purchase Agreements that allocate risk to the parties best able to control and manage it have the potential to be one of the solutions to RE curtailment.

Key Recommendations

  • Decide on a quantum of guaranteed power generation. The REG and the offtaker should at the outset decide on a quantum of power that is the minimum quantity the REG is guaranteeing to supply and the maximum quantum that the offtaker is guaranteeing to offtake.
  • Guarantee supply and demand. Make the REG accountable for scheduling and deviation, and the offtaker accountable for demand risks. Failure to ensure predicted supply of power within the prescribed frequency band should lead to penalty or curtailment for the REG. In case of failure to forecast demand effectively, the offtaker must be made obligated to compensate at the rate of the PPA tariff, as decided in the agreement.
  • Hold all concerned parties accountable. Deal with transmission unavailability risk by deciding on a reasonable minimum floor (in terms of number of hours) for grid unavailability in a year, over which unavailability of the grid infrastructure must be compensated in terms of generation loss at tariff price per unit. Deal with grid management issues. Strictly define occasions for technical curtailment in PPAs. Enforce stricter performance standards on Load Dispatch Centres.

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Clean Energy Investment TrendsEvolving Investment Landscape for Grid-Connected Renewable Energy Projects in India

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June 2018 |

Citation: Kanika Chawla, Michael Waldron, Arjun Dutt, Manu Aggarwal, Alberto Toril, and Yoko Nobuoka (2018) ‘Clean Energy Trends: Evolving Investment Landscape for Grid-Connected Renewable Energy Projects in India’ June

 

Overview

This study, the first in a series of trends reports being undertaken by CEEW in collaboration with the International Energy Agency (IEA), analyses project-level data for solar and wind energy over the 2014-2017 period, which is closely aligned with the recalibration of India’s RE ambitions and the revised target announcement of 175 GW of renewable energy by 2022. The analysis focused on the changing market landscape in the form of market concentration in investment decisions for solar and wind generating capacity, trends relating to the management of land acquisition and evacuation infrastructure risks and the role of solar parks, changes in average sanctioned solar and wind project sizes over time, and the evolution of offtakers for solar and wind projects from 2014 to 2017.

In order to monitor and analyse the concerted action towards fulfilling India’s RE ambitions, this joint project with IEA will assess clean energy investment trends, with a focus on renewables and the power sector. This project seeks to provide stakeholders a practical guide for understanding the current clean energy investment environment in India and how the evolution of regulations and risks are impacting where finance is flowing (and where it is not).

Source: Pixabay

Key Findings

The analysis revealed four key trends:

  • There is evidence of greater market concentration among renewable developers, which is facilitating financing, but there may also be limits to higher levels of industry consolidation. The top 5 and top 10 players (in terms of share of projects sanctioned each year) have accounted for over 40% and over 60% respectively of the shares of sanctioned projects for both solar and wind generating capacity each year between 2014 and 2017. However, at least half of the companies among the top 10 (in terms of shares of projects sanctioned in a particular year) have changed every year, indicative of the limits of the capacity of even the top players to finance new projects.
  • Solar parks are making India’s renewable development more accessible to investors around the world, but stakeholders face persistent challenges in scaling up this unique model. Solar parks have been successful in attracting investment flows, as well as the oversubscriptions of tenders that provide solar park allocations. However, the slow pace of sanctioning for new solar parks and delays in their development due to persistent challenges associated with land acquisition and the setting up of internal infrastructure have affected the pace of tendering of new solar park projects. Solar parks have yet to reach their potential - only 16% of the 40 GW target for solar park projects by the end of fiscal year (FY) 2019-20 have been awarded by the end of 2017.
  • Ambitious targets and supportive policies have enabled bigger renewable project sizes. Average project sizes increased four-fold to 110 MW for solar projects and five-fold to 130 MW for wind projects over the period 2014-2017, as developers capitalised on economies of scale.
  • The creditworthiness of offtakers, which affects the timeliness and reliability of payments for power purchase, is having a strong impact on renewable investment decisions. The timeliness and reliability of payments for power purchase by state distribution companies (DISCOMs) remains a persistent risk for investments. There is a rising share of sanctioned solar and wind investments that are based on a power purchase agreement with central government entities, compared with those executed with DISCOMs alone.

In 2017, investment in renewable power, at nearly USD 20 billion, topped that for fossil fuel-based generating capacity for the first time.

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Addressing Renewable Energy CurtailmentA Composite Approach


June 2018 |

Citation: Council on Energy, Environment and Water (2018) ‘Curtailing Renewable Energy Curtailment’ June

 

Overview

This factsheet gives an overview of renewable energy curtailment, it’s political economy, and the key players involved.

It offers two solutions to the issue of RE curtailment - the Grid Integration Guarantee, a short-term intervention to underwrite the risk of curtailment; and the restructuring of RE power purchase agreements (PPAs), to balance out the risks pertaining to curtailment amongst the parties responsible for its occurrence.

Key Highlights

The Risk of Curtailment

Curtailment relates to a phenomenon where the power-grid operator issues an instruction to limit the power output of specific generators. Curtailment is only permitted on grounds of maintaining grid stability and system safety, as per the Indian Electricity Code and the renewable energy power purchase agreements.

  • Curtailment is expected to increase along with the growth in proportion of renewable energy in the energy mix due to technical reasons.
  • Curtailment affects the attractiveness of the RE sector for developers and investors. Unanticipated curtailment negatively impacts returns on investment and project viability.
  • Electricity distribution companies (DISCOMs) prefer to offtake power from the lowest tariffs, leading to higher curtailment of RE generation due to the higher tariffs of older installed RE capacity.
  • DISCOMs are also required to ensure constant supply of stable power, but renewable power is variable and difficult to accurately predict, schedule, and mange.
  • State Transmission Utilities (STUs) are expected to compensate affected electricity buyers (DISCOMs) the transmission charges in case of transmission system unavailability. However, no compensation exists for RE developers in such situations.

Source: Pixabay

The Solutions

Central and State governments are trying to mitigate the risk of curtailment though enforcing certain regulatory, contractual, and technical measures.

The Council has adopted a composite approach to the risk of curtailment, with a focus on identifying immediate stop-gap solutions to address the impacts of curtailment. A suite of financial and non-financial options have been developed that could be implemented individually, or together.

  • The Grid Integration Guarantee (GIG) is an innovative and market transformative instrument to mitigate the curtailment risk.
  • The central principle behind the GIG is that curtailment risk needs to be moved away from developers to grid operators and grid planners such as transmission companies and Load Dispatch Centres since they are in the best position to manage it.
  • GIG aims to support deep de-risking of renewable energy assets, making them suitable for the risk-return requirements of institutional investors. Its offering could help in bringing part of the half trillion dollars required in the mitigation finance in developing countries, at affordable terms.
  • Power purchase agreements (PPAs) can be used as risk mitigation instruments by allocating risks to the party that is best able to control and manage it (both in terms of the likely occurrence of the risk and its effects). Currently PPAs are entered into only between the RE generator and the DISCOMs.
  • In case of failure to manage the risk as anticipated at the time that the agreement is signed, compensation is due to the affected party. This provides more certainty to the contracting parties.
  • PPAs can be structured in more robust ways that can establish a guaranteed quantum of power generation at the outset, comprehensively define what constitutes curtailment risk, provide full compensation for any curtailment, and hold all parties accountable.

Curtailment is likely to have a significant impact on the pace and feasibility of RE deployment going forward. Since grid upgradation efforts will require a longer horizon to implement, immediate solutions to address the impacts of curtailment are the need of the hour.

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Common Risk Mitigation MechanismFeasibility Study


November 2017 |

Citation: Council on Energy, Environment and Water, Confederation of Indian Industry, The Currency Exchange Fund, and Terrawatt Initiative (2017) 'Common Risk Mitigation Mechanism' Feasibility Report, November

 

Overview

This feasibility report on the Common Risk Mitigation Mechanism (CRMM) has been driven by governments of 17 nations with strong solar potential as a way for scaling investments in solar power generation in their countries and in other developing countries. In May 2017, these nations mandated a multi-stakeholder Taskforce consisting of the Council on Energy, Environment and Water (CEEW), the Terrawatt Initiative, The Currency Exchange Fund (TCX), and the Confederation of Indian Industry (CII), to conduct a study on the feasibility of implementing CRMM, including broad based consultation with relevant stakeholders.

The study is in line with the framework of the International Solar Alliance (ISA), and specifically addresses its mandate to aggregate and harmonize frameworks for investment. In particular, this study aims to operationalise ISA's programme for ‘Affordable Finance at Scale,’ initiated by both India and France.

The study outlines the economic, legal, and operational feasibility conditions for the successful implementation of the Common Risk Mitigation Mechanism. It was released at COP23 in Bonn in November 2017.

Broken Hill solar park in New South Wales, Australia

Broken Hill solar park in New South Wales, Australia (Source: Wikimedia Commons)

Key Findings

The study is based on the following findings of the Taskforce

  • Financing of solar power generation assets in the majority of developing countries suffers from inadequate availability of risk management tools, a high perception of risk, high transaction costs, small project sizes (granularity) and lack of scale.
  • Investors, developers, and other stakeholders require transparency and clarity of process – which in some countries often is missing.
  • The international development community and private commercial financiers are eager to participate in the creation of a global solar market.
  • Development Finance Institutions have created a successful track record in leveraging private sector capital through risk mitigation mechanisms, and are now seeking to scale-up this leveraging to even larger levels under the theme of “billions to trillions”, including mainstream deployment of local capital and savings.
  • Private and institutional capital markets have successfully deployed green bonds and innovative structures for securitising receivables from various sources, including renewable power investments.

All the ingredients for expanding access to affordable solar energy in developing countries already exist. These efforts could accelerate more rapidly for the benefit a large number of countries, if they are conducted in a coordinated manner at scale, and within a common platform.

Key Recommendations

The Taskforce has presented the following recommendations for formulating and implementing the Common Risk Mitigation Mechanism:

  • Develop an easily accessible first demand financial guarantee instrument (comprising a bundle of different risk management instruments ranging from guarantees, insurance, to swaps, which will cover risks in both local currencies and hard currencies) intended to provide private institutional investors (investors) in Solar PV investments in developing countries with a high level of security against (i) the risks of currency exchange, (ii) the risks of transfers and inconvertibility, (iii) the risks of electricity purchasing counterparties, and (iv) the political risks (together the Guaranteed Risks) while crowding-in existing specialized instruments for risk mitigation.
  • Establish a Guarantor Entity benefiting from a strong investment grade credit rating, and which is well capitalized by public and private funds (including from States, Development Finance Institutions and any other public or private investor wishing to participate) with cash, lines of credit and sovereign guarantees.
  • Establish an independent company which operates a digital platform with a management mandate from the Guarantor Entity.
  • Launch a pilot project in 2018, which will be completed within 3-5 years from inception. The aim of the pilot is to achieve a critical size and demonstrate its cost effectiveness in pooling and aggregating capital, and mitigating risks at an international level. Its progressive deployment will target an ultimate USD 1 billion Guaranteed Entity capitalization and an underlying asset portfolio of approximately USD 15 billion in some twenty volunteer countries by the end of the Pilot Project. Simulations in median scenarios demonstrate limited requirement for the capitalisation of the Guarantee during the first 2 years.
  • Designate a multi-stakeholder working group to prepare a detailed project implementation plan and implement it within 9 to 15 months.

The Charanka solar park in Patan, Gujarat

The Charanka solar park in Patan, Gujarat (Source: Wikimedia Commons)

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Solar Rooftop

The Council’s research on rooftop solar focuses on analysing consumer demand and behaviour, designing feasible business models for residential adoption, and evaluating the role of utilities. Rooftop solar creates 24.7 full-time equivalent jobs per MW, significantly higher than the corresponding figure of 3.5 jobs per MW for utility-scale solar. As of December 2017, cumulative rooftop solar installed capacity was 1.6 GW in India.

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Risks & Investment

Access to affordable finance is key to meeting India’s renewable energy targets. This area of work assesses the drivers and roadblocks to the flow of finance into India’s renewable energy markets, with a specific focus on the perceived and actual risks dampening investor confidence or contributing to high risk premiums. Our research includes risk assessments for India as well as other emerging economies such as South Africa and Indonesia.

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Re Markets & Regulations

This area of work focuses on the impact of policy and regulation on renewable energy (RE) market depth. To build deep and efficient markets for RE, the team analyses various challenges plaguing market growth and designs means to overcome or circumvent these challenges. These include analysing short-term market disruptions, as well as making policy and regulatory recommendations for sustained market growth.

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Jobs & Skills

Since 2014, CEEW and the Natural Resources Defense Council (NRDC) have been using primary data surveys to collect accurate, market-based information on jobs created, workforce employed, and the skills required to achieve India’s renewable energy goals. Jobs created from renewable energy offer a significant opportunity to meet the country’s objectives on employment generation, while advancing our domestic energy priorities. Our research on renewable energy jobs finds that more than 1 million total employment opportunities can be created in achieving India’s ambitious clean energy goals to install 160 gigawatts of renewable power by 2022.

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