ceew-nrdc-national solar mission interim report 30apr12

7/31/2019 CEEW-NRDC-National Solar Mission Interim Report 30Apr12

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Laig the Foudatio for a Bright FutureAssessing Progress Under Phase 1o Indias National Solar Mission

Prepared b

Council on Energ, Environment and Water

Natural Resources Deense Council

Interim Report: April 2012

Supported in part b


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ABOUT THIS REPORT

About Council on Energy, Environment and Water

The Council on Energy, Environment and Water (CEEW) is an independent nonprot policy research institution that works

to promote dialogue and common understanding on energy, environment, and water issues in India and elsewhere through

high-quality research, partnerships with public and private institutions and engagement with and outreach to the wider

public. (http://ceew.in).

About Natural Resources Deense Council

The Natural Resources Deense Council (NRDC) is an international nonprot environmental organization with more than 1.3million members and online activists. Since 1970, our lawyers, scientists, and other environmental specialists have worked

to protect the worlds natural resources, public health, and the environment. NRDC has oces in New York City; Washington,

D.C.; Los Angeles; San Francisco; Chicago; Livingston and Beijing. (www.nrdc.org).

Authors and Investigators

CEEW team: Arunabha Ghosh, Rajeev Palakshappa, Sanyukta Raje, Ankita Lamboria

NRDC team: Anjali Jaiswal, Vignesh Gowrishankar, Meredith Connolly, Bhaskar Deol, Sameer Kwatra, Amrita Batra,

Neha Mathew

Neither CEEW nor NRDC has commercial interests in Indias National Solar Mission, nor has either organization received any

unding rom any commercial or governmental institution or this project.

AcknowledgmentsThe authors o this report thank government ocials rom Indias Ministry o New and Renewable Energy (MNRE), NTPC

Vidyut Vyapar Nigam (NVVN), and other Government o India agencies, as well as United States government ocials. We

would also like to thank ormer MNRE Secretary Deepak Gupta. We are grateul to the solar developers, nancial institutions,

solar manuacturers, solar energy experts, academics, and community members who shared their eedback and helped

inorm the ndings o this report. The authors would also like to thank the ollowing people, who acted as peer reviewers, or

their valuable insights: Pierre Bull, Suman Kumar, Peeyush Mohit, Rana Mookherjee, Rajesh Peddu, P. Ramana Reddy, A. P.

Shrivastava, Ashish Shrotriya, Cai Steger, and Atul Vijaykar. We would especially like to thank ClimateWorks Foundation, Shakt

Sustainable Energy Foundation and our other unders or their generous support. This report is supported, in part, by Shakti

Sustainable Energy Foundation. The views expressed and analysis in this document do not necessarily refect views o the

Foundation. The Foundation does not guarantee the accuracy o any data included in this publication nor does it accept any

responsibility or the consequences o its use.

Scope o ReportThis report ocuses on the Jawaharlal Nehru National Solar Missions objectives, targets, and incentives or grid-connected

solar photovoltaic (PV) projects in India. The Missions goals relating to solar thermal and o-grid solar projects are not

covered in this report.

Methodology

This report adopts a whole-o-system approach by ocusing on various public and private institutions operating in the

solar ecosystem, the record and challenges o commissioning projects, the bankability o projects, the building o a robust

manuacturing base, and analysis o the related enabling environment or the industry. The process included initial

identication o key solar stakeholders in India and internationally to understand stakeholder perspectives and barriers to

eective implementation o the National Solar Mission. Primary research was conducted through extensive discussions during

in-person meetings, phone conversations, and written communication, and during conerences and workshops, including

SOLARCON and Intersolar 2011. The organizations also engaged periodically with the Ministry o New and Renewable Energy

as well as other government agencies to understand their approaches, innovations, and concerns about the Solar Mission.

NRDC Director o Communications: Phil Gutis

NRDC Deputy Director o Communications: Lisa Goredi

NRDC Publications Director: Alex Kennaugh

NRDC Publications Editor: Carlita Salazar

CEEW Project Administration: Meena Sarkar

CEEW Communications: Prachi Gupta

Design and Production: Tanja Bos

Natural Resources Deense Council; Council on Energ, Environment and Water, April 2Cover photo: CreDIt: punj LLoyD


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PAGE i |Laig the Foudatio for a Bright Future

FOREWORD

India is blessed with abundant sunshine, in act 300 days worth in most regions. Average incident solar radiation ranges

between 4 and 7 kilowatt-hour per day per square metre much higher than the amount o solar radiation in many other

countries. Meanwhile, 70 percent o Indias primary energy supply relies on ossil uels while hundreds o millions o people

need access to modern sources o energy. In 2010 India launched the Jawaharlal Nehru National Solar Mission, one o the

worlds largest solar energy programmes. The aim is to install 20000 megawatts (MW) o grid-connected solar power and 2000

MW o o-grid solar power by 2022. This is an ambitious mission with the promise o responding, in part, to Indias climate

challenge and to increasing energy access. Like India, most o the solar potential world over is in tropical countries. But by one

count, until 2010, eight o the top ten countries with installed solar photovoltaic capacity were in temperate zones. Clearly,there is a long way to go beore India realises its potential in solar energy but the National Solar Mission has positioned itsel

to play a signicant catalytic role. How it could do so is the subject o this report.

A nascent solar industry is beginning to take shape in India, with more than 500 MW o capacity installed already. Competitive

bids or projects have also driven prices or solar power down rapidly. But installed capacity and prices do not complete the

picture. There is a need to understand challenges in installing projects, so that developers are able to do so on time and eed

electricity into the grid at committed capacities. There are also questions about choice o technology and policies related to

sourcing cells, modules and other equipment. And, perhaps most importantly, solar projects have to be nancially viable to

attract the levels o investment necessary to meet the Missions targets. These issues are interconnected and interdependent,

critical to the evolution o a solar ecosystem.

In order to examine all the dimensions o the ecosystem, the Council on Energy, Environment and Water (CEEW) and the

Natural Resources Deense Council (NRDC) partnered to produce Laying the Foundation or a Bright Future. This reportadopts a whole-o-system approach, identiying multiple stakeholders and ocusing on all aspects o grid-connected

solar power: selection, deployment and commissioning o projects; bankability and the role o various nancial channels;

the development o a robust manuacturing base; and the creation o an enabling environment with regard to land, power

evacuation, skills, and so orth.

I wish to congratulate the team comprising independent researchers rom CEEW and NRDC, which has not only conducted in

depth analysis o its own but also engaged with a wide set o stakeholders within and outside India. I am sure that the ndings

and recommendations o this report would be relevant not only or government agencies (at the national and state levels), but

also or project developers, manuacturers, nanciers, donor agencies, R&D and research institutions, and others keen on the

success o the National Solar Mission.

Jamshyd N. Godrej

Co-Chairperson, Council on Energy, Environment and Water

Mumba

April 2012


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TABLE OF COnTEnTS

Foreword .......................................................................................................................................................................................... i

I. Executive Summar......................................................................................................................................................................v

II. Introduction .................................................................................................................................................................................1

III. Stakeholders: Need or a Solar Ecosstem ................................................................................................................................4

Strategic Level .........................................................................................................................................................................5

Project Level ............................................................................................................................................................................5

Supporting Environment ..........................................................................................................................................................5

IV. Phase 1 o the National Solar Mission: Building Solar India ...................................................................................................6

Phase 1 Project Analsis and Discussion ................................................................................................................................7

Phase 1s Tiered Approach ......................................................................................................................................................9

Ke Findings rom Phase 1 ....................................................................................................................................................10

V. Bankabilit: Financing Solar Energ Projects .............................................................................................................................11

Current Financing Issues: Perceiving Man Tpes o Risk ....................................................................................................11

Lack o Awareness and Inormation to Address Perceived Risks .........................................................................................12

Mixed Support rom Several Sources; Coordination Needed ................................................................................................13

Ke Findings ..........................................................................................................................................................................16

Ke Recommendations .........................................................................................................................................................16

VI. Manuacturing: Supporting a Domestic Industr .....................................................................................................................17

Benefts o a Strong Domestic Solar Manuacturing Base ....................................................................................................17

Role o Manuacturing in Job and Value Creation ..................................................................................................................18Domestic Manuacturing Issues in the Indian Context ........................................................................................................19

Domestic Content Requirements Eects on Manuacturing ...............................................................................................20

Ke Findings .........................................................................................................................................................................23

Ke Recommendations .........................................................................................................................................................23

VII. Enabling Environment: Facilitating Land Acquisition, Permitting & Power Evacuation ...........................................................25

How to Create an Enabling Environment .............................................................................................................................25

Ke Findings .........................................................................................................................................................................28

Ke Recommendations ....................................................................................................................................................... 29

VIII. Conclusion .............................................................................................................................................................................30

IX. List o Stakeholder Organizations .............................................................................................................................................31

X. Endnotes ...................................................................................................................................................................................32


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ADB Asian Development Bank

ARRA American Recovery andReinvestment Act

BEE Bureau o EnergyEfciency

CCCL Consolidated ConstructionConsortium Limited

CEEW Council on Energy,Environment and Water

CERC Central ElectricityRegulatory Commission

CIF Climate Investment FundCRISIL Credit Rating Inormation

Services o India Limited

CTF Clean Technology Fund

CWET Centre or Wind EnergyTechnology

DCR Domestic ContentRequirement

Discom Distribution Company

EEG Erneuerbare-Energien-Gesetz (GermanysRenewable EnergySources Act)

EPC Engineering, Procurement,and Construction

EPIA European PhotovoltaicIndustry Association

EU European Union

EX-IM Export-Import Bank o theUnited States

FIT Feed-In Tari

GIZ Deutsche Gesellschatr InternationaleZusammenarbeit

GW Gigawatt

HBL Hindu Business Line

ICICI Industrial Credit andInvestment Corporation oIndia

IREDA Indian Renewable EnergyDevelopment Agency

JNNSM Jawaharlal Nehru NationalSolar Mission

kWh Kilowatt hour

LBNL Lawrence Berkeley

National LaboratoryLOI Letter o Intent

MAHAGENCO Maharashtra State PowerGeneration Company

MNRE Ministr o New andRenewable Energ

MOEA Ministr o EconomicAairs (Taiwan)

MOEF Ministr o Environmentand Forests

MOP Ministr o Power

MW Megawatt

NAPCC National Action Plan on

Climate ChangeNASA National Aeronautics andSpace Administration

NCPRE National Centre orPhotovoltaic Research andEducation

NRDC Natural ResourcesDeense Council

NSM National Solar Mission

NTPC National Thermal PowerCorporation

NVVN NTPC Vidut VaparNigam

OPIC Overseas PrivateInvestment Corporation

OREDA Odisha Renewable EnergDevelopment Agenc

PPA Power PurchaseAgreement

PSM Pament SecuritMechanism

PSS Pament Securit Scheme

PV PhotovoltaicR&D Research and

Development

RE Renewable Energ

REC Renewable EnergCertifcate

RPO Renewable PurchaseObligation

SECI Solar Energ Corporationo India

SEIA Solar Energ IndustriesAssociation

SIPS Special Incentive PackageScheme

SOLARCON Solar Convention in India,Organized b SEMI

SPV Special-Purpose Vehicle

TPVIA Taiwan PhotovoltaicIndustr Association

WTO World Trade Organization

LIST OF ABBREVIATIOnS

TABLESTable 1: National Solar Mission Targets 2010 to 2022 ..................................................................................................................2

Table 2: National Solar Mission Solar Project Process ..................................................................................................................5

Table 3: National Solar Mission Phase 1 ......................................................................................................................................7

Table 4: A range o private and public institutions have a role in enhancing bankabilit and overall solarmarket development ....................................................................................................................................................13

Table 5: Distribution o Jobs Across Solar Value Chain...............................................................................................................18

Table 6: Countr Comparisons o Solar Manuacturing Policies, Production, and Capacit .......................................................20

Table 7: Domestic content requirements or incentives have had some success globall .......................................................22Table 8: Solar Project Land Development Options .....................................................................................................................26

FIGURESFigure 1: A successul solar ecosstem depends on the eectiveness o various individual enablers and

stakeholders and coordination among these ................................................................................................................4

Figure 2: Rajasthan and Gujarat, which are endowed with the highest irradiation, led Phase 1 installations .............................7

Figure 3: Bundling o Power Scheme: An innovative mechanism to reduce the price burden o solar .....................................15

Figure 4: More than hal the jobs and value generated lie downstream o modules .................................................................19

Figure 5: The mix o PV technologies deploed in the Indian market is markedl dierent rom the mixdeploed globall ........................................................................................................................................................21


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I. ExECUTIVE SUmmARy

F

rom tentative beginnings, Indias solar energy market is picking up steam. From 17.8

megawatts (MW) in early 2010, cumulative installed capacity reached 506.9 MW at the end

o March 2012.1 The Jawaharlal Nehru National Solar Mission (NSM or Mission), launched in

2010, has catalyzed much o this growth. Even with 300 sunny days a year in most regions, creating a

new solar energy market in India is no easy task.

Making headlines in late 2011, competitive bidding or the

Missions second batch o projects under Phase 1 drove

prices or grid-connected solar energy as low as `7.49

($0.15) per kilowatt-hour, approaching grid parity with

ossil uel-powered electricity. Phase 1 also attracted large

conglomerates and new players into the solar market. Bid

euphoria, however, is wearing o, and serious doubtsremain as to whether the Missions Phase 1 projects will

meet commissioning deadlines. Although several projects

have been commissioned since January 2012, concerns

about project delays are expected to overfow into uture

stages o the Mission. As the Mission heads into Phase 2,

larger questions loom. It is unclear whether it is on course to

achieve 20 gigawatts (GW) o installed solar capacity by 2022,

and how the Ministry o New and Renewable Energy (MNRE,

the nodal agency or the Mission) and other government

agencies, as well as stakeholdersincluding developers,

nancial intermediaries, manuacturers and communities

can be more eective in scaling solar energy to power one o

the worlds astest-growing economies.The Solar Mission ollows a phased approach that allows

the government to modiy guidelines and policies based on

the experiences gained and lessons learned in earlier phases.

This report adopts a whole-o-system approach, which

identies multiple stakeholders operating within the Mission

and analyzes their successes and challenges. The report

examines the commissioning o Phase 1 projects, eorts to

increase bankability, the development o a manuacturing

base, and the creation o an enabling environment.

Addressing these challenges, the report presents ndings

and recommendations to scale grid-connected solar energy

development. The report draws rom extensive individual

and group stakeholder discussions as well as research and

analysis o national, state, and international programs.

PHASE 1 OF THE nATIOnAL SOLAR mISSIOn

BUILDInG SOLAR InDIA

During the Missions rst phase, more than 500 bidders

competed or 63 projects allocated during two reverse

auctions, driving prices to record lows. New solar energy

investments in India increased to more than `12,000 crore

($2.5 billion) in 2011. Phase 1 activities have ocused largely

on achieving 1,000 MW o solar energy through an equal

split between solar thermal and solar PV project technology.

Although Indian industries have responded positively to the

Solar Mission, it aces several hurdles in moving ahead. To

scale solar energy, the central governmentwith coordinated

action by states, developers, nancial institutions,

manuacturers, research institutes, and communitiesneeds

to develop eective solutions or more credible project

bids, enorceable Renewable Purchase Obligations (RPOs)

and Renewable Energy Certicates (RECs), strong nancial

structures, increased domestic manuacturing, and reliable

power evacuation and transmission. Moreover, o-grid

solar energy, largely a missed opportunity so ar, is ripe or

investment.


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OVERALL FInDInGS

1. The sophistication o solar energy stakeholders

is increasing. However, a much greater degree o

coordinated stakeholder action is needed to unleash the

solar energy markets potential.

2. As an overarching policy ramework, the National Solar

Mission (NSM) aims to increase deployed capacity,

enorce regulatory obligations or using renewable

energy, create a manuacturing hub in India, and

promote research and development (R&D) or new

solar technologies. These objectives will be achieved in

dierent time rames and thereore should be correctly

prioritized by the central government.

3. Inrastructure, policy, and market conditions are shaping

Indias solar market dierently rom other solar markets.

Unique attributes include the prevalence o ground-

mounted solar parks, thin lm PV technology used in

more than hal the projects, and low bid prices that make

grid parity possible in the near uture.

4. Overall, stakeholders viewed the reverse auction bidding

process as transparent and successul in driving down

prices. However, nancial institutions, civil society

groups, and some developers suggested that in order

to draw serious players with an ability to ensure project

completion, and attract nancing, project selection

criteria should be more rigorous. Moreover, or the

Mission to remain credible, nancial due diligence

and continuous monitoring are needed to ensure that

commissioned projects are operational at contracted

capacity and generating solar power that is transmitted

to the grid.

5. Indian bankers still perceive signicant risks in

the solar energy market and are largely hesitant to

make substantial investments in solar technologies.International lenders, less risk-averse on the technology

ront, oer lower interest rates but remain skeptical

about project completion. To bolster condence among

nanciers, a range o unding channels, nancial

institutions, and other stakeholders must coordinate at

program and project levels and provide ancillary support,

such as R&D and skill development, to help the solar

market mature.

6. State policies have contributed to boosting solar

projects in the past two years, especially in Gujarat and

Rajasthan. For Phase 2, the central government needs

to increase collaboration with states to acilitate RPOand REC compliance, project bidding, nancing, power

evacuation, transmission, and land acquisition.

7. While the domestic content requirement (DCR) has

garnered international attention and raised concerns

among some oreign stakeholders, most developers do

not identiy it as a major barrier to project development.

The case or a robust domestic manuacturing base

rests on multiple objectives: energy security, technology

development, energy access, ensuring product standards,

attracting oreign investment, and creating jobs. Even so,

many manuacturers expressed the view that the DCR,

as currently structured, is not suciently stimulating

local manuacturing. Manuacturers ace other systemic

limitations, such as poor inrastructure, lack o raw

materials, an undeveloped supply chain, and lack o

nancing.

8. Many developers have aced diculties in obtaining

clearances to convert land use or solar project

development and encountered claims by other partiesto government-allocated land. In terms o inrastructure,

some developers have experienced diculties with

power evacuation and transmission lines to substations.

Limited availability o skilled labor also remains a barrier

to wide-scale project development.

9. To protect local interests and the environment,

developers and government agencies need to increase

community involvement in the decision-making process,

rom project planning to operations.

10. All stakeholders agree that while Phase 1 ocuses on

grid-connected projects, o-grid solar energy provides

an even larger opportunity. They state urther thatstakeholders should work collectively to develop both

public and private strategies or large-scale deployment

o o-grid projects.

BAnkABILITy: FInAnCInG

SOLAR EnERGy PROjECTS

In 2011, investments in Indias renewable energy markets

rose to approximately`51,000 crore ($10.3 billion),2 with

more than one-third o the investments directed to solar

projects. Investments are expected to double or Phase 2. Yet

the greatest challenge or solar energy is project nancing.Even or smaller Phase 1 projects, developers struggled to

raise capital rom multiple domestic, international, and sel-

nancing sources. While there has been some improvement,

most domestic banks still perceive signicant risks in solar

investments. International and bilateral lending institutions

that supported several Phase 1 projects remain interested

in supporting additional projects but want more rigorous

project selection requirements, such as balance sheets and

vetted collateral. Well-structured RPOs, RECs, and innovative

unding mechanisms are opportunities or increasing

investments in solar energy. In short, with major inormation

gaps and potential market ailures, nancial markets will not

automatically warm up to the solar market without strategicinterventions to create a nancing ecosystem.

ke Fidigs for Baabilit

1. Indias high interest rates impede project development,

especially as the costs o solar plants are largely in up-

ront capital. Overseas nancing is more attractive, both

or lower interest rates and or longer-term debt, which

match the longer payback period o solar loans.


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2. Banks have a low comort level with solar investments

because o the lack o inormation available, and need

more data and statistics on project development,

deployment, and perormance. They also need irradiance

measurements rom local settings, which are currently

not recorded.

3. Financial institutions perceive solar energy in India as

a riskier investment because it is a fedgling industry

without a proven track record in meeting commissioning

deadlines, perormance benchmarks, and deliveringpower.

4. RECs represent an opportunity to support the

solar market, but regulators need to strengthen the

mechanisms or trading and enorcement since

uncertainty about enorcement diminishes investor

condence.

5. Capacity building and networking among banks and

other nancial intermediaries are needed to increase

inormation sharing and awareness within the nancial

community. The Ministry o New and Renewable Energy

(MNRE) has initiated activities toward awareness

building and inormation dissemination, but much morecan be done.

ke Recoedatios for Baabilit

1. Regulators should diligently enorce RPO mandates and

the REC market. National and state agencies should

work together closely to ensure eective RPO and REC

systems.

2. With the Reserve Bank o India and the Ministry o

Finance, MNRE should encourage priority sector lending

or large-scale solar projects to help reduce lending

rates to as low as 10 percent and to provide higheremployment potential or downstream solar activities.

3. To provide longer-term debt, the government should

enhance unding mechanisms, including the proposed

Inrastructure Debt Funds. To urther reassure nanciers,

MNRE should share inormation on the payment

security mechanism (PSM) and clariy how the PSM has

been calculated to eectively cover potential deault on

payment.

4. Government agencies and private groups should provide

solar resource and project deployment data as soon

as they become available. MNRE and the Solar Energy

Corporation o India (SECI) should work with developersto establish monitoring and reporting processes that can

be implemented beore Phase 2. SECI should become a

central clearinghouse or all inormation dissemination

relating to the solar ecosystem. A sharing platorm

or improved irradiance data should be created to

disseminate inormation as it is generated.

5. The Solar Advisory Panel and leading nancial

institutions should create a network o solar nance

leaders to develop bank products that support solar

energy. Such a network could work together to syndicate

loans, share inormation, and conduct workshops where

bankers, developers, manuacturers, and entities in

engineering, procurement, and construction (EPC) can

come together to exchange knowledge and experiences

about solar investments.

mAnUFACTURInG: SUPPORTInG A

DOmESTIC InDUSTRySolar cell and module manuacturing oers India a long-

term opportunity to become a major manuacturing player,

accelerate grid-parity, and build a sustainable solar industry.

The Missions Phase 1 domestic content requirement

mandated local manuacturing o crystalline PV modules

or Batch I projects, and both cells and modules or Batch

II projects, while exempting thin lm PV. While most local

stakeholders strongly avor domestic manuacturing policies,

at this stage it seems that the DCR has been only marginally

eective in creating a vibrant domestic manuacturing base.

ke Fidigs for maufacturig1. Phase 1s domestic content requirement has contributed

to shiting the market toward thin lm PV projects due

to their exemption rom the DCR. Fity-percent o Batch

I projects use thin lm and crystalline cells, a larger

proportion than in the global PV market. Batch II projects

use even more thin lm technology, probably because

Batch II requirements or domestic crystalline cell

manuacturing have made lower-priced, imported thin

lm, oten coupled with low-cost international nancing

more attractive to developers.

2. The Phase 1 domestic content requirement as currently

structured has not eectively created the marketconditions or local solar PV manuacturing envisioned

by the NSM. The DCR has not created a level playing

eld. Instead it has contributed to a strong thin lm bias

and has possibly been a detriment to Indian crystalline-

based manuacturing.

3. The Indian solar cell manuacturing system requires

systemic improvements in inrastructure, domestic low-

cost nancing, and raw materials.

4. More than hal the jobs in the solar value chain and value

creation are not in solar manuacturing, nor specically

in cell and module manuacturing. Severe environmental

costs linked to unregulated solar manuacturing alsoexist.

5. A modied DCR could have a positive infuence on

domestic manuacturing i it is technology-neutral and

not overly restrictive.


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ke Recoedatios for maufacturig

1. The central government, with stakeholder input, should

explore whether incentivizing policies with a broader

scope than solely cell and module manuacturing would

capture more value and create more solar jobs within the

Indian context.

2. MNRE should tailor the DCR to be technology-neutral

and market-enabling. MNRE could explore two options:

(a) a DCR requiring that all PV modules be manuactured

in India, uniormly enorced across all PV technologies,

or (b) a DCR speciying that a certain percentage o solar

PV components be manuactured in India.

3. To avoid being restrictive and to lessen the potential

or international controversy or trade disputes, MNRE

could consider incentives other than a DCR, such as a

preerential tari, to promote domestic manuacturing.

4. Manuacturers should strengthen existing networks,

such as SEMI, to explore ways to ease barriers to

manuacturing in India. The manuacturing networks

could develop policy proposals to address natural

resource, nance, and trade limitations.

5. MNRE should work with the Ministry o Environment

and Forests to strengthen environmental saeguards

to ensure that manuacturing can continue to grow

rapidly while protecting community health and the

environment.

EnABLInG EnVIROnmEnT: FACILITATInG

LAnD ACqUISITIOn, PERmITTInG, AnD

POWER EVACUATIOn

One o Phase 1s immediate goals is to create an enabling

environment or solar technology penetration in India.In addition to the broader areas o bankability and

manuacturing, our discussions with stakeholders identied

our main causes or delays in project implementation: land

acquisition issues, concerns with power evacuation, the

lack o eective community involvement, and the lack o a

comprehensive Solar Mission implementation plan.

ke Fidigs for Eablig Eviroet

1. Land acquisition issues, including siting, clearances, and

grid proximity, are delaying projects. Currently, land costs

represent a small share o total project costs and are not

the most signicant barrier to land acquisition. Whilein early stages, solar parks have proved to be eective in

acilitating project development and reducing delays.

2. Several developers and nanciers have identied power

evacuation and access to the grid as issues o concern,

and in their absence, it has been dicult to secure

nancing or projects.

3. Developers are conused about which entity or agency

is responsible or last-mile inrastructure, resulting in

project delays.

4. Actively involving communities in every stage, rom

planning to operation, will strengthen solar energy

projects. Project developers already recognize that

there are co-benets that can be shared with local

communities and that problems can arise i local

communities are not engaged throughout the process.

5. To enable industry progress, developers, banks, and

other stakeholders have identied the need or a long-

term implementation plan that ocuses on the entire

supply chain, investment in research and development,labor orce training, and the provision o sucient and

customized nancial incentives.

ke Recoedatios for Eablig Eviroet

1. The central government should closely and

systematically coordinate with state governments

on project allotment, land acquisition, and project

development, particularly or the larger Phase 2 projects.

Specically, MNRE should work with states to develop

eective land allocation strategies or solar projects,

including strategies to acilitate siting and planning

requirements.

2. MNRE should also collaborate closely with the Ministry

o Power to plan or transmission inrastructure upgrades

within a long-term power planning ramework ocused

on scaling renewable energy.

3. Beore bidding or Phase 2 projects begins, MNRE and

developers should work together to resolve whether last-

mile inrastructure costs should be included in project

estimates.

4. To strengthen solar projects, developers should integrate

local communities at the planning stage through regular

community meetings and engagement.

5. The solar industry should create a network o solar

energy groups ocused on resolving common industry

concerns, interacting with government agencies,

developing solutions or the entire solar supply chain,

investing in research and development, and increasing

the solar energy workorce.

LOOkInG AHEAD: THREE POLICy PRIORITIES

While the Indian government and solar energy stakeholders

have made signicant progress, much more needs to be

done. Implementing three key policy priorities this year

would enable strong growth under the Solar Mission:

Benchmarks, Transparency, and Monitoring: There is an

urgent need to increase the level o inormation available

on the Missions progress. The government should enorce

periodic updates on each projects progress, without which its

project selection process and due diligence will be called into

question. The government should adopt a common denition

o commissioning as well as common benchmarks or

commissioning projects under the state and national


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Missions. Moreover, or nanciers to become more amiliar

with technologies, and or component standards to be closely

monitored, project technology choices need to be transparent.

Finally, irradiance data must be made publicly available to

increase condence and investment in the solar market.

Strategic Financing: Central and state government agencies,

with MNREs leadership, should develop a strategy to

optimize the roles o dierent nancial institutions. As

the market matures, various institutions should leverage

their expertise to grow Indias solar market. For example,certain groups should ocus on providing project nancing,

while others should ocus on disseminating inormation

to the market, and others should ocus on R&D and skill

development. Only when a comprehensive nancing strategy

is in place will dierent nancial interventions (e.g., priority

sector lending, development o the REC market, and the role

o inrastructure debt unds) succeed in scaling solar energy

investments.

Technology-Neutral Manuacturing: To make domestic

manuacturing policies technology-neutral and market-

enabling, MNRE could explore the ollowing options: (a)

a DCR requiring that all PV modules be manuactured in

India, uniormly enorced across all PV technologies; or (b)

a DCR speciying that a certain percentage o the solar PV

components be manuactured in India; or (c) a preerential

incentive to promote domestic manuacturing instead o a

DCR to avoid being restrictive and to lessen international

controversy.The NSM has the potential to transorm Indias energy

sector and help power its rapid economic growth while

building a sustainable uture. India needs continued

government and private sector support, increased

investment in manuacturing, and increased technology

sharing to unleash this potential in the Missions next phase.

This reports recommendations are submitted with a view

toward promoting a comprehensive and strategic approach

to building a robust grid-connected solar industry in India.


12/52


13/52

PAGE 1 |Laig the Foudatio for a Bright Future

II. InTRODUCTIOn

India has entered a dening phase in its development. The country needs energy to uel

economic growth. However, with ossil uels accounting or 70 percent o its primary energy

supply,3 India is constrained by the limits imposed by dependence on imported ossil uels

and the imperative to mitigate greenhouse gas emissions. An accessible and aordable clean

energy source is necessary to power Indias rapidly growing economy and promote low-carbon

energy development.

NATIONAL ACTION PLAN ON CLIMATE CHANGE

n naial Sla Missi

n naial Missi eacd eg ecic

n naial Missi Ssaiabl habia

n naial Wa Missi

n naial Missi Ssaiig himalaa ecssm

n naial Missi a G Idia

n naial Missi Ssaiabl Agicl

n naial Missi Sagic Kwldg Clima Cag

I 2011, Idia gm acd a w missi

im cal la clgis.

NATIONAL ACTION PLAN ON CLIMATE CHANGE

As the country emerges as a global economic powerhouse,

with a growing population expected to reach 1.47 billion by

2030, its energy consumption will increase substantially.4Unortunately, current energy supply cannot keep up with

growing demand. Rolling power cuts rom energy decits

already reach 9 percent in the electricity sector.5 This current

lack o capacity excludes the 400 million Indians who have

no access to modern electricity at all. With rapidly urbanizing

cities demanding more power, renewable energyincluding

solaris critical to provide electricity while reducing

dependence on imported uels and combating climate change.

photovoltaic (PV) panel prices has coincided with the rising

cost o grid power, quickly making solar cost-eective and

shortening the projected timeline to achieve grid parity.8With energy consumption projected to escalate and

domestic energy sources like coal becoming scarcer, India

needs alternative sources o energy to power its growing

needs. As a local, abundant, and inexhaustible resource, solar

energy provides several long-term benets to address the

urgent problems India aces now. With its potential to reduce

reliance on imported and unreliable ossil uels, solar power

is an important part o Indias portolio approach to energy

security.

In addition to its diversication role in Indias energy mix,

solar energy clearly unctions as part o Indias response to

climate change. Solar energy can lower the costs o mitigating

climate change while helping India achieve its voluntary

target o reducing greenhouse gas emissions rom 2005 levels

by 20 to 25 percent by 2020. Solar power has the potential to

eliminate 95 million tons o CO2

emissions annually by 2022.9

As a clean and renewable energy source, solar technology

has other local environmental benets, particularly reducing

smog and air pollution. Indias ground-mounted projects

have limited negative consequences, such as being very

land-intensive. 10

CREATInG A nEW InDUSTRy: jAWAHARLAL

nEHRU nATIOnAL SOLAR mISSIOnDespite its potential, Indias solar power capacity was almost

nonexistent until recently. Creating a new industry, especially

in the energy and electricity sector, is no easy task. Several

questions arise: Should the ocus be on grid-connected or o

grid power? I the ormer, do transmission lines exist in areas

with the maximum potential or generating solar power? And

what policies are needed to encourage deployment? Should

these policies prioritize extending energy access or reducing

electricity costs? How soon could a domestic manuacturing

InDIAS OPPORTUnITy FOR SOLAR EnERGy

With nearly 300 sunny days and high solar radiation in most

regions, India has abundant solar energy potential.6 As the

worlds third-largest energy consumer, and with a surging

middle class, India also provides a unique opportunity

or a thriving solar market.7 The precipitous drop in solar


14/52


industry develop to meet demands? Should India rely on

domestically manuactured solar panels or remain open to

imports? And how would India ensure that imported panels

had consistent and reliable quality? How would the country

balance deployment o existing technologies and research

and development (R&D) o new ones? Under what conditions

would nancial institutions invest in a nascent industry?

What interventions could reduce the cost o capital, and

how would the industry access Indian and oreign sources o

nance? How could the industry acquire land and access toother inrastructure to execute projects on time? Finally, how

can all this happen in a manner that is transparent (to avoid

corruption), fexible (to incorporate cumulative experience),

and predictable (oering policy consistency over a sucient

period to encourage long-term investments)?

Set against these wide-ranging challenges, the MNRE

launched the Mission in January 2010. Announced by Prime

Minister Manmohan Singh in June 2008, it was one o eight

(now nine11) national missions outlined in the National

Action Plan on Climate Change (NAPCC) (see National

Action Plan on Climate Change, above). One o the NAPCCs

aims is to address climate mitigation and adaptation, with

the vision to make Indias economic development energy-ecient.12 In accordance with the NAPCC, the NSM set bold

targets emphasizing grid-connected applications, seeking to

install 20,000 MW o grid-connected solar power and 2,000

MW o o-grid solar power by 2022. Qualiying projects are

selected through a reverse auction procurement mechanism

and are ostensibly technology-neutral, employing either solar

PV or solar thermal technology.

The NSM Mission Document, released by MNRE in

November 2009, sets out the Missions varied targets and

objectives and provides guidelines and policy tools to

achieve these goals.13 The NSMs grid-connected solar energy

targets oer clear benchmarks against which to measure

the Missions progress. The NSM targets have been plannedin three phases (see Table 1). In addition to meeting these

concrete targets, the NSMs guidelines also set out several

diverse objectives with dierent timetables (or, in some cases,

no clear timetable) to achieve them.

TABLE 1: natioal Solar missio Targets 2010 to 2022

SOLAr TECHNOLOGy

PHASE 1

(2010 to 2013)

PHASE 2

(2013 to 2017)

PHASE 3

(2017 to 2022)

Gid-ccd/ 1,000 MW - 2,000 MW 4,000 MW - 10,000 MW 20,000 MW

o-gid sla alicais 200 MW 1,000 MW 2,000 MW

Sla wa cllcs 7 milli sq. ms 15 milli sq. ms 20 milli sq. ms

ral sla las/ ligig n/A n/A 20 milli ssms

Sc: Missi Dcm

DIVERSE OBjECTIVES

The National Solar Mission aims to achieve a wide range

o ambitious objectives, with the overall stated goal o

establish[ing] India as a global leader in solar energy, by

creating the policy conditions or its diusion across the

country as quickly as possible.14 The Mission Documents

objectives consist o both specic goals to be accomplished

within the phased timeline, and broader goals without a

denite deadline.

Phase 1 ocuses on setting up an environment to enable solar

technology penetration at a centralized and decentralized

level.15 Phase 1s guidelines explicitly aim to acilitate

quick implementation o the NSM, while ensuring serious

participation byand enhanced condence inthe selected

project developers. Promoting manuacturing in Indias solar

sector is another Phase 1 goal.

Phase 2 contemplates an aggressive capacity ramp-up to

acilitate competitive solar energy penetration in India. The

guidelines envision scaling up through enorcement o a

mandatory renewable purchase obligation (RPO) or utilities,

backed by a preerential tari.

Phase 3, the nal phase, aims to meet or exceed the end

target o 20,000 MW o grid-connected solar by 2022. Rapid

scaling-up o installation during Phase 3 is anticipated

through the availability o international nance and

technology. The NSM seeks to achieve grid parity by 2022 and

parity with coal-based thermal power by 2030.

The Mission Document anticipates that utility-scale

solar power in India will be driven by the RPOs mandated

or power utilities, with a specic solar energy component.

Generally, the NSM aims to crat a policy and regulatory

environment that provides a predictable incentive structure,

enabling rapid and signicant capital investment in solar

energy applications while encouraging technical innovationand reducing costs. The Mission hopes to accomplish all

o these ambitious objectives through its guidelines and

incentives.

The NSM also aims to transorm India into a solar energy

hub, making it a global leader in low-cost, high-quality

solar manuacturing across the value chain. The Mission

Document envisions creating avorable solar manuacturing


15/52


conditions, particularly or solar thermal or indigenous

production and market leadership. The guidelines target a

4 GW to 5 GW equivalent o installed production capacity

by 2020, including dedicated manuacturing capacities

or polysilicon material to make solar cells amounting to

about 2 GW o generation capacity annually. The key to

accomplishing this goal, according to the Mission Document,

is promoting PV manuacturing plants (including acilities

or the domestic manuacture o silicon material), thereby

reducing dependence on imports o raw materials.The Mission also highlights a major R&D initiative to

promote technology development and cost reduction. The

top priorities o this program include improving eciencies

in existing materials and applications, reducing costs o

solar systems, and establishing new applications that

improve integration. Rather than locking into specic solar

technologies, the Mission states that it is neutral, allowing

market conditions to determine technology.16

SOWInG THE SEEDS TO GROW SOLAR?

The NSMs role is perhaps best understood as sowing the

seeds o a new industry and nurturing the early stages o itsgrowth. Its many objectives operate according to dierent

timelines and a dynamic set o guidelines. Some objectives

(such as establishing the rst 1,000 MW o capacity) may be

met more quickly than others (developing a manuacturing

base or broadening nancial sector involvement). Some

objectives may be open-ended bets on the uture, like

technology development, where the role o the NSM (and

MNRE) might be airly small compared with other parts o

government and industry.

The success o the Mission, measured against multiple

objectives, is also contingent on coordination among existing

and new institutions. The NSM is overseen and implemented

by MNRE. The NTPC Vidyut Vyapar Nigam (NVVN)17 enters

into 25-year power purchase agreements (PPAs) to procure

power rom project developers and supply an allocated

amount o MW capacity to the utilities. MNRE and NVVN also

manage a payment guarantee und to insure NVVN against

losses, should the power remain unsold or the buyer deault

on payments.18 The Indian Renewable Energy Development

Agency (IREDA), a public limited government company that

operates as MNREs nancial arm, nances solar PV projects.

Most recently, the Solar Energy Corporation o India (SECI)

was created to serve as the executing arm o the NSM.

Has the NSM perormed according to plan? Are thenumerous objectives and multiple timelines internally

consistent, or do they place an undue burden on a single

Mission? In act, can so many objectives (installing capacity,

reducing costs, creating a manuacturing hub, encouraging

R&D, balancing grid and o-grid projects) be achieved

through a single policy ramework? This report has been

prepared to address these questions.

Focusing on grid-connected solar power, the report

adopts a comprehensive approach to identiy all the

moving parts and multiple actors and institutions operating

within the Mission.19 It analyzes how each component o

the solar ecosystem has perormed and what conditions

enhance or impede chances o success. For eachaspectsetting up projects, increasing their bankability,

developing a manuacturing base, and creating an enabling

environmentthe report identies issues acing key

stakeholders, analyzes what role the NSM has played in lling

existing gaps, and oers recommendations or improving

implementation in subsequent phases. In doing so, we draw

upon examples rom other state missions within India as

well as solar programs in other countries. The success o

Indias solar endeavor not only matters or its energy security

and environmental imperatives, but also could oer lessons

or other countries seeking to scale up access to clean,

aordable, and sustainable energy to millions o people

worldwide.


16/52


III. STAkEHOLDERS: nEED FOR A SOLAR ECOSySTEm

Realizing the Missions objectives or a vibrant solar sector depends on a robust solarecosystem in India. A solar ecosystem reers to the entire environment, conditions, and

stakeholders through which solar energy is created, purchased, and used. A successul solar

ecosystem is dependent on the collective eectiveness and coordination among these stakeholders

and can be arranged into the ollowing three levels: the strategic policy level, the project level, and

the supporting environment (see Figure 1).

STRATEGIC

LEVEL

SUPPOSTING

ENVIR

ONMENT

PROJECT

LEVEL

NATIONAL SOLAR MISSIONe.g.

MNRE MOP

NVVN NTPC

IREDA

VARIOUS STATE POLICIESe.g.

Gujarat Karnataka

Rajasthan Tamil Nadu

NON-NSM NATIONALPOLICIESe.g.

RPOs RECs

DEVELOPERSe.g. Azure Power Green Infra Kiran Mahindra Welspun Solar

EPCse.g. Lanco Infratech Mahindra EPC Shriram Punj Lloyd

Tata BP Solar

FINANCIERSe.g. Axis Bank Bank of Baroda ICICI State Bank of India U.S. Ex-Im Bank

OPIC

FIGURE 1: A successful solar ecosystem depends on the effectiveness of various individual

enablers and stakeholders and coordination among these

PROJECT IMPLEMENTATION (bidding, selection, financing, commissioning, monitoring)

BROADER ENABLING ENVIRONMENT (infrastructure, policies, industry network)

RESEARCH AND DEVELOPMENT

COMMUNITIES

MANUFACTURERS (solar PV, balance of system) Domestic: e.g., Moser Baer, PLG Power, Tata BP Solar, Websol, EMMVEE

Various international


17/52


STRATEGIC LEVEL

Without a policy ramework that is transparent, long-term,

and credible, it is unlikely that a nascent industry will attractthe level o investment commensurate with its scale o

ambition. This is the most important role or a national-level

mission: bringing together dierent aspects and various

actors in the solar ecosystem under a single umbrella. Thus,

the ollowing top-down policies and strategies are being

implemented to create and shape the demand or solar power

in India and to promote the growth o the nascent Indian

solar industry:

n National Solar Mission (see Table 2);20

n State policies, which could either complement the

Mission or oer alternative policy designs or project

developers to choose rom;21 and

n Non-NSM national policies, particularly Renewable

Purchase Obligations (RPOs) and Renewable Energy

Certicates (RECs).22

PROjECT LEVEL

The overarching strategies translate into particular policy

tools at an individual project level. These policy tools govern

the project implementation process, which requires the

ollowing key project stakeholders to work in unison:

n

Project developers,who bid or projects under theNSM and, i successul, are primarily responsible or

commissioning projects on time to supply the committed

amount o solar-generated electricity into the grid;

n Engineering, procurement, and construction (EPC)

contractors, implement projects or developers and have

expertise building projects and understanding the on-

the-ground challenges aecting project completion; and

n Financiers, including Indian commercial banks, Indian

nonbanking nancial institutions, and international

TABLE 2: natioal Solar missio Solar Proect Process

PrOCESS STEP TIMING DESCrIPTION

Sliciai Da 1 Mnre ad nvvn qs bids m c dls.

Biddig Da 1 + 30 das pc dl sbmis bid, wic dgs iiial scig s i ms cical ciia.

Slci Da 1 + 120 dasMnre ad nvvn cs cicall qalid bids g s aci mcaism basd lws-icd

bids, slcig wiig cs il aailabl MW caaci is alld.

eig LoI Da 1 + 135 das Mnre ad nvvn iss l i (LoI) wii 15 das slci.

Sigig ppA LoI + 30 das nvvn sigs w cas agm (ppA) wi c dl.

Fiacig ppA + 180 das pc dl scs c acig, icall wi acial isii, b acial cls dadli.

Cmmissiig* ppA + 365 daspc dl ms dc sla w b cmmissiig dadli, aig al s nvvn dlas

6 ms, a wic im ppA is miad.

Miig ogig nvvn mis c s a w cmmims a m.

* t cmmissiig ssibili ma b asd epC cacs, ddig ms bilaal cacs.

unding channels (e.g., government-promoted unds,

multilateral development banks, and public-private

unds).23

These entities provide dierent types onancial capital (e.g., debt, loan guarantees, and risk

insurance) to commission the solar plant (oten in

addition to a developers equity contribution).24

SUPPORTInG EnVIROnmEnT

The supporting environment encompasses all other

players and policies that help acilitate the successul

implementation o the solar project. This level includes:

communities, without whose active engagement and

involvement the projects risk losing legitimacy or acing

challenges during the implementation and operation phases;

accommodating inrastructure, such as available land and

access to the grid (including operational substations); and

the ollowing key supporting stakeholders and components:

n Manuacturers, which provide solar equipment to

developers and EPC contractors, and whose solar

components or raw materials are either supplied

domestically or imported;25

n Research and Development programs, which extend

across the entire solar value chain and cover both

product and process innovations, rom new technologies

to manuacture, and rom installation to power plant

operation;26 and

n Broader enabling government policies, which acilitate

the creation o a supportive solar environment on both

national and state levels.27

All o these policies and key stakeholders enable Indias solar

market to get o the ground. In subsequent sections, this

report discusses how these policies and stakeholders have

ared during Phase 1 o the NSM and considers possible

improvements to a suite o policies to acilitate a smoother

roll-out and scaling-up o solar projects.


18/52


The immediate aim o the Mission is to ocus on setting up an enabling

environment or solar technology penetration in the country both at a

centralized and decentralized level.

jnnSM Missi DcmOFF-GrID SOLAr POWEr IN rUrAL INDIA

tg Mnres gig m illag lcicai gam,

nSM aims id sla ligig ssms 10,000 illags

ad amls g a 90 c sbsid. Sad-al al sla

w las will als b sablisd. t nSM als ais

fxibili csid a 30% caial sbsid m sla

gs iai alicais, lik wig scl cms

ad milk-cillig las.

As 2010, 40 c Idias lai lackd gid-

ccd lcici. nw, m al illags a a

i ci cmical -gid sla g w

gid ai is asibl cs-ci.

o-gid sla gs adaags icld:

n Imd accss g scs

n Adabili

n Adaabili

n eas isallai ad maiac

o-gid sla w is cl a missd i ad

gm, icldig Mnre, ds d m m -

gid alicais i al Idia.

IV. PHASE 1 OF THE nATIOnAL SOLAR mISSIOn:BUILDInG SOLAR InDIA

As the rst stage o the Solar Mission, Phase 1 is vital to

creating a solid oundation or Indias solar energy market.As the Mission Document states, the ambitious target

or 2022 o 20,000 MW or more will be dependent on the

learning o the rst two phases, which, i successul, could

lead to conditions o grid-competitive solar power.28 MNRE

explicitly built in fexibility so that the Missions approach

would evolve in response to lessons learned during the rst

phase, contributing to the overall success o the Misson.

Phase 1 aims to ramp up grid-connected solar energy

to 1,100 MW by 2013 with 500 MW o PV, 500 MW o

concentrated solar thermal and 100 MW o rootop PV.29

When Phase 1 began, many viewed the Missions goals as

overly ambitious, especially since India had little solar PV

and no solar thermal projects in 2010.30 Two-thirds o the

way into Phase 1, Indias grid-connected solar energy market

has grown tremendously, with an increased number o

developers, lower prices, and interested nancial institutions.

Indias solar energy market grew rom 17.8 MW in early 2010

to 506.9 MW cumulative installed capacity as o March 26,

2012.31 O this capacity, 203.4 MW was commissioned under

the National Solar Mission and other central government

schemes. Another 303.5 MW was deployed under initiatives

o various states. Despite this early success, as Phase 1 enters

its nal year, the Mission is experiencing the pains and

stumbling blocks o ast-paced growth. As Phase 1 concludes,

eective government policies, backed by sucient resources,are essential to creating a robust solar energy market.

Looking ahead, Phase 1 oers important lessons or Phase 2.

OFF-GrID SOLAr POWEr IN rUrAL INDIA


19/52


PHASE 1 PROjECT AnALySIS AnD

DISCUSSIOn

Phase 1 o the Mission has ocused largely on grid-connected

projects thus ar. To achieve 500 MW o PV and 500 MW

o concentrated solar thermal, the central government

conducted two batches o reverse auctions. These bidding

processes oer eed-in taris and long-term PPAs to

the selected least-cost developers. The eed-in taris to

developers are complemented by support to power utilities

through the bundling o solar power with conventionally

produced electricity, reducing the average per-unit cost o

solar power (see Figure 3).

TABLE 3: natioal Solar missio Phase 1

BATCHSPECIFICATIONS

ALLOCATIONSUNDEr BATCH I(2010 to 2011)

ALLOCATIONSUNDEr BATCH II(2011 to 2012)

tal caaci gid-ccd slacs slcd

150 MW (pv)

470 MW (sla mal)

84 MW (migad)

350 MW (pv)

Maximm sizallm

5 MW c &bidd (pv)

100 MW c &bidd (sla mal)

20 MW c (pv)

50 MW bidd (pv)

FIGUrE 2: Raastha ad Guarat, which are edowed with the highest irradiatio, ledPhase 1 istallatios

Sc: SlaGIS; vais s cmig sla isallais

rAJASTHANBac 1Allcad: pv - 100 MW, St - 400 MW

Bac 2Allcad: pv - 295 MW

GUJArATBac 1Allcad: St - 20 MW

Bac 2Allcad: n/A

MAHArASHTrABac 1Allcad: pv - 5 MW


KArNATAKABac 1

Allcad: pv - 5 MWBac 2Allcad: n/A

ANDHrA PrADESHBac 1Allcad: pv - 15 MW, St - 50 MW


ODISHABac 1Allcad: pv - 5 MW

Bac 2Allcad: n/A

TAMIL NADU



UTTAr PrADESHBac 1Allcad: pv - 5 MW

Bac 2Allcad: n/A

pv = laic

St = sla mal


20/52


1. Reverse Auctios: Levelig the Plaig Field

For both batches o Phase 1, the Indian government used

the reverse auction as a price discovery mechanism. Reverse

auctions have two main benets. They allow government

procurers to select projects based on lowest cost (thereby

keeping the burden on scal resources and taxpayers low),

and they ensure that a price-based selection process will be

transparent and air. The government made a substantial

eort to ensure transparency in Phase 1s project allocations,

since any accusation o corruption in the bidding and projectselection process could jeopardize the entire program while

still in its inancy. Project developers then bid on discounted

taris set by the Central Electricity Regulatory Commission

(CERC). A 5 MW parcel-size requirement or Batch I and

20 MW maximum parcel-size requirement or Batch II

opened the market or a broad range o companies to enter

the sectoras long as they met the criteria set out in the

guidelines (see Batch I Selected Project Developers, below).

The government kept project sizes small to encourage more

entities to take advantage o the opportunity rather than lock

in a ew rms as dominant players at this early stage o the

industry. Some large players participated to diversiy their

portolios by investing in solar energy, while some smaller

entrepreneurs made successul bids to capitalize on the

emerging solar market.

While largely praised, the reverse auction has also been

criticized. Some conservative stakeholders have disparaged

the reverse auction as driving prices so low that some

projects are hal-baked in terms o nancing and due

diligence, resulting in nancially unviable projects. The

reverse auction process has also been criticized or not

adequately vetting bidders, since the eligibility criteria

simply required that bidders have a minimum net worth

o`150 million (about $3 million).32 The resulting selection

o some inexperienced, small developers quoting veryaggressive prices has caused ears that many projects may

BATCH I SELECTED PrOJECT DEVELOPErS

Lag ad small dls mgd dig biddig css,icldig llwig slcd Bac I pv awads: Az pw,riwik pcs, Saisdi eg, Wls Sla, Casal pcsLimid, Kaaaka pw Cai, Caml eiss, AlxSla pia, Alx Scm radiai, Baska G pw, DDerwabl eg, elcmc Maic, Fi Allid eg,Gc pw, Idia oil Cai, Kaa Sla pcs,nw Sla, Maaasa Samlss Limid, Maida Sla

o, nws eg, oswal Wll Mills, p Lld, Saidamosas pia Limid, via rwabls eg, Sedis,vasai Sla pw, Ami eg, CCCL Iascs, elcicalMaacig Cma, ad pcisi tcik.

Cmais awadd Bac I sla mal cs i pas 1icldd: Mga egiig, Am rwabl eg, IsaAlls, Gdawai pw & Isa, KvK eg, raasa Stciq eg, ad Lac Iac.

not be commissioned (although, in the rst quarter o2012, several projects have come on-stream ater delays).

Conversely, inadequate vetting and monitoring have also led to

accusations that large companies such as Lanco Inratech have

exploited the guidelines and may corner a signicant market

share o NSM projects.33

2. EPC Cotractors Eergig as Cetral Plaers

In Phase 1, the EPC contractors have risen as a central orce

in the emerging solar energy market. Project developers

with limited experience in the solar market have relied

heavily on their EPC contractors to support their projects

with potentially unsustainable bid prices. The role o anEPC can cut both ways. On one hand, EPCs have experience

executing projects, and the more experience they gain,

the urther marginal costs o installing additional projects

could be reduced. But too much reliance on an EPC can

also blur the distinction between the project developer, who

holds ultimate responsibility or producing solar electricity,

and the contractor. Projects should ultimately be selected

ater due diligence on both developers and associated EPC

contractors; their separate capabilities and responsibilities

have to be judged on their own merits, and they must be held

accountable on those terms. The bidding process or Phase

1 has delivered on some requirements or transparency, but

this is an area that needs attention in coming phases.

3. maret Cosolidatio

Phase 1 is also a mechanism to test and evaluate the

perormance o project developers, giving experienced

entities a chance to prove their track record and allowing

many domestic and oreign developers to enter the Indian

solar market. One Indian developer predicted that although

the solar energy market had immense growth potential, it

5 MW gid-ccd sla laic la il dld bSedis ad Az pw, isalld i Dama illag, padi talk,Sdaaga, Gaa.

C R E D I T S U N E D I S O N

BATCH I SELECTED PrOJECT DEVELOPErS


21/52


was likely to consolidate 8 to 10 primary developers. The

signicantly lower number o companies participating in

Batch II bidding, as compared to Batch I, is an early sign o

such consolidation.34

The experience o other solar markets, like Caliornia,

suggests that consolidation is a sign o a maturing industry.

In India, companies such as Welspun, Azure Power, Mahindra

Solar, and Lanco Inratech are starting to dominate the solar

market. While the Batch II 50-MW limit per project developer

remains a low threshold or a growing market, consolidationo companies is likely to continue as the market matures.

4. Iterpla Betwee the nSm

Phase 1 ad State Proects

Clearly, it is not just the National Solar Mission that is driving

the solar industry; state-level programs are having an impact

as well. As Phase 1 bidding was under way, several states

launched their own solar energy programs. For example,

Welspun began new projects under Gujarats policy and also

competed or Karnatakas allotments. Similarly, Azure Power

has a 2 MW solar power plant under operation in Punjab, and

MAHAGENCO is working to commission a 150 MW plant in

Maharashtra.35 Valuable experience and scale rom multiple

projects are giving these bidders the condence to bid low

and yet be protable. The central government coordinated

with several states during Phase 1, but increased coordination

will be needed given the scale o Phase 2 projects.

PHASE 1S TIERED APPROACH

The NSMs phased timeline, divided urther into batches

o selected projects, manages the pace o the Mission in a

sustainable way while accomplishing interim targets. Both

batches o Phase 1 were considered initial successes or the

Mission, but it is too early to determine whether individualselected projects can claim success.

1. Batch I Proects: Boostig Solar Eerg

During the reverse auction process or Batch I, 36 projects

were selected, with nearly 400 developers bidding in late

2010.36 A total o 140 MW were allocated to 28 PV projects

and nearly 470 MW to seven solar thermal projects.37 The

Indian government also migrated existing solar projects

to count toward the Solar Mission, at a premium tari o

`17.91/kWh ($0.45/kWh), providing an additional 84 MW o

capacity. The Indian government started the reverse auction

price at `17.91/kWh ($0.45/kWh). The lowest bid price was`12/kWh ($0.32/kWh). Since two PV projects ailed to meet

NVVN requirements, they were withdrawn rom the process.

Nineteen o the Batch I PV projects are located in Rajasthan;

the others are in Gujarat, Maharashtra, Karnataka, Tamil

Nadu, Andhra Pradesh, Odisha, and Uttar Pradesh.

Although stakeholders complimented the reverse auction

or its transparency, major challenges and delays are aecting

the commissioning o Batch I projects (see Bankability,

Manuacturing, and Enabling Environment sections). The

grid-connected solar PV projects selected or Batch I were

due or completion by January 2012. By early 2012, the

Indian government had ned 14 PV project developers or

ailing to meet their commissioning deadlines and warned

another 14.38 By late March, 100 MW o PV projects were

considered commissioned and the remainder were expected

to be commissioned in April 2012.39 As the Mission moves

orward, compliance with deadlines will be a main ocus,

both to ensure that India actually meets its solar targetsand to maintain the credibility o the governments policies,

guidelines, and enorcement capabilities.

2. Batch II Proects: Approachig Grid Parit

Indias Batch II reverse auction sent ripples through

international solar markets. The lowest winning bid, by the

French company SolaireDirect, was `7.49/kWh ($0.15/kWh)

or a 5 MW plant.40 This price was impressively lower than

many markets had predicted, suggesting that solar energy

could attain grid parity with traditional energy sources

sooner than initially anticipated. Current Indian grid power

prices in the top energy-consuming Indian states range rom

approximately`3.90/kWh ($0.08/kWh) in Andhra Pradesh

to `5.90/kWh ($0.12/kWh) in Rajasthan, with a nationwide

average o`4.70/kWh ($0.09/kWh).41 Commercial and

industrial power prices are generally higher, making the

lowest winning bid o`7.49 ($0.15/kWh) tantalizingly close

to the higher-end grid power pricejust about `1.60/kWh

($0.03/kWh) short o grid parity and at parity with diesel.42

Batch IIs progress toward grid parity was highly praised

during stakeholder conversations with the government,

industry, and civil society groups.

Batch II awarded contracts to 22 companies with 27 total

winning bids.43 Welspun Energy, Azure Power, Mahindra,

Green Inra and Jakson Power won multiple projects, withWelspun securing the maximum 50 MW o allotment or a

single company. Green Inra and Mahindra secured 40 and

30 MW, respectively. All but three o the winning Batch II bids

are or projects located in Rajasthan. The other three are in

Tamil Nadu, Maharashtra, and Andhra Pradesh.

While larger companies, such as Reliance, did not

participate as aggressively as expected during Batch II,

some o these companies are undertaking big projects

through state-level programs, such as Reliances 40 MW

Dahanu Power project in Jaisalmer, Rajasthan. The NSM has

created momentum at both the national and state levels, as

demonstrated by alling prices at the state level. For example,

the Odisha Renewable Energy Development Agency (OREDA)selected a project with the lowest bidding price in the

country in February 2012.44 Some argue these state-level solar

programs are more protable than the national program

due to higher eed-in taris and other state-level incentives.

However, developers typically have more payment certainty

through NVVN under the NSM.


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ke Fidigs Fro Phase 1

As part o our assessment and analysis, CEEW and NRDC

conducted several individual and group stakeholder

discussions about experiences rom Phase 1 o the Mission.

Stakeholders included central government ocials,

developers, domestic banks, international nancial and

governmental groups, manuacturers, and community

members. In later sections, this report presents in-depth

analysis o bankability, manuacturing, and land use. Key

ndings highlighted by stakeholders during Phase 1 o theMission include:

n The sophistication o solar energy stakeholders

is increasing. However, a much greater degree o

coordinated stakeholder action is needed to unleash the

solar energy markets potential.

n As an overarching policy ramework, the NSM aims

to increase deployed capacity, enorce regulatory

obligations or using renewable energy, create a

manuacturing hub in India, and promote R&D or new

solar technologies. These objectives will be achieved in

dierent time rames and thereore should be correctly

prioritized by the central government.

n Inrastructure, policy, and market conditions are shaping

Indias solar market dierently rom other solar markets.

Unique attributes include the prevalence o ground-

mounted solar parks, thin lm PV technology used in

more than hal the projects, and low bid prices that make

grid parity possible in the near uture.

n Overall, stakeholders viewed the reverse auction bidding

process as transparent and successul in driving down

prices. However, nancial institutions, civil society

groups, and some developers suggested that in order

to draw serious players with an ability to ensure project

completion, and attract nancing, project selectioncriteria should be more rigorous. Moreover, or the

Mission to remain credible, nancial due diligence

and continuous monitoring are needed to ensure that

commissioned projects are operational at contracted

capacity and generating solar power that is transmitted

to the grid.

n Indian bankers still perceive signicant risks in

the solar energy market and are largely hesitant to

make substantial investments in solar technologies.

International lenders, less risk-averse on the technology

ront, oer lower interest rates but remain skeptical

about project completion. To bolster condence amongnanciers, a range o unding channels, nancial

institutions, and other stakeholders must coordinate at

program and project levels and provide ancillary support,

such as R&D and skill development, to help the solar

market mature.

n State policies have contributed to boosting solar

projects in the past two years, especially in Gujarat and

Rajasthan. For Phase 2, the central government needs

to increase collaboration with states to acilitate RPO

and REC compliance, project bidding, nancing, power

evacuation, transmission, and land acquisition.

n While the domestic content requirement (DCR) has

garnered international attention and raised concerns

among some oreign stakeholders, most developers do

not identiy it as a major barrier to project development.The case or a robust domestic manuacturing base

rests on multiple objectives: energy security, technology

development, energy access, ensuring product standards

attracting oreign investment, and creating jobs. Even so,

many manuacturers expressed the view that the DCR,

as currently structured, is not suciently stimulating

local manuacturing. Manuacturers ace other systemic

limitations, such as poor inrastructure, lack o raw

materials, an undeveloped supply chain, and lack o

nancing.

n Many developers have aced diculties in obtaining

clearances to convert land use or solar projectdevelopment and encountered claims by other parties

to government-allocated land. In terms o inrastructure,

some developers have experienced diculties with

power evacuation and transmission lines to substations.

Limited availability o skilled labor also remains a barrier

to wide-scale project development.

n To protect local interests and the environment,

developers and government agencies need to increase

community involvement in the decision-making process,

rom project planning to operations.

n All stakeholders agree that while Phase 1 ocuses on

grid-connected projects, o-grid solar energy providesan even larger opportunity. They state urther that

stakeholders should work collectively to develop both

public and private strategies or large-scale deployment

o o-grid projects.


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India is one o the worlds leading countries in installed

renewable energy capacity and as a destination or renewable

energy investments. In 2011 alone, approximately`51,000crore ($10.3 billion)45 was invested in the Indian renewable

energy sector, more than one-third o it in solar projects.

However, much greater investments are needed to meet

Indias ull potential. Sucient and timely mobilization o

unds is undamental to scaling solar energy in India. Despite

increased understanding o the solar industry within pockets

o Indias conservative nance sector, commercial banks

continue to perceive signicant risk in solar investments and

have not yet embraced solar as a mainstream investment

opportunity.

For Phase 1, project developers were required to achieve

nancial closure within 180 days ater signing a PPA with

NVVN. Arranging nancing or projects rom external

sources presented some challenges. Nonetheless, developers

achieved their nancing goals, accessing domestic and

overseas unds and using their own company equity.

Equity nancing might have helped to meet the relatively

small scale o investment or Phase 1, but it cannot

underwrite the targets or Phase 2. It is estimated that up to

`100,000 crore ($20 billion)46 will be required to reach Phase

2 implementation targets. Despite high levels o interest

and invested unds, the challenge is to utilize government-

supported schemes like the NSM to continue building

condence in the market and to acilitate the use o a variety

o nancing arrangements to meet requirements. Phase 2 willrequire an active governmental role to give nancial players

the condence to invest in solar projects.

Engaging Indias nancial sector in the National Solar Mission

is important or three main reasons:

n To help get Phase 1 projects o the ground and send

a strong signal about the potential or a broader solar

market;

V. BAnkABILITy: FInAnCInG SOLAR

EnERGy PROjECTS

Banks are still not well versed in providing loans or solar projects. They

need to see a track record o delivery, and as yet there are not enough data

or them to make decisions comortably.

pc dl, nmb 2011n To develop condence that unds are available to support

scaling up the Mission; and

n To provide support or the overall solar ecosystem, butespecially to support the development o manuacturing

in India.

CURREnT FInAnCInG ISSUES: PERCEIVInG

mAny TyPES OF RISkS

Financial institutions identiy several characteristics o the

solar industry that are preventing NSM-supported projects

rom securing domestic nancing, including these:

n Solar energy is a new sector and technology in India;

n High up-ront costs result in a longer payback period;

n High domestic interest rates make overseas nancing

more attractive; and

n Uncertainty about the payment ability o nancially

distressed Discoms makes banks reluctant to lend to

solar projects.

1. New Sector and Technology: Indias solar energy market

grew rom 17.8 MW in early 2010 to more than 506.9 MW

cumulative installed capacity in March 2012.47 However,

given the early stage o the industry in India, this has not

yet translated into a track record o deployment. Banks

have expressed discomort with investing in unprovenindustries such as solar. Inormational gaps and

awareness issues exacerbating these perceived risks are

discussed below.


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Non-recourse nancing is the preerred

nancing structure, where the lending

institutions would provide debt to a special

purpose vehicle set up or the project, and

would have a lien on the projects cash

fow. However, as this structure does not

provide recourse to the developers balance

sheet, banks require rock solid agreements

or revenues rom the projects.

State Bank o India ofcial, Business Standard,

August 201048

2. High Up-ront Capital Costs: The up-ront capital cost o

a solar plant means interest rates have a signicant impact

on a projects total cost.

49

Despite lower recurring costs(and zero uel costs), the high up-ront capital expenditure

means projects nancial returns on investmen