ABSTRACT-

PUBLIC POLICIES AND MARKET CREATION: THE CASE

OF THE GANDHINAGAR 5 MW ROOFTOP PROGRAMME

INTRODUCTION:
India is in a phase of rapid economic development with an annual growth rate of 7.4% (Bank,
GDP Growth, 2014) which places it on 15th position among the fastest growing economies of
the world (Fund, 2015). For development of a nation whether economic or social, energy sector
plays a crucial role. Considering this, the energy demand is expected to rise by 3.1% from 2009
to 2035 more than double the world energy demand during the same period (Sun-Joo Ahn,
Understanding Energy Challenges in India, 2012). Scarcity of energy production can prove to
be a big hurdle for the economic development of a nation, this is because that sources of energy
for example electricity becomes a vital input for undertaking manufacturing activities and thus
it is crucial for industrial development of the nation; and apart from manufacturing with
increasing population the demand for electricity supply is on a constant rise. It is now that
supply of power (electricity) has also become a basic need for survival.
The requirement of continuous power supply to keep up the increasing growth rate is necessary
but because of increasing scarcity of conventional sources of energy like coal and gas and with
the resultant pollution that these sources emit, not only India but other countries in the world
are switching to more sustainable energy source for power generation.
In discussions on sustainable energy sources solar energy 1 emerges as one of the most
sustainable energy source as it does nearly no harm to the environment and is availab le
abundantly all over the world and thus it is possible to harness this source easily. India has
tremendous potential for employing solar energy for power generation which is around 5000
trillion kWh (kilowatt-hour) per year. India receives an annual radiation of around 1200-1300
kWh per square meter and it is available for 250-300 days in a years. According to a study
India can meet the entire nations power demand by utilising an area of 3000 km2 which will
comprise of only 0.1% of the total landmass by setting up solar power generation infrastr uc ture
(Karan, K.Pandey, A.K.Jain, & Nandan, 2014).
These promising figures show a sign of the tremendous potential for harnessing solar energy,
but as agreed by expert in the field of solar energy (Altenburg & Engelmeier, Boosting solar
investment with limited subsidies: Rent management, 2013), (Gevorg Sargsyan, 2011),
(Atreyesh & Murthy, 2014) this technology is not yet competitive as against conventio na l
sources of energy in terms of cost of generation of power. Thus in order to make this socially
acceptable source of energy economical so that it can compete with other sources of energy in
terms of price, it is necessary to create a market for solar energy sector so as to attract
investment in setting up power stations, increasing R & D in the sector which will gradually
bring down the cost of energy production. For this it is necessary to create policies that promote
solar energy and allow investors to reap profits from solar power generation.
1

Solar energy is the energy coming from the sun in the form of solar radiation for heat or to generate electricity. (Ojha,
Gaur, Kumar, & Singh, 2014)

It is in consideration of these above stated arguments I attempt to establish the importance of

creation of market for solar energy and also the need of policies that promote the expansion of
market to further sustain and expand the solar energy market. For this I have taken the case of
Gandhinagar 5 MW rooftop initiative in the state of Gujarat and analysed the factors that led
to successful implementation of the programme and thus enabled creation of market by
conducting a stakeholders analysis.

RESEARCH OBJECTIVES:
The following forms the objective for the research project:
1. To conduct a socio-economic survey of the different stakeholders (Governme nt
agencies, developers, rooftop owners and distribution licensee) involved in the 5 MW
Gandhinagar Photovoltaic Rooftop Programme.
2. To understand the institutional architecture of the policy and understand the factors that
contributed to the successful implementation of the policy.

RATIONALE:
Solar energy is a socially acceptable source of energy as it does not harm the environme nt
while generating electricity thereby reducing carbon emission into the atmosphere, it is also
capable of solving the issue of regional imbalance in terms of power supply to areas that are
un-electrified and setting up a grid to those areas is virtually impossible, also it being a
perennial source of energy that is abundantly available therefore there is no issue of it
exhausting in the future as compared to coal and natural gas which are swiftly exhausting
leading to a lot of its import within the country and thereby punching a hole in the country
balance of payments.
Though it is socially acceptable, it is not economically viable in term of unit cost of power
production considering the high upfront cost for setting up a power plant, the cost of generatio n
of power through the solar modules and conversion and storage of power for making
environmentally sustainable technology like solar energy to become competitive in comparison
to conventional sources of energy, scholars (Altenburg & Engelmeier, Boosting solar
investment with limited subsidies: Rent management, 2013), (Eisen, 2012), (Sun-Joo Ahn,
Understanding Energy Challenges in India: Policies, Players and Issues, 2012) have
unanimously agreed that a strong policy base that promotes investment in the sector in fields
of research and development (R & D) and power generation is necessary, policies that promotes
deployment of solar power generation capacity by creating policy rents (Altenburg &
Engelmeier, Boosting solar investment with limited subsidies: Rent management, 2013) will
attract more investment into the sector, where by policy rents the author means that farming
such policies that can provide the resource owner the payment that are above the payment that
he shall get for using the same resources in next best alternative . Thus it is logical to infer that
a policy strong or weak is bound to impact the commercialization process of solar energy.
In relation to this the study intends to understand how the policy, its related institutio na l
structure can affect the market creation process for solar energy sector. This has been studied
through a case study of the city of Gandhinagar where a total of 5 MW of power was generated

through means of solar energy on gross metering2 basis. Through the entire study an attempt
to understand the institutional structure, the interaction between various stakeholder and the
outcome of the interaction has been explored, an attempt to understand the impact of the
programme on various stakeholder like government organisations, private solar power
generation, customers have also been made.

METHODOLOGY:
The purpose of the study is to understand how the policy, its related institutional structure can
affect the market creation process for solar energy sector. This has been studied through a case
study of the city of Gandhinagar where a total of 5 MW of power was generated through means
of solar energy on gross metering basis. Through the entire study an attempt to understand the
institutional structure, the interaction between various stakeholder and the outcome of the
interaction has been explored, an attempt to understand the impact of the programme on various
stakeholder like government organisations, private solar power generation, customers have also
been made.
For the data collection relating to the above mentioned research question the method of
Interview with the consumer that have provided their roofs of lease to solar power generatio n
company has been used, the sample size for the interview of the consumers is 20 and the method
of selection of sample is random sampling which has been divided into two groups of 10
consumer in each group where one group is of the consumers are under contractual obligatio n
with Azure power whereas the second group of consumers are under contractual obligatio n
with Sunedison. With an objective to understand how the interest of other stakeholder has been
taken care off, discussions regarding to understand the nuances of the programme has been
undertaken with government departments like Gujarat Energy Research and Manageme nt
Institute and with non-governmental organisation which include discussions with executive of
International Finance corporation that acted as the transaction advisor of the programme,
discussions with executive of Azure power and Sunedison that are the two companies that have
been allotted the contract of setting up the solar panels on rooftops and generate power and
with Torrent power that is the solar off-taker under the programme. For the purpose of
discussion the selection of sample has been by following snowball sampling technique.
The questionnaire used for interview of the consumers is a semi-structured questionna ire,
where a few broad questions to be discussed have been mentioned in the questionnaire and
further on the basis of response of the consumers that are recorded further questions have been
asked to the consumers. In order to carry out the discussions with the above mentio ned
governmental and non-governmental organisations the method of unstructured questionna ire
has been followed, in the questionnaire major head to be discussed have been mentioned and
as the discussion develops further questions have been asked.

When the cumulative power generated from the s olar rooftop installation is fed into the grid without consuming any of it,
a nd the consumption of the household is still done from main grid. Thus the payment received for gross amount of electricity
fed i nto the grid is called gross metering. (Bhattacharjee, 2015)

SCHEMATIC MAP:
R EVIEW OF LITERATURE
In the section of the review of literature, the main argument that has been attempted to be
discussed is that in order to achieve large scale deployment of the solar energy in generatio n
of power and for the development of the solar energy sector which not only includes power
generation but also manufacturing of solar modules it is necessary to develop the solar energy
market and for the development of the same support of government market promoting policies
is necessary.
The section of review of literature in order to substantiate the main argument also discusses
about the need for the development of solar energy in Indian context arguing in terms for
Indias large solar energy potential and the potential of solar energy for ensuring reduction of
the electricity supply deficit and resolving the regional inequality in supply of energy.
The review of literature further argues regarding the importance of policies for solar energy
market development where the main argument discussed is creation of policy rent that can
attract investment into the solar energy sector. Here policy rents are understood as policies
creating rents that provide the investors the return on their resources which is more than what
they get by investing the same resources in some other project (Altenburg & Engelme ier,
2013).
The section ends with discussion of barriers for the development of solar energy as discussed
by different authors. The authors have categorised the barriers to the development of the solar
energy sector, thus the categories are technical barriers, policy barriers, socio-economic
challenges and institutional barriers.
F INDINGS AND ANALYSIS CHAPTER
The findings chapter has two section, the first section is the case study that records the details
of the Gandhinagar 5 MW rooftop programme. A brief of the case study is as follows:
The programme was approved in August 2010 and promoted by the department of
Energy and Petrochemical of the Government of Gujarat under the solar city initiati ve.
The programme was structured so as to deploy 5 MW generation capacity in distributed
manner on the rooftops of residential and government buildings and for the same a
Public Private Partnership model was to be adopted. The two solar energy developers
that have been awarded the tender and the capacity spilt between the two is as
mentioned below:
Azure power
Sector

No. of
Installations

Government
Residential
Total

21
161
182

Sunedison
Net
Capacity
2,001 kW
501 kW
2,502 kW

Sector

No. of
Installations

Government
Residential
Total

17
113
130

Net
Capacity
1,685 kW
501 kW
2,186 kW

The rooftop owners are provided a green incentive of Rs.3/Kwh for installing solar
panels on their rooftops.
On the basis of the case study, a stakeholders analysis and institutional analysis has been
undertaken which substantiates the point of the programmes successful implementation of the
programme. The method used for undertaking stakeholders analysis is power grid analys is
where the stakeholder i.e. government, solar developers and solar off-taker and consumers are
categorised on the basis of their interest in the project and their power to influence the outcome
of the project. After the identification it has been analysed how the different stakeholders
interest has been taken care of in the project.
Post the above mentioned analysis an institutional analysis of the programme has been
undertaken, situating it under the theoretical framework as suggested by Arvind Vermani, there
by categorising the various institutions under the programme as market creating and market
facilitating institutions and the same theoretical framework has been used to analyse the policy
implication under the programme.

ANALYTICAL FINDINGS:
1. S TAKEHOLDERS ANALYSIS ON THE BASIS OF CASE STUDY
1. Household owners perspective
Stakeholders interest: The setup of the project as mentioned in the case above where
the household owners provide there roof on lease to the solar power companies unde r
a lease agreement and they are provided with a green incentive of Rs. 3/kWh, the
green incentive received is correlated with the power generated by the panels thus the
stakeholders interest can be mentioned to acquire higher green incentive so as to set
it off against the electricity consumption.
On an average every household has a setup of around 10-20 panels on their rooftops, with
the panel capacity ranging from 3.6-6 watts per panel. This enables the households to
generate an average of 300-1200 kilowatts of solar power, this being in direct relation to
the number of panels and capacity of the each panel to generate power. The setup of the
programme is such that the solar power producers i.e. Azure power and Sunedison have
entered into an average of 5 years contract with the households, where the terraces have
been given on lease and as a returns the power generation companies provide green
incentive to the households at Rs. 3/kwh power generated by the panels installed on the
roof. As a result of this mechanism the households that were surveyed mentioned that they
get a considerable amount of monthly rental. In comparing the monthly electricity bills and
the approximate amount of green incentive received by the households it was observed that
average usage of electricity in an household was 600-800 kw for every two months as a
result of which the residents got the a bill (2 months bill) of approximately Rs. 2500-4500,
comparing it with power generated by solar panel and the green incentive received, the
households produced power ranging from 300-1200 units (kilowatt) in two months thereby
getting a green incentive of approximately Rs. 1000-2000 thereby enabling the households
to recover around 40-45% of the amount spent on electricity bill.
As a result of the programme the level of awareness regarding the benefits of solar energy
increased amongst the households. The reason for increased awareness regarding solar

energy is because of the inclusion of general public in the generation process thereby
information regarding the benefit of adoption of solar energy has been communicated to
them, this has the possibility of have a positive impact on the solar energy market as due to
increased information the demand for sustainably generated power shall increase. During
the process of interview the household owner mentioned their interest that the governme nt
should allow them to increase the capacity of power generation at their own cost so as to
produce more power and earn more rent as produce green electricity.
2. Solar power producers perspective
Stakeholders interest: To achieve break even within few years of commissioning of
the project and reap profits out of the venture.
The panels installed on the terraces of government buildings and residential buildings will
generate 15,00,000 units (kWh) per year individually thereby generating a total of
30,00,000 unit (kWh) combined, the electricity generated is directly fed into the main grid
through the transmission line this does not result into transmission loss as the power is not
transmitted from a on the out-skirts of the city but produced with the city by the people
themselves for their own consumptions.
For understanding that whether the venture was a profitable one or not from the perspective
of Azure power and Sunedison a simple payback period calculation was undertaken, the
payback period for both the companies at their respective tariff rates have been mentio ned
below.
Company
Azure
Power

Total
Investment

Power
Generation

Unit tariff
(kwh)

Total
Revenue

Payback

20365,52,970

2.5 MW

11.21/-

3735,93,384

5.45 Years

Sunedison 20365,52,970

2.5 MW

11.79/-

3929,22,926

5.18 Years

From the above table the payback period of Azure power and Sunedison comes out to be
5.4 and 5.1 years respectively, this means that that both these companies shall earn a
revenue equivalent to their investment within a period of around 5 years from the
commissioning of the project. Post that the companies shall start earning profits, the actual
amount of profit have not been disclosed during the discussion process with the company
executive of both Azure power and Sunedison, but executive of both the companies were
of the opinion that this venture has proved profitable for the company and adding that such
project where governmental bodies and private companies are equal decision makers
should be promoted in order to promote market for solar energy. Further commenting on
the future prospect of the solar energy market the executive of Sunedison mention that the
companies have individually entered into a contract for solar power generation for 25 years
with Gujarat Power Corporation Limited (GPCL) and according to the contract the tariff
being charged by the companies shall remain the same whereas the cost of power generated
through coal shall keep raising because of its fast depletion and so it is a matter of time that
solar power shall achieve grid parity.

Also, because of the solar modules being set up on the rooftops of households and
government building Azure power and Sunedison got a readymade base structure for
setting up the panels on the roof, thereby helping the companies to reduce the set up cost
up to 25% of the actual set up cost as this did not require the purchase of land considering
the power to be generated the investment in acquiring the land fixing structures to mount
the panels would have increased the cost for the company and this would have led to
increase in the payback period for the company.
3. Governments Perspective
Stakeholders interest: The interest of the government on the initiative was to promote
deployment of solar energy based power generation thereby expanding the solar
energy market. Along with this the governments objective is to reduce the level of
emission into the environment.
Out of the total solar installed capacity of 1686.44 MW in India, 66.9% of installed capacity
is in Gujarat making it the highest producer of solar energy in India (Ojha, Gaur, Kumar,
& Singh, 2014). The Gandhinagar 5 MW solar rooftop programme shall help to reduce the
states electricity bill by an average of 25% and this in turn will help reduce the citys
carbon emission by a minimum of 6000 tons per year. Both of these form the major
objective of Gandhinagar 5 MW solar rooftop programme that aimed at reducing the
consumption of the electricity generated by conventional source of energy thereby by
reducing the states electricity bill and this shall also help the state to reduce the carbon
emission substantially, along with this the programme aimed at increasing awareness
regarding adoption of environmentally sustainable technology like solar energy among
people as mentioned in the section of consumers perspective, the benefits of which are not
widely recognized among the general population as a result of which the adoption of such
technologies has been limited, this also has an adverse impact on the market creation effort
for solar energy technologies.
On the basis of the information acquired on the basis of discussions with the governme nt
departments, the tariff as prescribed by the Central Electricity Regulatory Commiss io n
(CERC) that are being charged by the solar power generation companies from the solar offtaker can be identified as preferential tariff and thus is a an apt example of policy rent
created by the government thereby attracting investment into the sector under this initiative.
It is with such policy rents which attracts the investors the government achieves its target
of market expansion of solar energy sector.
2. I NSTITUTIONAL ANALYSIS
The Gandhinagar 5 MW solar rooftop programme was promoted by the Department of
Energy and Petrochemical of the Government of Gujarat under the Solar City Initiative.
Thus situating the argument of (Virmani, 2004) the solar city initiative works as
superstructure thus becoming an overarching institution that set out the guidelines in
accordance to the national objective of promotion of solar energy i.e. reducing the carbon
emission by adoption of green technology and the programme forms the microstruc ture
under the superstructure which in line to the objectives of the superstructure and
implements a specific initiative.

There are various institutions involved in the process of project implementation, this being
a PPP initiative the function of carrying out the process was divided among various
institutions which were either governmental, semi-governmental or non-governmental but
the entire project was implemented under the supervision of the government departments
i.e. Gujarat Energy Development Agency (GEDA) and Gujarat Power Corporation Limited
(GPCL) the reason behind the same is that GEDA function as the SERC which under the
electricity act, 2003 is responsible for the promotion of renewable energy sources within
their respective states (The Electricity act, 2003) and GPCL is the agency with whom the
agreement has been signed by the solar power generation companies and thus it is the
implementing agency for the programme. GPCL works as the project implementa tio n
agency with whom Azure power and Sunedison have entered into a contract with, being
the implementation agency GPCL ensures provision of tariff to the power generators, in
case of Azure power it is GPCL that provides the deficit of Rs. 0.07/Kwh as the tariff quoted
by the company is higher than the tariff limit approved by GERC. Apart from governme nt
organisation Gujarat Energy Research and Management Institute (GERMI) being a semigovernment institution worked as the bid co-ordinator and technical advisor during the
implementation of the project. As a bid co-ordinator GERMI invited bids from the investors
and allotted the project to the highest bidder, it also provided technical assistance to power
companies during the implementation of the project as the nature of project demanded
different technical specification like the tilt of the solar modules, implementing nonpenetrating design for mounting solar modules. Being first of its kind project, Internatio na l
Finance Corporation (IFC) functioned as the transaction advisor for the project. Thus IFC
functioned as an advisory to the GEDA and GPCL regarding the financial feasibility of the
project. Lastly torrent power becomes the solar off-taker for the power generated and
becomes liable to pay the prescribed tariff to Azure power and Sunedison, this helps torrent
power to achieve the prescribed 2.5% RPO target as specified by GERC.
Here situating the institutional structure of the programme into (Virmani, 2004) theory,
GPCL can be identified as a market creating institution as it being the promotor for the
project under the superstructure of the Department of Energy and Petrochemical works for
bringing in investors and pitching in with the proposal there by attracting the investme nt
for the project, it interacts with the power generation companies and DISCOM with a
formal agreement for power generation and power off-take for 25 years, along with
facilitating with provision of deficit tariff to Azure power. In this manner GPCL creates the
market for solar energy, along with functioning as market creating institution GPCL and
GEDA also function as market regulating institutions in this case as implementation agency
they make sure that the project process is transparent and fair, in line with the objectives as
envisioned by superstructures and supervise the process of bidding. Institutions like
GERMI and IFC in the project have functioned as market facilitating institutions something
that has not been discussed in (Virmani, 2004), they have been identified as such because
they ensure smooth functioning of the market created by the market creating institutio ns,
situating this in practice as mentioned above GERMI was the bid co-ordinator and technica l
advisor of the project ensuring no technical glitch in the implementation and IFC did a
feasibility analysis for the project before implementation. Here market facilita ting
institutions have been defined as those institutions that assist the market creating
institutions in the process of market creation by rendering their technical expertise, these

institutions do not directly affect the market creation process but are vital for smooth
functioning of the market creating institutions and the policies preceding them.
Two important policies have been implemented in the implementation of the project, first
being accelerated depreciation policy. Accelerated depreciation method can be defined as
the method of depreciating3 the assets that a significant depreciation is allowed in the initia l
few years, by this method the solar power company can reduce projects start-up cost in the
initial years (solar, 2014). Due to this policy the investor can claim up to 80% of
depreciation, which allows investor to write off the investment quickly, due to this the
investor can show less taxable profit thereby reducing the amount of tax payment this has
a ripple effect on the profit generated from the investment i.e. amount of profit increases.
If the effect of accelerated depreciation is accounted for the payback period for the project
comes to be much less, this policy in the proposed theoretical framework can be situa ted
as both market creating policy and market complimenting4 policy, the reason behind can
be cited as because of the accelerated depreciation is available as an option in solar energy
project the investors can claim lesser amount of profit thereby this enables them to pay less
tax as the amount of profit is less thereby this attracts investors to invest in the solar energy
project because as this methods allows them to retain higher amount of profit. The reason
behind also situating it as market complementing policy is that as discussed earlier the cost
power generation through solar energy is higher because of the high initial set up cost and
lower technological efficiency of the solar modules, therefore the return on investment on
solar power project takes time but it is through the mean of accelerated depreciation policy
the investor can avail the return on investment in less time as the amount of tax on the
revenue is less, thereby allowing the investor to retain more profit. Another policy that has
been successfully implemented through the project is the policy of renewable purchase
obligation (RPO). Every state in order to promote power generation through renewable
energy authorise the state electricity regulatory commission (SERCs) to mandate the
distribution companies to purchase a certain percent of power generated from renewable
energy, in Gujarat the RPO for solar energy is 2.5%, therefore it is obligatory for torrent
power to source 2.5% of the total supply of power in Gandhinagar and Ahmedabad fro m
solar energy, this initiative help torrent power to adhere to the RPO target, the official while
discussion did not disclose the amount of RPO the programme helps torrent to achieve.
This policy can be situated as market creating for solar power producers but on the other
hand can prove to be a market distorting policy for torrent power, this is because on one
hand it is because of the RPO mandate by SERCs that there is a large scale demand for
solar power in the country, this policy along with other market creating policy like
subsidies, accelerated depreciation, feed in tariff, etc. make the solar energy market
lucrative for investors thereby fetching more investment into the sector, but on the other it
makes it mandatory for distribution companies to acquire power generated form solar
energy which increase the cost for the companies for supply of power, even in the future
when the cost of solar power generation shall reduce at the same time when the cost of
conventional power generation will increase because of the constant increase in the fuel

Depreciation is the assigning or allocating of a plant asset's cost to expense over the accounting periods that the a sset is
l i kely to be used. (Investopedia)
4

Ma rket complimenting policies can be defined as policies that correct the inherent weakness of the market. (Virmani,
2004)

prices and at a point renewable and conventional source of energy shall achieve grid parity
but it is after that point when the price for conventional power keeps increasing and price
of renewable energy keep reducing that people will shift to renewable power thereby
reducing the revenue and increase the cost for solar power producer, this shall result in
transfer of these increased cost to final consumer which will again lead to migration from
conventional source of energy to renewable energy like solar power, which will create a
vicious cycle of increasing cost for conventional power producer, which is known as utility
death cycle.
(Virmani, 2004) in his paper talks about institutional innovation, he mentions that
institutional innovation is necessary because market complimenting institutions can
deteriorate with time due to change in market circumstances. Contrary to that understand ing
the as the market for solar energy is in its nascence stage the case for institutional innovatio n
is adoption of a public private partnership model (PPP). How is it an institutio na l
innovation? The answer to it is twofold embedded into each other, first being the adoption
of PPP model for implementation of the programme where the institutions of the
government body plays the role of the facilitator, where the private organisation and
government institutions become equal partners in decision making process. The second fold
is in terms of the implementation of the programme where the electricity through solar
energy was produced on such a large scale by setting up panels on government build ings
and residential terraces thereby saving the cost for the companies charged with the
implementation of the project. On the basis of discussions with the executive of Azure
power and Sunedison the company already had a basic structure, as the rooftops on which
the solar panels were set up reduced the set up cost considerably as this did away with
requirement of purchase of land for production on such a large scale, the cost of
maintenance of the solar panels and this being a gross metering type set there was no need
of battery for power storage as the generated power was directly fed into the grid.