ThiscontentisforthesoleuseofSanjayBhallaworkingforInfrastructureLeasingandFinancialServicesLimited.

Solarcapacityadditionsof1213GWover20162018
CRISILResearchexpects1213GWofsolarPVcapacityadditionsover2016to2018(referstoAprMar).ThiswillbedrivenbyadditionsunderNationalSolarMission
(NSM)PhaseIIbatchII,IIIandVcoupledwithcapacitiestenderedbydistributioncompaniesinvariousstates,includingKarnataka,Telangana,AndhraPradesh(AP),
Punjab,MadhyaPradeshandTamilNadu.Capacitiestenderedbycashrichpublicsectorundertakings(PSUs)suchasNTPC,CoalIndiaLimited,ONGCandotherswill
furthersupportadditions.Moreover,governmentinitiativestofacilitatelandacquisition,improvetransmissioninfrastructureandfundingavailabilitywillsupport
capacityadditions.

Variouspoliciesannouncedbygovernment:

Source:CRISILResearch

Toarriveatcapacityadditions,wehaveconsideredprogressofcapacityallocationsunderNationalSolarMission(NSM),statepolicies,RECregistrations,tendersfloated
byPSU'sandmemorandumofunderstanding(MoUs)signeddirectlybetweenstatesandprojectdevelopers.Forouranalysis,wehavealsofactoredtheeconomic
feasibilityoftariffs,extentofpaymentsecurity,financialhealthofstateDISCOMs,RPOtargetaswellasexecutionrisksinprojectimplementation.

Basedonouranalysis,weexpectsolarpowercapacityadditionstoriserapidlyto1213GWoverthenext3years(201618)ascomparedto2.8GWoverthelast3years
(201215).Howevertheshareofsolarpowerintotalunitsgenerated(MUs)islikelytoremainbetween11.5percentby201718asthermalpowerwillcontinuetobe
thedominantsourceofpower.

Below,wehavesummarizedthemaindriversforouroutlookoncapacityadditions:

1.UnderNSMPhaseIIBatchI,weexpectcapacityadditionsof600MW(~200MWcommissionedinFY2015,outof750MWawardedin201314)in201516
givenreasonableprojecteconomicsformostcapacitiescoupledwithadequatepaymentsecurity.Moreover,mostcapacitiesawardedunderthedomesticcontent
clausehavealreadytiedupforequipmentsupplyandthoseundertheopencategoryareinadvancedstagesofcompletion.However,webelievethatfewcapacities
 areunlikelytocommissionduetoaggressivebidding(lowviabilitygapfundingofRs.78million/MW),difficultyinfinancialclosureandimplementationissues.
2.Also,underNSMPhaseIIBatchII(3,000MWisproposed),1,000MW(AllocationI)isinthetenderedout,forwhichthePPA'sareexpectedtogetsignedbyQ4
FY2016.Further,thebalance2,000MW(AllocationII)isexpectedtosoonbefinalizedbyNTPCbidsunderDCRcategoryforBhadlaPhaseIISolarPark,
Rajasthan.Ofthis,wehavefactoredanother1,800MWtocommissionover201618basedonthereadinessofsolarparks.
3.UndertheNSMPhaseIIBatchIII,2,000MWStatespecificVGFschemebySECI,~1.4GWofprojectsareinthetenderingstagetobesetupinthesolarparksin
Maharashtra,UttarPradesh,MadhyaPradeshandGujarat.Weexpect~1.2GWofcapacitytocommissionby20172018givenhighinterestamongdevelopersas
PPAswillbeenteredintowithSECI,whichwillensurepaymentsecurity.Nevertheless,therecouldbesomeslippagesgiventhelargescaleofprojectsand
willingness(achievementofSolarRPOtargets)andreadiness(landandtransmissioninfrastructure)ofthestatetobuysolarpower.
4.Overthelast8months,~2,700MWofPPAsweresignedinstatesincludingKarnataka,Telangana,AndhraPradesh,Punjab,UttarPradeshandTamilNadu.Further
~2,100MWofPPA'sareexpectedtobesignedwithDISCOMsofTelanganaandMadhyaPradeshbyQ4FY16.Thus,ofthetotal4,800MW,weexpectalarge
proportionofthesecapacitiesaggregating~4,500MWtocommissionby201718,ledbyattractivetariffsintherangeofRs.6.5to7perunitfor~2GWofprojects
aswellasalreadyidentifiedlandparcelsandtransmissioncapacityinmostcases.However,executionfor2,100MWofprojectsrecentlybidunderthestate
policiesofTelangana,MadhyaPradeshandPunjab,withaveragetariffofRs.5.6/unit,couldwitnesssomeslippage.Also,about475MWprojectsawarded(over
201315)instatessuchasPunjab,MadhyaPradesh,UttarPradesh,Telangana,UttarakhandandRajasthanarealsoexpectedtocommissionoverourforecast
period.
5.ThegovernmentisalsoencouragingcashrichcentralPSUstosetuprenewableenergyprojects.NTPC,forinstance,isintheprocessofdevelopinga1,000MW
solarpowerplantatasinglelocationinAndhraPradeshinphasedmanner.NTPChasalreadyawarded250MWofprojectsinMay2015toEPCContractorsand
areexpectedtogetcommissionedin201617.Also,Neyvelilignitecorporation(NLC)hasstartedlandacquisitionfora100MW(~500acres)projectinNeyveli,
TamilNaduandhasplanstosetup500MWprojectsinvariousstates,basedontheavailabilityoflandandothernecessaryinfrastructure.Additionally,Indian
Railways,CoalIndiaLimited,NEEPCOLimited,HPCL,PetronetLNGandSAILhavealsoplannedtoaddsolarpower.
6.Weexpect~800MWofRECandRPObasedprojectstocommissioninthenextthreeyears(FY20162018)mainlyledbyhighelectricitytariffforgridconnected
Industrialconsumers,asareplacementtothedieselgeneratorsets,asanalternatesourceofpowerforstateswithhighloadsheddingsuchasTamilNadu,Uttar
PradeshandPunjabandbyruralareaswithpoorgirdconnectivity.

Whilethecentralandrespectivestategovernmentshavetakenseveralsteps(detailedbelow)tofacilitatelandacquisition,powerevacuationandfundingavailability,
successfulimplementationofthesemeasuresiscriticalforrobustgrowthincapacityadditions.

Inthesubsequentsections,wehavedetailedourviewoneachoftheaboveschemes

Solarcapacityadditions(201516to201718)

Source:CRISILResearch

NationalSolarMissionkeygrowthdriverforcapacityadditions

AggressiveexpansionplansunderNSMPhaseII5,600MWexpectedovernext3years

InFebruary2015,theUnioncabinetgaveitsapprovaltoallocate9,000MWunderNSMPhaseIIBatchIIby2019.InBatchII,3,000MWofprojects(outofwhichsome
capacitywillbeallocatedunderDCRcategory)areexpectedtobeawarded.

ForcapacitiesallocatedinBatchII(3,000MW),NTPCVidyutVyaparNigamLimited(NVVN)willbuysolarpowerfromdevelopersatafixedlevelisedtariffand
bundleitwithconventionalpowerfromtheSingrauli(1,700MW)powerplant,(whichhascompletedits25yearsinservice)inthe2:1ratio(inMWterms)andsellitto
statedistributionutilities.

Furtherforbundlingpurpose(TrancheIIandIIIundertheNVVNroute),thegovernmentplanstoutilizepowerfrom6.5GWofNTPCprojects(suchasKorba(2,100
MW),Rihand(1000MW),Ramagundam(2,100MW),Vindhyachal(1,260MW))thathavecompleted25yearsofoperation.Thiswillenablesettingupof13GWof
solarpowergiventhe2:1bundlingratio.Thestatewisepowerallocationwoulddependoncriteriasuchasavailabilityoflandinthestateforsettingupthesolarpower
project,connectivityforevacuatingpower(StateTransmissionUtilitywillsetupevacuationfacilityifitisbuyingover90percentofthepower,elseCentral
TransmissionUtilitywillsetitup)anddiscom'swillingnesstobuyadditionalpower.

PPAsof1,000MW(UnderNVVNTrancheI)ofthe3,000MWarealreadytenderedoutandareexpectedtobesignedbyQ4FY2016.Outofthe1000MWtendered
out,500MWofprojectisallottedtoaSunEdison,350MWtoSBGcleantech(JVofSoftbank,FoxconnandBhartiEnterprises),100MWtoAzurepowerand50MWto
Prayatna(SPVofAdanienterprises).Thesecapacitieswillbesetupinasolarpark,commissionedbyAndhraPradeshsolarpowercorporationlimited(APSPCL)(JV
betweenGovt.ofA.PandSECI),locatedinKurnooldistrictofA.P.Webelievethisentirecapacityof1,000MWisexpectedtocommissionin201617.Further,
allocationsofthebalance2,000MWunderTrancheI(AllocationII),NTPCisexpectedtosoonfinalizethebidsunderDCRcategoryforBhadlaPhaseIISolarParkin
Rajasthan.Sofar,tendersof420MW(70MWX6projects)hasalreadybeenfloated.Ofthetotal2,000MW,wehavefactored~1,800MWtocommissionin201718
basedonthereadinessofsolarparks.

UndertheNSMPhaseIIBatchIII,2,000MWStatespecificVGFschemebySECI,~1.4GWofprojectsareinthetenderingstagetobesetupinthesolarparksofthe
statessuchasMaharashtra(500MW),UttarPradesh(440MW),MadhyaPradesh(200MW)andGujarat(250MW).Weexpect~1.2GWofcapacitytocommissionby
20172018givenhighinterestamongdevelopersasPPAswillbeenteredintowithSECI,whichwillensurepaymentsecurity.Nevertheless,therecouldbesome
slippagesgiventhelargescaleofprojectsandwillingness(achievementofSolarRPOtargets)andreadiness(landandtransmissioninfrastructure)ofthestatetobuysolar
power.

ThroughBatchVofNSMscheme,thegovernmentisencouragingcashrichcentralPSUstosetuprenewableenergyprojects.NTPC,forinstance,isintheprocessof
developinga1,000MWsolarpowerplantatasinglelocationinAnantpurdistrictofAndhraPradeshinphasedmanner.NTPChasalreadyawarded250MWofprojects
inMay2015tofourEPCContractors(TATAPower,BHEL,Sterling&WilsonandLanco)onturnkeybasis,whichareexpectedtogetcommissionedin201617,
considering13monthsasthecompletiondeadline.AnothergovernmentownedentityNeyvelilignitecorporation(NLC)hasstartedlandacquisitionfora100MW(~500
acres)projectinNeyveli,TamilNaduandhasplanstosetup500MWprojectsinvariousstates,basedontheavailabilityoflandandothernecessaryinfrastructure.
Additionally,IndianRailways,CoalIndiaLimited,NEEPCOLimited,HPCL,PetronetLNGandSAILhavealsoplannedtoaddsolarpower.

Thus,intotalundertheNSMphaseII,over201618,weexpectcloseto~5,600MW(includingBatchI,II,IIIandV)tocommissionunderthisscheme.
Implementationunderthisschemeisexpectedtoberobustgivenbundlingofpower(whichwillreducethepowerpurchasecostbycloseto20percent)paymentsecurity
mechanismandavailabilityoflandandtransmissioninfrastructure.

Healthycapacityadditionsof4.5GWexpectedunderdifferentstatepolicies
Inordertofulfillrenewablepurchaseobligation(RPO)targets,severalstatedistributioncompaniesinvitedbidsin201415topurchasesolarpoweronalongtermbasis.
Overthelast8months,4,800MWhasbeentenderedoutinstatesincludingKarnataka,Telangana,AndhraPradesh,Punjab,UttarPradesh,MadhyaPradeshandTamil
Nadu.ThesetendersreceivedagoodresponseasPPAsof2,700MWwereenteredinto,whilePPAsof2,100MWofprojectsareexpectedtogetsignedbyQ3FY16,for
whichfinancialbidshavebeenopened.

Weexpectalargeproportionofthiscapacity,about4,500MW,tocommissionby201718,ofwhichPPAsworth~2,700MWofcapacityaresignedatattractivetariffsin
therangeofRs.6.5to7perunit,withmostoftheseprojectshavingalreadyidentifiedlandparcelsandtransmissioncapacity.Further~1,800MW(PPA'sexpectedtoget
signedbyQ4FY16)ofrecentallocationswillgetcommissioned,despitelowaveragetariffsofRs.5.6/unit,onaccountofparticipationbylargeglobalIPPs,global
modulemanufacturersandEPCcontractorswithprovenexecutioncapabilities,lowcapitalcost(duetohigherscale)aswellaslowerfundingcostsandpotentially,expect
lowerreturnsascomparedtosomeofthedomesticcounterparts(butatparwithreturnsinotherglobalmarkets).

Weightedaveragebidsforcompetitivebiddingundervariousstateallocations

Note:ForAndhraPradesh,levelisedtariffsfor25yearsarepresentedwithadiscountrateof13percentasperCERC.

Source:CRISILResearchStatepolicydocuments,Requestforproposalsandnotificationsissuedbystates

Further,tosupportcapacityadditions,statessuchasAndhraPradeshandTelanganahaveassuredtransmissionconnectivitytoprojectsbydeclaringdistrictwisespare
transmissioncapacityavailableatvarioussubstationsandalsoconductedthebiddingdistrictwise,soastoassureadequateavailabilityofland.Capacityadditionsin
MadhyaPradesharealsoexpectedtobehealthygivenfavourablepoliciessuchasbankingthroughtheyearandlonggestationperiodtocommissionprojects.Onthe
otherhand,poorevacuationinfrastructureinUP,highlandpricesinPunjabandpossibledelaysinpaymentsduetoweakfinancialsofbothstatediscomsisexpectedto
limitadditions.

Additionally,1.4GWoutof2.2GWhasbeenallocatedtoIPPssuchasSunedisonEnergyHoldingsSingaporePteLimited,WelspunRenewableenergyPvt.Ltd,Azure
Power,AcmeSolar,Renewsolar,EsselInfra,AdaniGreenenergyLtdandSolairedirectIndia.Theseplayershaveastrongexecutiontrackrecord,relativelyhealthy
financialsandprofitablePPAsatclosetoRs7perunit.

CapacitybidbythemajorSolarIPPsin4.8GWallocationsunderdifferentstatepolicies


Source:CRISILResearchStateenergydevelopmentagencies

Note:ForAndhraPradesh,levelisedtariffsfor25yearsarepresentedwithadiscountrateof13percentasperCERC.
Note:Bankingofelectricityisafacilitytohelpsmallgeneratingplantsproducepowerwithoutdemandrestrictions.Thepurchaser/distributionlicenseepurchase

Source:CRISILResearchStatepolicydocuments,Requestforproposalsandnotificationsissuedbystates

Landacquisition,transmissioninfrastructureandfundavailabilitycriticaltosuccessfulimplementationof
solarprojects
AvailabilityofLand

LandacquisitionisdifficultconsideringthefacttheaveragelandholdinginIndiaissmallat1.16hectares(NABARD2014)andinordertoacquirelargetractsoflandin
asinglelocation,manystakeholdershavetobeinvolvedwhichslowsdownthepaceofprojectexecution.Forinstance,inthepast,fewlargescaleprojects(suchas125
MWofsolarPVprojectsofMAHAGENCO)werestalledonaccountoflandacquisitionissues.Thecentralandstategovernmentshavetakenfollowingmeasuresto
speedupthelandacquisitionprocess.

1.Governmenthasplannedtopreparelandbanksfor20,000MWofsolarprojectsspreadacross25statesinIndia,underitsSolarParkPolicyreleasedinSeptember
2014.Underthispolicy,statedesignatednodalagency(SNA)willconstructsolarparksof5001,000MWsizeeachinassociationwitheitherSolarenergy
corporationofIndia(SECI),inassociationwiththestatepublicsectorundertaking(PSU)orinaJ.VwithprivatedeveloperunderthePPPmodel.ThehostState
canalsodesignateSECIasthenodalagency,inwhichSECIwilldecideitsequityintheentiredevelopmentcostofthesolarparkonthemutuallyagreedtermswith
thestate.ThecentralgovernmentwillprovidebudgetarysupportofRs.20lakh/MWtotheentityundertakingthesolarparkprojectswithallnecessary
infrastructureslikeland,transmission,roads,drainage,water,warehousingetc.
2.Currently21statesincludingAndhraPradesh,MadhyaPradesh,Gujarat,Rajasthan,UttarPradesh,Karnataka,Punjab,Telangana,WestBengal,Chattisgarh,Tamil
Nadu,JammuandKashmirandfewnortheasternstateshavestartedpreparinglandbanksintheirstate(ReferAnnexureIfordetails),eitherthroughtheirown
implementingagenciesorinajointventurewithSECI.ThesolarparksaregettingapprovedbyMNREandSECIforavailingthecentralfinancialassistance,as
andwhen,thestatedesignatesaNodalagencyforthepurpose.SubsequentlyinMay2015,MNREreleasedRs.2,287millioningrants(Rs.2.5millionforDPR
preparationandRs.2million/MW(~5acres)forlandacquisition)tothestatenodalagencies/implementingagenciesofthe12statesforinitiatingtheprocessof
landacquisitionforsettingupsolarparks.Outofthem,RajasthanandAndhraPradeshhavealreadyacquired~20,000acresofland,whichcansupport~4GWof
 solarcapacities.Whiletheremaining19stateshaveidentified~50,000acresofland,whichcansupport~10GW,andisunderdifferentstagesofacquisition.
3.TheinitiativestakenbyvariousstatesofIndiatoeasetheprevailinglandissuesareasgivenbelow:

Source:CRISILResearchStatesolarpolicies

AvailabilityoftransmissionInfrastructure

Largescalegridconnectedsolarplantsareusuallylocatedinthefarflungareas,wherethereisnoexistingtransmissioninfrastructure.Thus,arobusttransmission
planningtooptimizethehighcosts,utilizationlevelsandlossesassociatedwithtransmissionsystemtotransmitthepowergeneratedfromtoloadcenters(citiesand
Industrialareas)iscritical.Thecentralandstategovernmentshavetakenfollowingmeasurestodeveloptransmissioncapacitiestosupportsolarcapacityadditions.

1.UnderthedraftSolarParkpolicyreleasedinSeptember2014,thedesignatedstatenodalagencywillsetuppoolingstationsinsidethesolarparkandwillalsodraw
transmissiontotransmitpowerto220KV/400KVsubstation.Thecostforthesamewouldbebornebythestatetransmissionutility(STU),ifitiswillingtobuy
substantialamountofpowerfromthesolarparkelsecentraltransmissionutility(CTU)willconnectthesolarparktothegridatitsowncost.
2.GovernmenthasplannedtointegraterenewableenergyintotheNationalgridbysettingupinterstateandintrastateschemesforevacuationofpowerfromwind
andsolarprojectstermedas'GreenenergyCorridors',forwhichKfWhasopenedthecreditlineof1billioneuroatconcessionalrateofinterest(ReferAnnexureII
fordetails).Thecentralgovernmenthastenderedouttwo765KVISTSlinefromBanaskanthainGujarattoChittorgarhinRajasthan,andanotherfrom
ChittorgarhAjmerSuratgarhMoga.Furtherprojectsforconstructionof400KVpoolingsubstationandassociatedlinesintheTirunelveliandTuticorinregionfor
renewableenergyprojectswereawardedin201415.Asinglecircuit765KVoftransmissionlinewillbeabletoevacuateapproximately2500MWofgenerated
capacity.PGCILhastenderedtheseprojectsandworkisexpectedtofinalizewithin1218monthsfromtheawardofprojecttothesuccessfulbidder.
3.Further,thetransmissionlineadditionsbystatetransmissioncompanies,whichhavebeenonanupwardtrend,areexpectedtorisefurther.Infact,in201415
period,lineadditionshavewitnessedahealthygrowthof48percent(ckmsadditionsbystatetranscosfor>220kv)yoy.Furtherthegovernmentenvisages
implementingwideareamonitoringsystems(WAMS)usingphasormanagementunitsforentiretransmissionsystem,RenewableEnergyMonitoringCentre's
(REMCs)andEnergyStorageSystemstofacilitategridintegrationofrenewablegenerationandreducethetransmissionlossesbelow3.5percentby2022.

Availabilityoffinanceforprojects

Giventhecapitalintensivenatureofsolarpowerproject,costofcapitalplaysanimportantrole.Inthepast,highdomesticinterestrates,lowerrepaymenttenureand
inadequateanddelayedcapitalsubsidyincreasestheminimumtariffrequiredtoachievehealthyIRRs.Thecentralgovernmentandotherfinancialinstitutionshavetaken
followingmeasurestoimprovefundavailabilityforsupportingsolarcapacityadditions.

1.NCEFfundwasestablishedin201011andtotalcollectionsofar(till201415)undertheFundisRs.171billion.AsonSeptember2014aboutRs.36billionof
budgetaryallocationshavebeendonefromthisfund,tovariousrenewableenergyprojects.In201516,thebudgetaryallocationtorenewableenergystoodatRs.
61billionledbyRs.20billionallocationthroughNationalCleanEnergyFund(NCEF).

Thestatusoffundisasgivenbelow:


Source:UnionBudgetCRISILResearch

2.StateBankofIndia(SBI)hascommittedRs.750billionindebtfundingoverthenextfiveyearsto15GWofrenewableenergyprojects.
3.MultilateralfundingagenciessuchasAsiandevelopmentbank(ADB)andInternationalFinanceCorporation(IFC)andvariousotherprivateequityfundsare
fundingmanysolarprojects.Infact,in201415,theseagenciessanctionedapproximately$610millionforvariousrenewableenergyprojects.
4.GovernmentfinancialinstitutionssuchasPTCIndialimited,RuralElectrificationCorporation(REC)andIREDAarealsofinancingmanysolarprojects.Ason
September2015,thecumulativedebtsanctionedbyPFStorenewableenergyprojectstandsatRs.64billion,whichis79percentriseoverSeptember2014.Further
IREDA,underitsIREDANCEFrefinancescheme,refinancesthe30percentoftotalloandisbursedbythescheduledcommercialbanks/financialinstitutions,to
theprojectdeveloperatconcessionalrateofinterest.

LimitedcapacityadditionsundersolarthermaltechnologyPVtoremaindominant
Solarenergycanbegeneratedusingtwotechnologies:SolarPhotovoltaic(PV)andSolarThermal.UndersolarPVtechnology,Solarcells,whichareassembledtoform
modules,absorbsunlightdirectlytoproduceelectricityusingthephotovoltaiceffect.Ontheotherhand,solarthermalpowergenerateselectricitywhenheatfromsolar
thermalcollectorsisusedtoheatafluid,whichproducedsteamthatisusedtogeneratepower.

SolarthermaltechnologyhasnotbeensuccessfullyimplementedinIndia.Ourviewisdrivenbythefollowingreasons,whichhasledtosignificantcostescalations
therebymakingtheseprojectseconomicallyunviable.

Solarthermalprojectshavebeenallowedacommissioningperiodof28monthsfromthedateofsigningthePPA.Thisischallengingsincesolarthermalprojects
requireatleastoneyearofpreprojectworkgiventhatdirectirradianceisrequiredforeffectiveoperations.Also,globally,gestationof3640monthsisallowed.
Mostplayershaveselectedlandsitesbasedonsatellitedatainabsenceofgroundbaseddata.However,afterthepreprojectwork,PLFestimatesturnedouttobe
lowerthananticipatedbyplayers.
Someoftheplayers,suchasLanco,havebeenunabletogetprocureheattransferfluidduetohigherleadtimeofsuppliers,leadingtodelays.
Aminimumsizeof50MWisconsideredforsolarthermalprojectstobeviable.Uneconomicalsizeofonly10MW,particularlyinmigrationprojects(covering
projectsawardedpriortoformationofJNNSM)alsoledtocancellationoftheseprojects.

Consequently,underthemigrationscheme,threeprojectsaggregatingto30MWwereawardedinOctober2010.TheseweredueforcommissioninginFebruary2013.
However,2of3projectsarealreadyshelved.AcmeTelepowerwastheonlyproject,whichonlypartlycommissioned2.5MWoutofthetotalawardedcapacityof10
MW.

Similarly,underJNNSMphase1,PPAsaggregatingto470MWofsolarthermalprojectsweresignedinJanuary2011,duetobecommissionedbyMay2013.However,
onlyoneprojectwithacapacityof50MWcommissionedinJuly2013andtwootherprojectsaggregating150MWcommissionedinOctober2014.In201415,a100
MWRelianceSolarprojectinRajasthananda50MWprojectofMeghaengineeringInfrastructureslimited(MEIL)inAndhraPradeshwascommissioned,despitefacing
theexecutionissuesonaccountofdelayinimportoftheheatexchangefluidandunavailabilityofskilledlabour.Wedonotexpectanynewcapacitiestocomeupunder
theJNNSMallocation.Weexpectbalanceprojectstobecanceledduetonegligibleprogress(sofarnopenaltyhasbeenlevied).

Only525MWofgridconnectedrooftopcapacityaddedtillSeptember2015duetohighcostsandlimitedfocus

RooftopprojectsaresmallscalesolarPVinstallationsonroofsofbuildings(Foradetailedviewontheoperatingmodels,refertothediagrambelow).Rooftopprojects
mayormaynotbeconnectedtothegrid.Aspertherevisedgovernmenttargetof100GW,40GWisproposedtobeaddedunderrooftopbasedsolarsystems,which
impliesthattoachievethe100GWtarget,everyMWofgroundmountedsolarprojectshouldbecomplimentedby~670KWofrooftopsystemcapacityaddition.
HoweverinFY2015,only44.5MWofrooftopprojectshavebeenaddedasagainst~1,000MWofgroundmountedsolarprojects.Further,asonSeptember2015,only
525MWofgridconnectedrooftopprojectshavecommissionedinIndia(fundedbyMNRE),against~4.1GWofgroundmountedsolarprojects.Limitedgovernment
focusonrooftopsolarbasedcapacityallocationsundervariousstateschemes,highcostofrooftopprojectsandlimitedavailabilityoffinancesforrooftopprojectshave
hinderedthegrowth.

AlthoughMNREhasentrustedSECIforimplementationoflargescalegridconnectedrooftopPVprojectswithsubsidysupportfromNCEFfunds,butreleaseofsubsidy
hasbeendelayed.Nevertheless,rooftopsolarprojectshaveattractedinterestfromplayersintheentiresolarvaluechainrangingfromModulemanufactures(suchas
TATApowerSolar,WareeEnergies,VikramSolar)tosystemIntegrators(suchasRaysPower,JacksonEngineers,toIPPssuchasWelspunSolar,AzurePower,
Sunedison,andMahindraSolar)owingtofallingcostsandfavourableregulatorypoliciesinfewstates(netmetering,exemptiononelectricityduty,wheelingandcross
subsidycharges).

RooftopschemeswhichareapprovedforfundinginFY2015areasgivenintablebelow:
*DMRC:DelhiMetroRailCorporation
NDMC:NewDelhiMunicipalCouncil

Source:MinistryoffinanceCRISILResearch

SolarrooftopbasedcapacityadditionstoremainslowinneartermContinuedsupportfromcentralgovernmenttosupportgrowthin
thelongterm

CRISILResearchbelievesthatsolarrooftopbasedcapacityadditionstoremainslowintheneartermgiventhatstatesareexpectedtoplayalargerroleandcurrentlya
dedicatedpolicyframeworkandrobustinfrastructureisunavailableacrossstates.Further,thereareunresolvedissuesasmentionedbelowonaccountofwhich
installationsunderthegirdconnectedrooftopprojectsareexpectedtoremainslow.

DISCOMsareunwillingtoprovideconnectiontoconsumersinindustrialandcommercialsegments
AnanalysisofthemajorDISCOMsacrossvariousstatesinIndiarevealsthattheperunitaveragerealizationofrevenuesfromelectricitysoldtoIndustrialconsumersis
~Rs.0.32.2/unithigherthantheaveragecostofsupply(ACOS)ofDISCOMandisalmosttwicetherealizationsfromtheDomesticandAgriculturalcategoryof
consumers.

HenceDISCOMsareatriskoflosingtheirhightariffconsumers,astherearenocrosssubsidysurchargeleviedonthesolarconnections

Thegraphgivenbelowshowsthecrosssubsidylevelformostofthestates

Source:RegulatoryordersCRISILResearch

DISCOMstobuycheaperelectricityfromgroundmountedprojectsforRPOcompliance
SolarelectricitypricesinIndiahaveseenadownwardtrajectory,since2010.ThebidpriceswereashighasRs.15/unitin2010,whichhavemorethanhalvedtoRs.Rs.
6.57/unitinFY2015.Infactintherecentbidsfor850MWcapacityinAndhraPradeshunderNSMPhaseII,thebidpriceshavefallentoRs.4.63/unit.Alsothe
projectstobeallocatedunderthe3GWNSMschemewillprovidethecheaper(Rs.3.54/unit)bundledpower(solarpowerbundledwithcheapthermalpowerin2:1
ratio)toDISCOMs,while2GWstatespecificschemebySECIwillprovideaviabilitygapfunding(VGF),whichwillreducepowerpurchasecost.

WeakdistributioninfrastructurechallengesDISCOMsabilityfornetmetering

Mostofthelargedistributioncompanieshavestillnotrevampedtheirdistributioninfrastructureandarenotfullygearedupforabsorbingtherooftopenergyproducedby
plants.Theunavailabilityofpurchaseandlogrecordsformaintenancescheduleofdistributiontransformersmakesthingsworse,asinabsenceofpropermaintenance
coupledwithrewoundedcorereducesthetransformersefficiencyandmakesitsusceptibleforfrequentfailure.Theconditionsmaybecomeworseinsummerswith
highergenerationandlesserheatdissipation,andislikelytoaffectthegridavailabilityandserviceabilityforcustomersconnectedtothegrid.Theconditionsareequally
badforconductors,whichareeitherundersized(notreplacedalongwiththeloadgrowth)ornotproperlyinterconnectedduetobadworkmanship.Mostofthelow
voltagelines(11kvandLTlines)areextendedundulyforlongdistancesandcreatesvoltageissuesandpoorqualitypowerinthesystem.HenceDISCOMswouldneedto
avoidconnectinglargerooftopcapacities(eitherlargenumberofsmallercapacitiesorlargecapacities)totheirexistingfeederlines.Furtherallotmentofnetmetering
haslimitsbasedonthetransformercapacity.Mostofthetransformersinlicenseeareahasalreadyreacheditmaximumlimit,andDISCOMswillnotbewillingtoshell
outadditionalRs.1314lakhs(fora100KVAtransformer)forconnectingarooftopplant.

Centralandstatelevelbenefitstodrivelongtermgrowth

Althoughtherearemultipleissuesacrossvariousstatesthatarehinderingthedesiredgrowthincapacityadditions,continuedsupportfromcentralgovernmentschemesto
supportgrowthinthelongterm.Forinstance,theCentralGovernmentisproviding30percentcapitalsubsidyforrooftopprojectsforwhichMNREhasincreasedthe
financialassistancetarget(informofcapitalsubsidy)eightfoldtoRs.50bnoverthenextfiveyears(20162020).Thesubsidywouldbesufficienttosupport~4GWof
rooftopprojectsbyresidentialcategoryofconsumersandbyPublicinstitutions(GovernmentHospitals,Schooletc)acrossvarioussectors.Furtherwiththeavailability
ofaccelerateddepreciationbenefitand10yeartaxholidayunder80IA,thegovernmentexpectstodriveadditionsunderthecommercialandIndustrialcategoryof
consumers.

Theincentivesprovidedbyvariousstates,whicheitherhaveguidelinesorbriefpoliciesforthesolarrooftopnetmeteringmechanismareasstatedinthetablebelow.The
broadcontoursofthenetmeteringpolicyareasstatedbelow:

UnderallthestatespoliciesnetmeteringisallowedforResidential,CommercialandIndustrialconsumers.
AllDISCOMswouldutilizetheunitsgeneratedfromthesolarrooftoppowerplantstocomplytheirSolarRPOtargets,ifconsumerisnotanobligatedentity.
Furtheranyexcessunitsgeneratedbytheobligatedentity,i.e.overandaboveitsobligations,wouldbeutilizedbytheDISCOMstomeettheirSolarRPOtargets.
DISCOMsalonewillmeettheirRPOtargetsfromtheunitsinjectedintothegridiffeedintariffs(FITs)arepaidbyDISCOMs.

.
Statewiselistofsolarrooftoppolicies/solarpoliciesmentioningNetmeteringmechanismofthestateandbenefitsoffered:
Note:CSSCrosssubsidysurcharge;WCWheelingcharges

Source:CRISILResearchStatesolarpoliciesOrdersbyregulatorycommission

AlthoughDISCOMshaveprovidedvariousincentivestoboostcapacityadditionsasmentionedabove,howeverweexpectcapacityadditionstoremainmutedoverthe
neartermastherestillexistvarioustechnical,commercialandRegulatoryhurdlesthatneedtobeaddressed.Inthetablebelow,wehavedetailedthesame
Source:CRISILResearchstatepolicies,ordersandregulations

RooftopsolarStatewisecomparativeanalysis

CRISILResearchbelievesthatstatessuchasDelhi,Gujarat,Maharashtra,AndhraPradesh,Telangana,KarnatakaandTamilNaduareexpectedtodrivecapacity
additions.Thekeyfactorsthatwouldencouragethesolarbasedcapacityadditionsareasgivenbelow:

Highfeedintariff:KarnatakastateprovideshighfeedintariffsofRs.9.56/unitforrooftopprojectsfeedingpowertogirdandnotavailingcapitalsubsidyandis
Rs.7.20/unitrooftopsystemsforsystemsavailing30percentcapitalsubsidyprovidedbyMNRE.WebelievethattariffofRs.6.46.6isrequiredforearninga
healthyequityIRRforrooftopprojects.Henceconsideringthe30%capitalsubsidybyMNRE,projectbecomesfinanciallyviable.
Generationbasedincentive(GBI):DelhistategivesaGBIofRs.2/unitforaperiodofthreeyearsfromthedateofcommissioning,overandabovetheAPPC
tariffratesforthefinancialyeardeterminedbythecommission.WiththecurrentAPPCratesof~Rs.4.1/unitandanadditionalGBIofRs.2/unit,theproject
becomeseconomicallyviable(considering30%capitalsubsidybyMNRE).FurtherDISCOMsaredeficientintheirRPOcompliance,henceexcesspower
generated(netenergyexported)bytherooftopsolarsystemswilltheminfulfillingtheirRPOcompliance,whichwillinteresttheminacceptingmoreconnections.
Availabilitygrossmetering:ConsumersinTelanganaandAndhraPradeshcansetupprojectsbasedongrossmetering,wheretheycanbillDISCOMsatthe
averagecostofsupply(ACoS)(Rs.5.55.9/unitforFY2016)forDISCOMs.Thisprovidesafavorableopportunityforresidentialconsumersastheaverage
domestictariffsinTelanganaareRs.1.4/unitlesserthantheACoSofthestate,whileinA.PitislesserbyRs.2.5/unit.FurtherthetariffsforIndustrialand
commercialconsumersarehighinthestate(upwardsofRs.6.5/unit),whichwouldinstillthemtoaddcapacitiesforcaptivegenerationunderthenetmetering
mode.Asthesestatesarepowerdeficitstates(totalanticipatedpowerdeficitforFY2016~12percent)suchprojectspossiblywillcontributetowardsreducingin
 afternoonpeakloadofDISCOMs,asmostofthesolarpowerisgeneratedduringafternoontime.
HighcommitmentofstatesforSolarPower:TamilNaduandMaharashtrahavetargetsofcommissioning5GWand7.5GWofsolarcapacitiesoverthemedium
termandDISCOMSinthesestatesarerelativelyfastindecisionmaking.ForinstanceMaharashtrastateelectricitydistributioncompanylimited(MSEDCL)hasto
conducttechnicalassessmentoftherooftopsitewithin15daysofreceiptofproposal,whileTamilNaduGenerationandDistributionCorporationLimited
(TANGEDCO)hasmandatedinstallationofrooftoponallnewgovernmentbuildings.ThishasresultedinMaharashtraandTamilNadugarnering~25percent
shareinthetotalrooftopinstalledcapacityof525MW,asonSeptember2015.FurtherthesestateshavehighAT&Closses,hencepowergenerationatsource(i.e.
byconsumeritself)wouldhelpinreducingtheunitslostindistributionofpower.
Highindustrialandcommercialconsumption(MUs)ofstates:webelievethatthefirstmoversfortheGirdconnectedrooftopprojectswouldbetheIndustrial
andcommercialconsumers,whohaveadequatecapitalandbusinessacumen.Industrialandcommercial(NonDomestic)consumersofstatessuchasGujarat,
MaharashtraandTamilNaduhavehighelectricityconsumption,whichaccountformorethan50percentofannualsalesinFY2015,ineachofthesestates.Hence
thesestatesarelikelytoaddmorecapacities.
Betterdistributioninfrastructure:DISCOMsinGujarathaveabetterdistributioninfrastructureintermsofreliabilityofsupplynetworkledbysuccessful
implementationoffeedersegregationandotherdistributionreformsinthestateresultantlyhavebettergridavailability.Furtherthestateallowsbothnetmetering
andgrossmeteringforrooftopsolarprojects,acrossallthecategoriesofconsumerswithoutimposinganyelectricitydutyandanychargessuchaswheeling,
transmissionandcrosssubsidysurcharge.

Rooftopoperationmodels
ThetwomostprevalentmodelsofoperationintherooftopsolarPVplantsareCAPEXmodelandRESCOmodel(ReferAnnexureIII).IntheCAPEXmodel,theproject
developerinstallstherooftoppowerplantonitsownroof,whileintheRESCO(Renewableenergyservicecompanies)modelthedeveloperleasestherooftopandpays
leaserenttotherooftopownerandreceivestheproceedsfromsaleofpowertorooftopownerandDISCOMonamutuallyagreedPPAprices.WithintheCAPEXand
RESCOmodels,theentirepowergeneratedcanbesoldtothestatedistributionutlity/thirdparty(knownasgrossmetering)orcanbepartlyconsumedcaptivelyand
balancecanbesoldtotheutility/thirdparty(knownasnetmetering).

However,undermoststaterooftoppolicies,thereisacaponthecapacitythatcanbeconnectedtothegrid(mostlyrestrictedtothe3050percentofthepeakdistribution
transformercapacityor80percentoftheconnectedload),whichmakesthenetmeteringmodelmoreprevalent.

Risks
Whilethecentralandstategovernmentsareattemptingtoputinplacetheentiremachineryrequiredforexecutionofsolarpowerprojectsinthecountry,therecould
potentiallybefewrisksthatwehavehighlightedbelow:

Riseinthecapitalcostonaccountofweakeningoftherupeeresultinginexpensiveimportedmodules(whichaccountfor5055percentoftotalcapitalcost)
Furtherworseningofthefinancialhealthofstatedistributionutilities,whichcouldleadtopowerofftakeissuesaswellaspotentialpaymentdelays/defaults
TheLandbillcouldleadtolandacquisitionissuesaswellasmaterialincreaseinprices(landtypicallyaccountsfor35percentacrossdifferentstates)
Evacuationissuesduetodelaysincommissioningofplannedtransmissioninfrastructure.
AggressivebiddingwithforaybylargeIndianconglomerates
Decliningbasepowerdeficit(0.5percentin201920from3.6percent201415)couldresultinofftakeissues

AnnexureI

Source:SECICRISILResearch

AnnexureII
Source:PGCILCRISILResearch

AnnexureIII

TheSchematicdiagramfortheCAPEXschemeisasgivenbelow:
Source:ForumofRegulatorsCRISILResearch

TheSchematicdiagramfortheRESCOschemeisasgivenbelow:

Source:ForumofRegulatorsCRISILResearch

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