Punjab's upcoming New and Renewable Sources of Energy Policy ...

Punjab’s upcoming New and Renewable Sources of Energy Policy: Brief Report

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PUNJAB’S UPCOMING NEW AND RENEWABLE SOURCES OF ENERGY POLICY – BRIEF REPORT

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TABLE OF CONTENTS OVERVIEW

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SOLAR MARKET IN INDIA

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OBJECTIVES OF THE POLICY

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STRATEGIC OPTIONS UNDER CONSIDERATION

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INCENTIVES UNDER THE POLICY

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PROCESS UNDER THE POLICY

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POLICY ANALYSIS

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FINANCIAL ASPECTS

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OVERVIEW Punjab State Government is planning to release it’s New and Renewable Energy Policy which targets 800MW installation capacity of renewable energy projects in the state, in second half of this year. In addition to solar energy, the policy aims to promote other renewable sources of energy such as biomass, wind and hydroelectric. It is estimated that 500MW of solar power projects and 300MW of non-solar renewable projects are targeted by 2020 under this policy. Currently the draft of the policy is awaiting approval and the policy is expected to be officially announced in latter half of 2013. Punjab

Energy Development Agency (PEDA) is the State Nodal Agency for promotion and development of Renewable Energy in the state of Punjab, and hence, responsible for implementation of this policy, as well as REC mechanism in the state. Currently, about 10MW of solar PV projects have been commissioned in Punjab. Azure Power’s 2MW solar PV plant near Amritsar is India’s first privately owned utility scale solar PV plant.

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Punjab has good irradiation levels for a solar power plant, with 1800 – 2100 kWh per sq. m of irradiation per year, as depicted in the map.

SOLAR MARKET IN INDIA Solar PV installation in India has jumped from about 20 MW

by the end of 2009 to more than 1150 MW currently, and it is expected to cross 20 GW mark by 2022. Gujarat leads with about 830MW commissioned, largely driven by Gujarat state solar policy; followed by Rajasthan, with about 225MW commissioned under the National Solar Mission. The following states have already released solar policies: Gujarat, Rajasthan, Tamil Nadu, Andhra Pradesh, Karnataka, Madhya Pradesh and Chhattisgarh.

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OBJECTIVES OF THE POLICY

Meet the growing energy demand in the state by increasing the contribution of renewable sources of energy. Reduce environmental pollution caused by non renewables sources

Utilise the distributed nature of these sources to meet rural and local demand Promote new and renewable sources industry and generate employment

STRATEGIC OPTIONS UNDER CONSIDERATION

Setup solar park similar to Charanka Solar Park in Gujarat in fallow land of Shivaliks Use area near international border to set up solar PV projects Promote centralised utility scale solar PV projects by following Build-Own-Operate (BOO) model Promote rooftop solar PV power

Promote solar cities and solar street lighting Promote solar thermal applications in industrial settings Promote domestic off-grid applications

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INCENTIVES UNDER THE POLICY (The information mentioned below is based on the draft of the policy. This is not the final policy and the information mentioned here is subject to change)

Incentives proposed according to the policy draft are as follows:

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Tax benefits: –

Value Added Tax @ 4% on equipment and systems required for solar power projects shall be levied.

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Equipment and systems required for solar power projects, as well as the power generated will be exempt from

octroi –

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Power generation and captive consumption will be exempt from electricity duty

PSEB will undertake transmission of power generated by solar power projects set up inside or outside the state through its grid. Power will be made available for captive use or third party sale within the state at uniform wheeling charge of 2% of

the energy fed to the grid, irrespective of the distance from the generating station.

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Facility of banking of power for one year by PSEB.

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PSPCL will provide evacuation facilities such as transmission line for the power it will purchase from solar power projects.

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Clearances in a time bound manner through a single window mechanism within a period of 60 days.

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Solar Power projects less than 5 MW capacities shall be exempt from obtaining any NOC/consent under Pollution control laws from the PPCB

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Land related incentives: –

100% exemption from payment of stamp duty and fee for registration/lease deed charges for the land where the project is to be set up

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If available, the government land might be leased out for 38 years to the developer initially on a notional lease

rental of Rs. 1.00 per Sq. mt. per annum subject to further renewal on mutually agreed terms and conditions among the parties. We infer that this provision is would be applicable for the proposed solar park. –

Agricultural land shall be allowed to be used for setting up of Renewable Energy Power Projects in the state and no CLU, EDC/or any other charges/fees for the same shall be charged for change of land use.

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Payment security: Dues will be cleared in 60 days by PSPCL. To ensure payments, PSPCL/PSTCL will provide facility of irrevocable and revolving, Letter of Credit issued by any nationalized bank. The amount of the Letter of Credit shall be equal to the bill amount of one month on the basis of average of last three months. All expenditures on Letter of Credit shall be borne by the power producers

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PROCESS UNDER THE POLICY Request for Proposal

•Request for Proposal along with required tender documents has to be submitted before the bid submission deadline. Electronic tendering process will be followed.

Evaluation and Selection •Evaluation and selection of successful bids will be made on the basis of minimum bid prices and successful

fulfillment of requirements criteria. Proposal for appraisal •Parties selected will be required to submit a comprehensive proposal to PEDA for appraisal

Concurrence by Punjab Govt. •After appraisal and on determination of its techno-commercial feasibility, PEDA shall forward the detailed project proposal to the Department of Science, Technology, Environment and Non-conventional Energy Sources, Punjab Government for concurrence

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Clearances •The developer shall proceed ahead for obtaining all necessary applicable clearances, forests, pollution control, land, water etc. PEDA shall examine and submit the project proposal for consideration by the

Empowered Committee for necessary approvals/clearances by the State through a Single Window Mechanism and in a time bound manner clearance/approvals shall be accorded within 60 days from the date of submission of completed applications on the required prescribed formats of various clearance issuing bodies / departments along with the requisite fees to the State Nodal Agency. Private developers shall however be required to fulfill all statutory / legal requirements with regard to project

reports/documents submission as per requirement of approval/clearance issuing bodies/organizations under the Govt. rules, regulations & Acts MoU with PEDA: •On concurrence of the Punjab Govt. ,the developer shall sign an MoU with PEDA. DPR: •The developer shall submit a Detailed Project Report (DPR) within two months. The DPR should contain the details of generation technology, fuel, fuel collection and sourcing, water and land utilization and complete cost and financial analysis indicating tariff for the life of the project. PEDA shall examine and give comments/approval within a time bound manner

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Implementation Agreement

•After issuing of all applicable statutory clearances and grant of tariff by PSERC the Producer shall enter into an Implementation Agreement with PEDA within a period of one month from the date of grant of applicable statutory clearances/approval of the tariff for the project. The project developer shall be required to submit a performance security in the shape of Bank Guarantee of Rs 25 lacs per MW at the time of signing of implementation agreement or as stipulated in bid document for bidding process or as

mentioned in the policy for self identified projects. Power Purchase Agreement •PSPCL/PSTCL shall sign the Power Purchase Agreement within 45 days from the date of order issued by Commission in case of fresh tariff approval is to be given by PSERC. In case of already notified preferential tariff and APPC, the PPA shall be signed within 30 days from the date of signing Implementation agreement by PEDA. If the applicant does not take effective steps i.e. achieve financial closure or commencement of construction to implement the project within six months from the date of signing of the PPA, PEDA shall have the right to terminate the implementation Agreement and withdraw all benefits availed under this policy and their project proposal/allotment will be cancelled. (i.e. at least 10% of the total project cost should be incurred). •Financial closure and construction has to commence within 6 months of date of signing the PPA.

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POLICY ANALYSIS Our experts predict that the policy release will also address the following aspects:

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Domestic content requirement is not mentioned in the policy. It is expected that Punjab NRSE policy will not implement domestic content requirement, to maintain the cost-quality equilibrium for solar power projects.

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Taking cue from other state solar policies, commissioning period of the projects is expected to be 12 months.

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Even though the minimum project size for solar power projects is not specified, it can be predicted to be 1MW. Scarcity of available land strengthens this assumption. But if solar park model is adopted, minimum project size might be increased.

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Targets specific to centralised utility scale projects, off-grid and REC are not mentioned.

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Detailed criteria for participating in the bid is not mentioned. Based on criteria of solar policies of other states, the following can be estimated: –

Estimated Processing fee for RfP submission: Rs. 10,000 – Rs. 50,000

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Earnest money: Rs. 25 lakh bank guarantee

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Minimum net worth of the bidding company could be Rs. 3 Crore per MW.

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POLICY ANALYSIS •

Foreign players might be allowed to participate on standalone basis or as member of a consortium, after forming an Indian company.

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Chance of implementing SPO: Tamil Nadu solar policy introduced solar purchase obligation under which most commercial and industrial consumers are expected to purchase or generate 6% (3% in the first year) of total energy consumption from solar projects. This shifts is meant to reduce the financial burden on the state discoms, meanwhile accelerating the market adoption by private sector. The draft of the Punjab policy does not address this, and chances of SPOs being implemented is low.

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Key drivers for investment •

Long term investment horizon - Under a power purchase agreement, state owned entities will purchase power from the selected solar project developers at a pre-determined tariff for a period of 25 years.

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Benefit of accelerated depreciation for project developers

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Low risk – Solar PV projects are considered safe asset class due to predictable and periodic cash flow

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Helps in reduction of carbon emissions

Risks and Challenges •

Extrapolating from the existing reverse bidding trends observed from other state policies, the bidding is expected to be highly competitive, which means lowered returns.

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Bankability of PPA with PSPCL, PSTCL might be questioned, given that both these government bodies have incurred losses. Many financial institutions consider such PPAs as high-risk. A well-implemented payment security mechanism will be helpful in such cases.

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Lack of availability of cheap land

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Technical knowledge limited to only a few players in the state.

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FINANCIAL ASPECTS •

Excluding land, the cost of setting up a solar PV plant is estimated to be Rs. 7.00 - 8.00 crores per MW. Cost has more than halved over the last two years.

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Major source of financing of solar power projects are mentioned hereunder. Each entity has it’s own criteria for financing and can vary from case to case. –

Indian Banks such as Yes Bank, SBI, etc. - After the successful financial closure of a number of projects under phase one of the NSM and projects under the Gujarat solar policy, the banks are garnering more confidence in solar projects. Interest rates may vary from lender to lender (Approximately 13 – 14.5%).

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NBFC (Non Banking Financial Companies): NBFC’s such as IDFC, IL&FS , Power Finance Corporation are also active in financing solar power projects in India.

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Export Credit Agencies: With an objective to promote exports of host country’s solar module manufacturers, ECA’s such as EXIM Bank of the US and China Export & Credit Insurance Corporation (China) can finance solar power projects in India. US EXIM bank has financed about 130MW of solar PV projects and 100MW of CSP projects (estimated). Approximate interest rates, without currency hedging, is about 4-5%.

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Development funding institutions: DFI’s such as the Indian Renewable Energy Development Agency (IREDA), IFC, Germany’s KfW, Overseas Private Investment Corporation (OPIC) and ADB are active in Indian solar market.

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Expected Feed-in Tariff: Looking at the bidding trends of recent past, the tariff is estimated to be Rs. 6.35 – Rs. 8.00. It is estimated that after reverse bidding, successful bidders will be offered to match the minimum bid tariff (similar to

process followed for Rajasthan Solar Policy).

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REFERENCE: • •

http://pscst.gov.in/en/pdfs/climatechange/09-Chapter.pdf http://peda.gov.in/eng/Data/pdfs/policies_acts.pdf

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