Open Access Solar Projects in Gujarat

In my blog today I will analyze what it would mean for any developer to Invest in an Open Access Solar Projects in Gujarat (Refer- Gujarat Solar Policy). Let’s first go over the basics and then analyze the costs an investor will need bear per unit of energy generated.

Basics:

So, when supplying electricity via solar power plant to a customer the maximum that can be supplied is only 50% of the Contract Demand/ Sanctioned Load of the customer. This is a variation from the Policies in other states which don’t have such restrictions (Maharashtra, Telangana, Rajasthan etc)

The tariff will determine all the profits and when pitching to the customer, the developer understands that the tariff needs to be extremely competitive and not just a little below the grid tariff.

Charges (Considering the State DISCOMs):

Source: GERMI Power Blog (refer)

Note: Transmission Charge, Loss and Wheeling losses are calculated taking into consideration a 5MW solar power plant.

Transmission Charge: INR 0.16 (refer)

Transmission Loss: INR 0.26

Wheeling Charge: INR 0.14 (refer page 103)

Wheeling Losses: INR 0.55

Cross Subsidy Surcharge: INR 1.45 (refer to page 105)- 50% exempt for non-REC

Additional Surcharge: INR 0.49 (refer)- 50% exempt for non-REC

Electricity Duty: INR 0 (Exempted)

Charges for non-REC projects= INR (0.16+ 0.26+ 0.14+ 0.55+ 0.725+ 0.245)

                                               = INR 2.08

Hence the realizable tariff for this project comes out to be (considering an offered tariff of INR 6) only INR 3.92. Projects listed under REC will have even more charges, but for the purpose of our discussion, let’s stick with non-REC projects since REC projects are now almost obsolete.

How Investors will make their investments in the state profitable with perhaps, a maximum realizable tariff of INR 3.92, will depend on project to project. With a record low tariff already set (refer), realizable tariff of INR 3.92 should not be very difficult. The upcoming challenges would be a) a win-win between Investor and customer and b) getting approvals from the Gujarat DISCOM (state). Perhaps, regions with private DISCOMs may have lesser roadblocks, but again, it remains to be seen.

Understanding the basis of Record Low Tariff

So, a few days back we woke up to a record low tariff of INR 2.97 and realized that, it’s become much cheaper (by more than 50% refer) for the buyers Delhi Metro Rail and MP utilities to purchase this electricity (refer). This sets a whole new landscape about how cheap solar energy has become and in the future may become. But, everyone has been toying with the idea of how it could reach this tariff in the first place. How is it POSSIBLE?

Highlights

Let’s have a look at the broad highlights of the PPA (shown in the picture below). Focus on the column on the extreme right. The levelized tariff achieved now is a whole rupee lower than that achieved last year. But then again, in the last year, prices of panels have dropped as well (refer). But let’s try to answer more reasons on how it could get to this tariff.

How could it reach this tariff?

Well, let’s look at the design of the PPA (from what is known in public forums), the escalation per year is 5 paisa which is only 1.6% in a year for 15 years. One of the critical points is that there is Deemed Generation benefit which means that ‘x’ number of units everyday would be paid for by the buyers irrespective of their consumption. Another point that hedges is the risk is that, this is backed by payment guarantee by the State Government which secures the payment even more.

Payback period

Well, not too much can be said about the payback period just yet and nor can too much be said about the IRR as winning bidders have not revealed too many assumptions and terms when finally bidding for a INR 2.97 tariff. So, it remains to be seen how the project is really done.

But, if we have to compare it to the INR 4.34 tariff (last year) with the levelized tariff of INR 3.30 there has been a 23% reduction in the tariff with a 26% decrease in cost of Solar Panels which amounts to 16% decrease in overall project cost. There may be other contributing factors such as reduction in last cost which may have contributed for this project to make sense. But it does remain to be seen.

Who stands to win? Both the buyer and the seller (let’s hope!).