Answers to your Questions on Solar Power Projects in India
1) What is the total investment required for a Grid Connected Solar Power Plant, per MW?
The investment ranges from Rs 14cr to 16cr per MW depending on the technology. CERC's norms specify Rs 17cr per MW in general without mentioning the technology but solar module prices have come down significantly in the recent past.
2) Which are the ideal states for setting up of solar power projects?
Hot destinations are Rajasthan, Gujarat and MH, MP, Andhra, Karnataka, Tamil Nadu as far as solar radiation is concerned. Presently, only Rajasthan and Gujarat have a clear policy and guidelines on the procedures for setting up solar power projects. Other states may also initiate the policy and procedures soon now that Jawaharlal Nehru National Solar Mission has been launched by Government of India.
3) How do you choose an ideal location within a particular state for setting up of a solar power project?
Many states have identified certain areas for setting up solar power projects. A project can be located in such designated areas (give the advantage of sharing common infrastructure that is available or will be made available) or a private land can also be used provided the land meets the required criteria for setting up solar power projects.
In addition, we have to do prospecting using Geographical Information Systems (GIS) covering parameters like annual average solar radiation levels, protected areas like forests, water bodies, land use, highways, proximity of transmission lines. Based on this prospecting, physical survey can be done for site selection. Thereafter, detailed solar resource assessment studies have to done through satellite data and computer models to obtain the hourly solar radiation data to simulate the estimated generation. This process is a must for MW size power projects (even if a State has selected some area for Solar Farms) as otherwise the power projects' generation cannot be assured. If the estimate power generation calculations are not accurate, there could be problems for the project approval by the power purchasers (NVVN) besides problems with Bankers for sanction of the loan or even at post commissioning stage.
4) What is the space / area / land required for the plant?
Generally, it is assumed at 3.5 to 4acres for crystalline silicon (c-Si) technology and 6 to 7 acres per MW for thin film solar (a-Si or CdTe) technology. In reality, it depends on other parameters like cost of land, Ground Coverage Ratio (GCR) (to avoid inter array shading, GCR can be 0.45 to 0.65 and generation will vary based on GCR) and choice of sun tracking systems (with sun trackers the land required will be about 6acres per MW for crystalline solar modules).
5) What is the time required from date of commencing the project, before the plant can go 'live', and revenues starts?
About 6 to 8 months from the date of financial closure is a safe assumption considering the permits / approvals for grid interconnection. Signing of PPA and financial closure can take 3 to 6 months.
6) Is the tariff for solar power guaranteed by the State / Central government?
The tariff period will be 25 years as per Central Electricity Regulatory Commission (CERC) norms and all power purchasers will adopt 25years only for solar power. The tariff is guaranteed based on the PPA that will be entered into which in turn will be based tariff order of CERC dated 3 rd Dec 2009. The payment guarantee mechanism has to be built into the PPA with the state utility or DISCOM or Energy Trader. Under the National Solar Mission all purchases will be made by NTPC Vidyut Vypar Nigam Ltd (NVVN).
7) What is the Payback?
The payback is dependent upon many financial parameters like cost of debt, depreciation, the Capacity Utilization Factor (CUF or PLF which are in turn dependent on solar resource at the site and the technology adopted c-Si or thin film solar), tariff etc. But as per the Tariff Regulations in India and the financial parameters therein, the payback could be about 7 years (i.e the cash flows will recover the equity capital but the loan will be cleared in 10 or 12 years).
8) What is the return of the investment?
RoE post tax will be about 16% and a maximum allowed equity is 30%. Equity above 30% will be treated as debt only for the purpose of tariff determination wherein benchmark project costs and other financial parameters and operating expenses are considered. Interest allowed may be PLR or PLR plus 1% as per the CERC norms.
RoE before taxes will be 19% for the first ten years (as MAT is 17% including surcharges and E.cess) and thereafter 24% for the next 15 years. In reality, as surcharges, cess and tax rate vary from time to time, the purchaser reimburses for the tax component based on the payment challans for taxes paid.
9) Are Banks interested in financing solar power projects?
The Debt Service Coverage Ratio (DSCR) works out to an average of 1.49 which is considered quite acceptable to commercial banks for sanction of loan. The maximum debt that is permitted as per CERC norms is 70% and most banks should be find this acceptable based on the financial strength and net worth of the company / promoters.
The present policy driven by the National Solar Mission and PPA for 25 years with a central PSU like NTPC's subsidiary should provide adequate confidence to Banker to finance solar power projects.
10) Critical mass / scale required for cost per MW to come to an optimal level (installed cost) and cost per unit of production to be minimum (operating cost)?
Atleast a 5MW plant in a single location could be considered as an optimal size for installation and maintenance.
The operating costs are quite negligible and have been considered by CERC as Rs 9lakhs per MW which does not include insurance cost for the plant.
