Setting up a solar farm is a viable business option

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With abundant sunlight in a year, cost advantage in production of solar cells and modules, and the impetus provided by the Jawaharlal Nehru National Solar Mission (JNNSM), India has a huge opportunity to become a solar super power. The attractive tariffs offered by the Central Electricity Regulatory Commission (CERC) for grid connected solar projects are the prime attraction for setting up solar photovoltaic (PV) farms. While well defined government policies are in place, one also has access to technically proven and commercially viable technologies, well versed suppliers, engineering procurement and construction contractors, and expert consultants.

By Uma Gupta

Thursday, February 23, 2012: Many states have identified certain areas for setting up solar power projects. Hot destinations are Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Andhra Pradesh, Karnataka and 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.

Payback period for a solar farm

The payback depends on many financial parameters like the cost of debt, depreciation, capacity utilisation factor, which, in turn, is dependent on the solar resource at the site and the technology adopted (c-Si or thin film solar), tariff, etc. Using standard numbers and assuming the technology used will be crystalline silicon, under the JNNSM incentive structure the payback period for a solar PV power plant is approximately six years. That is, the cash flows will recover the equity capital in six years though the loans could take longer to clear. Return on equity pre-tax will be about 20 per cent. The project’s internal rate of return is about 15.5 per cent.

Eligibility

According to SEMI president Debasish Paul Choudhury, bidding for power projects so far has been technology neutral. The bidders need not have any experience. However, one needs to have a strong balance sheet, in case banks are reluctant to fund projects. “Putting a technical filter will help getting only the

Debasish Paul Choudhury, SEMI president

experienced and competent companies to enter the business. The government has increased the project size to 5-50 MW for corporates willing to set up a plant. It’s a welcome step, as it will evoke interest amongst big and independent power companies like Jindal, Adani and Tata Power,” says Debasish Paul Choudhury.

Under NTPC’s Vidyut Vyapar Nigam Ltd (NVVN) scheme, there has to be a minimum capital investment of about Rs 750 million, at least 30 per cent of which has to come from the promoters’ equity contribution. Thus, very small entrepreneurs with no prior business assets might not be able to take part in this scheme. However, outside of the NVVN scheme, it is possible to encourage entrepreneurs to set up solar PV power plants smaller than 5 MW, through incentives based on power generation that are given by the Ministry of New and Renewable Energy (MNRE).

The procedure

Suitable land for solar application, power purchase agreement with the local or state electrical authority, and the required finance, are the basic requirements for investing in a solar grid plant. The key building blocks of a grid connected solar power plant include the solar

K Subramanya, CEO, Tata BP Solar India Ltd

module (the power generating device), solar inverters (which convert the power produced into AC power) and power evacuation (which steps up the voltage to the specified kilovolt level and injects into the grid).

“The project investor should choose the right EPC contractor who can skilfully design the solar power plant, supply the required components and also execute the project with good workmanship—ensuring useful life of 25 years, and undertaking operation and maintenance for at least 10-12 years, if not 25 years,” states K Subramanya, chief executive officer, Tata BP Solar.

Solar module is the key building block, both technically (as it solely contributes to the energy production of the plant) and commercially (as it constitutes over 70 per cent of the project cost). So if the EPC contractor is an established solar panel manufacturer in the country with a good financial track record and credibility that suggests dependability over the next 25 years, considerable de-risking is done from the point of view of the investor in terms of securing the returns.

SRC Sathyanarayan, head-PV power plants, TUV Rheinland, lists out the financial, technical and other requirements as below. 

SRC Sathyanarayan, head-PV power plants, TUV Rheinland

Financial criteria: The net worth of the company should be equal to or greater than the value calculated at the rate of Rs 30 million or equivalent US$ per MW of the project capacity up to 20 MW. For every MW additional capacity, beyond 20 MW, additional net worth of Rs 20 million needs to be demonstrated. The net worth is computed on the basis of unconsolidated audited annual accounts of the company.

The company is required to submit annual audited accounts for the last four financial years (or starting from the year of incorporation if the period of existence of the company is less than four years) indicating the year which should be considered for evaluation, along with a net worth certificate from a chartered accountant to demonstrate fulfilment of the criteria. However, for new as well as existing companies, the net worth criteria can also be met as on date not more than seven days prior to the date of submission of request for selection (RfS) by the company.

For the purpose of meeting financial requirements, only unconsolidated audited annual accounts of the company are used. However, consolidated accounts may be used, provided the project developer has at least 26 per cent equity in each company whose accounts are merged in the audited consolidated account. and the financial capability of these companies is not considered again for the purpose of

Deepak Zade, senior vice president (energy and carbon services), MITCON Consultancy & Engineering Services

evaluation of the bid.

Technical criteria: Under phase I of the JNNSM, it is proposed to promote only commercially established and operational technologies to minimise the technology risk and to achieve the commissioning of the projects.

Connectivity with the grid: The plant should be designed for interconnection with the transmission network of the state transmission utility, central transmission utility or any other transmission utility at a voltage level of 33 kV or above. The project developer should indicate to the transmission licensee the location (tehsil, village and district, as applicable) of the proposed project. In this regard, he needs to submit a letter from the transmission utility along with RfS, confirming the technical feasibility of the connectivity of the plant to the substation.

The responsibility of getting connectivity and open access to the transmission system owned by the transmission utility, as may be required, lies with the project developer. The transmission of power up to the point of interconnection where the metering is done is the responsibility of the solar power developer at his own cost. Interconnection with the discom network may be accepted in exceptional cases, where the following conditions are met: the discom is the ultimate buyer of the entire quantity of power from that project, the NVVN has signed a power sale agreement with that discom, and the discom approves an agreed interconnection point at an agreed voltage. This arrangement is subject to the arrangement of energy accounting with the state load dispatch centre.

The arrangement of connectivity can be made by the solar power developer through a dedicated transmission line, which the developer may construct himself or get constructed by the state transmission utility, discom or any other agency. The entire cost of transmission, including the cost of construction of line, wheeling charges, losses, etc, from the project up to the interconnection point are to be borne by the project developer and not reimbursed by NVVN or met by the state transmission utility or discom. This connectivity can also be achieved through a shared line with any agency or any existing line of discom or state transmission utility, provided the energy accounts are bifurcated and clearly demarcated for the power generated at the solar project, and are issued by the state transmission utility or state load dispatch centre concerned.

The project developer may, however, shift the interconnection point closer to his project if a 33 kV substation comes closer to the project during the tenure of the PPA, provided: the interconnection is maintained at 33 kV or above, energy at the solar project is clearly demarcated for the power generated at the solar project, and energy accounts are issued by the state transmission utility or state load dispatch centre concerned. The costs associated with this arrangement, including the wheeling charges and losses up to the interconnect point, are also to be borne by the project developer.

Domestic content: One of the important objectives of the JNNSM is to promote domestic manufacturing. Here, developers are expected to procure their project components from domestic manufacturers as much as possible. However, in the case of solar PV projects selected in the first batch during FY 2010-11, it was mandatory for projects based on crystalline silicon technology to use only the modules manufactured in India.

For solar PV projects to be selected in the second batch during FY 2011-12 too, it will be mandatory for all the projects to use cells and modules manufactured in India. PV modules made from thin film technologies or concentrator PV cells may be sourced from any country, provided the technical qualification criterion is fully met.

In a nutshell, effective planning, management and execution are the keys to success. And getting the project financed at a reasonable rate of 3-4 per cent is one step towards success.

WHY SOLAR FARMS MAKE SENSE

  • Annual solar radiation in India is 5.2-6.5 kWh/m2/day, and thus there is an abundant stock to trap
  • Ample land available for solar parks
  • Availability of government policies both at the national level (Jawaharlal Nehru National Solar Mission) and state level (Solar Power Policy in Gujarat, Karnataka and Rajasthan)
  • Attractive tariff rates, in the range of Rs 11-18 per kWh
  • Financial assistance from financial institutions and banks
  • Reduced custom duty followed by exempted excise duty on solar PV panels
  • Carbon credit benefits
  • Payback period of six to eight years
  • Project life of 25 years

Deepak Zade, senior vice president (energy and carbon services), MITCON Consultancy & Engineering Services

TECHNICAL REQUIREMENTS FOR PV MODULES USED IN GRID SOLAR POWER PLANTS

PV module qualification: PV modules used in grid solar power projects must qualify to the latest edition of any of the following IEC PV module qualification tests or equivalent BIS standards:

  • Crystalline silicon solar cell modules—IEC 61215
  • Thin film modules—IEC 61646
  • Concentrator PV modules—IEC 62108

In addition, PV modules must qualify to IEC 61730 for safety qualification testing. For PV modules to be used in a highly corrosive atmosphere throughout their lifetime, they must qualify to IEC 61701.

Authorised test centres: PV modules must be tested and approved by one of the IEC authorised test centres. In addition, a PV module qualification test certificate as per IEC standard, issued by Electronics Test and Development Centre (ETDC), Bengaluru, or Solar Energy Centre will also be valid. The ministry will review the list of authorised testing laboratories/centres from time to time.

Warranty: Mechanical structures, electrical works and overall workmanship of grid solar power plants must be warranted for a minimum of five years.

PV modules used in grid solar power plants must be warranted for output wattage, which should not be less than 90 per cent at the end of 10 years and 80 per cent at the end of 25 years.

Identification and traceability: Each PV module used in any solar power project must use an RF identification tag. The following information must be mentioned in the RFID used on each module (this can be inside or outside the laminate, but must be able to withstand harsh environmental conditions):

  • Name of the PV module manufacturer
  • Name of the solar cells manufacturer
  • Month and year of the manufacture (separately for solar cells and module)
  • Country of origin (separately for solar cells and module)
  • I-V curve for the module
  • Wattage, Im, Vm and FF for the module
  • Unique serial no. and model no. of the module
  • Date and year of obtaining IEC PV module qualification certificate
  • Name of the test lab issuing IEC certificate
  • Other relevant information on traceability of solar cells and module as per ISO 9000

All grid solar PV power plants must install necessary equipment to continuously measure solar radiation, ambient temperature, wind speed and other weather parameters, and simultaneously measure DC power generation as well as AC power generated from the plant. They are required to submit this data to NVVN and MNRE or any other designated agency online and/or through a report on regular basis every month for the entire duration of the PPA.

Land: The project can be located in a state designated area or private land, provided the land meets the required criteria for setting up solar power projects. Developers need to prospect for this land, using geographical information systems covering parameters like annual average solar radiation levels, protected areas like forests, water bodies, land use, highways and proximity to transmission lines. Based on this prospecting, physical survey can be done for site selection. Thereafter, detailed solar resource assessment studies have to be 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 megawatts size power projects, as otherwise power generation cannot be assured.

If the estimated 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.

About 5 acres of land per MW for solar PV (crystalline) is required. It is assumed at 4-5 acres for crystalline silicon (c-Si) technology and 7-8 acres per MW for thin-film solar (a-Si or CdTe) technology. In reality, it depends on other parameters like the cost of land, ground coverage ratio and choice of sun tracking systems (with sun trackers, the land required is about 6 acres per MW for crystalline solar modules). To avoid inter-array shading, ground coverage ratio can be 0.45 to 0.65. Power generation will vary based on it. It is preferable to have a plain landscape. If the terrain is uneven, topographical survey is mandatory to take a decision on how the layout is to be done. It is preferable to have a rectangular or square land configuration.

Investment: With the present day prices, the investment hovers around Rs 100-120 million/MWp depending upon the technology chosen.

Technology: There are several types of semiconductor technologies currently in use for PV solar panels. Crystalline silicon and thin film are the most widely adopted. Some other technologies are mono-crystalline silicon, multi-crystalline silicon, CdTe, amorphous silicon, and CIGS.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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