Friday, 31 August 2012

Can a Solar Energy Power Project become Financially viable without Subsidies or Incentives?

(Recent updates of 09th Mar 2015 below)

The driving force behind JNNSM to encourage Solar Energy Power Projects was the depletion of domestic fossil fuel resources, reliance on imported fuels - a drain on foreign currency, environmental concerns and the need for a better power portfolio for the Country which can solve several problems including overcoming the problem of T & D losses (Decentralized Power Systems). While several Incentives and Subsidies have been announced under JNNSM and other State-level initiatives - it should be noted that what would happen in case of absence of these subsidies or incentives.

Can a PV Solar Power Project become viable without subsidies or incentives being offered by the Government? The answer is yes it can. Presently it can very well work for Industrial Plants who are looking for PV Solar as a source for captive power generation. Industrial plants are paying quite a high tariff for grid power which will keep on rising - even if India were to meet all of its power demands today - due to natural growth of economy.

(Interesting Read - Energy Audit :: Why Should a Plant go for it?)

While PV Solar remains a topic of interest among many it is worthwhile to note that it is commercial viability which matters for an Investor or Captive Power user or an Independent Power Producer. We carried out an analytical comparison between various Power sources and below is the graph depicting the Cost of Power (INR / kWh) from each source of Power i.e. PV Solar Project, Utility Grid and D.G. Set. For PV Solar power since there is nearly ZERO running cost, the INR per kWh value has been obtained by amortising the cost of Project over a period of 10 years although trouble-free life of a PV Solar Project is around 25-30 years.
Solar Energy Photo Voltaic Power Project Cost per Unit
INR per kWh Comparison of Solar Power with Grid and D.G. Set
(Above Diagram taken from our FREE Solar Energy Report)

It should be noted that NO Government subsidies and incentives for Solar Project have been considered here. If the same is considered then INR per kWh for PV Solar can be much lesser possibly lesser than INR 3.00 per kWh.

(Suggested Reading - 30% Subsidy on Solar Projects)

Moreover INR 5.0 per kWh has been considered as the present grid price. In most of the cases across India this is true and INR per kWh for Grid Power is in the range of INR 6.0 to INR 7.0 as well. In some rare cases it can be lesser than INR 5.0 per kWh. For a plant using Grid + D.G. Set the landed cost will be certainly much above INR 5.0 per kWh.

Typically a PV Solar Project has a life of 25-30 years (with appropriate warranties in place) and its Project IRR is quite attractive at 16% (minimum) and can be as high as 20% as well. In fact equity IRR of 75% (minimum) and a maximum of 95% ensures that Equity is recovered from the project within 2 years of investment - on Tax benefits alone !

(You may also like - Is Solar Energy the Answer to India's Power Problems?)

Updates on 09th March 2015
With falling PV Solar prices the capital cost of project for PV Solar is nearly the same as that for a wind power project. The obvious benefit of Solar project over wind project is that a Solar project requires minimal maintenance and hence negligible OPEX.

Additionally the predictability is much higher in PV Solar as we can accurately extrapolate the expected kWh through
  1. Onsite Solar radiation analysis during site survey.
  2. Analyzing Solar radiation map of the region.
  3. Software simulation of the project.

Consequently cash-flows from a PV Solar project can be more accurately projected.

As is known, PV Solar can be ideally used across the Country as against other technologies which could only be used in certain parts. For eg. Wind projects could only come up with areas which fall in the wind-pocket zones. Hydro projects could be installed only in areas with river beds etc.

The rising grid prices is another reason for worry for Industrial power consumers. Some of the States (Maharashtra, Karnataka, U.P., M.P. etc.) have already hiked industrial power tariff or announced their plans to hike the same in 2015. With the recent re-allocation of coal blocks at 5x to 10x the original prices would be another cause of worry for consumers as eventually the added cost would be passed on to the consumers. These factors would result in further rise in power tariff., making Solar power project more viable.

The above driving factors is resulting in rising popularity of PV Solar projects and the grid-parity will be achieved much sooner than was earlier anticipated. MNRE in it's recent directives has hinted that subsidy to PV Solar projects is likely to be discontinued. Even if no subsidies are considered a PV Solar project could payback for itself in 3-5 years for a Industrial or Commercial facility if

If the entire life of a PV Solar project is considered for simple amortization then cost of power from PV Solar project is less than INR 3 per kWh - without subsidies.

8 comments:

  1. Amit Shrivastav9 March 2015 at 00:47

    Interesting blog post and very much relevant to today's energy scenario. Manufacturing sector which is looking for a boost can certainly adapt commercially viable green energy solutions like Solar energy to meet a part of their power requirements through captive solutions.

    What about the days when the power is not consumed on the days of annual shutdown, planned maintenance etc.?

    ReplyDelete
    Replies
    1. Dear Sir,

      Thank you for your comment.

      PV Solar system is synchronized with your existing power system i.e. Grid / CPP / DG etc. as the case maybe.

      The days the plant or a commercial facility is shut down and not consuming power there are 2 options :

      1. Net-metering : Some States (Karnataka, T.N., A.P., W.B. and Uttarakhand) have introduced net-metering in which case unused Solar kWh could be fed to the grid. So on the days when the load is lesser (or no load) the additional Solar power generated could be fed to the grid and can generate revenue for the Company. There are other States which would be announcing their net-metering policy for Solar projects soon.

      2. Battery Charging : In case a State does not have net-metering or a developer would not like to export to the grid the alternative is to charge battery banks. The stored power could be used to meet excess power requirement at a later time.

      There could be alternative arrangements for power banking which could also be worked out with the State utilities, in the absence of a policy. The most viable solution would depend on various factors including - project size, power consumption pattern, project location etc.

      We hope your query has been answered. If not, please do let us know by commenting here. Alternatively you may also write in to us on info@econserve.in

      Thank you again.

      Delete
  2. Very informative article - with good updates.

    Would like to see more of such articles from Enerco Energy

    ReplyDelete
    Replies
    1. Dear Sir,

      Thank you for your compliment.

      Please do check out our other posts and articles which you may find interesting. You may find our Solar Energy Report (FREE) article under this section useful.

      Also if you are looking for Energy Conservation and Energy Efficiency related services and solutions - you may like to visit our Energy Audit Blog.

      Thank you again.

      Delete
  3. Hello,

    Are the MNRE subsidies discontinued for Solar projects? Also what about 80% Accelerated Depreciation on Solar projects, is it still applicable?

    Thank you,
    Bharat Patel

    ReplyDelete
    Replies
    1. Dear Sir,

      Thank you for your comment.

      MNRE has not given a clear directive of discontinuing the 30% capital subsidy altogether. However in their recent directive they have mentioned about giving preference to Government buildings and non-profit institutes for subsidies. If there is surplus subsidy available then the private projects may be considered.

      Also there is a directive about the capital subsidy on PV Solar projects being reduced from 30% to 15%. However some States have come forward to fill that gap by rolling out State subsidies.

      Regarding 80% accelerated depreciation - that is still valid and applicable for PV Solar power projects. A profit making entity can claim tax benefits by installing a Solar power project.

      We hope your queries have been answered. You may kindly write to us for any specific query related to your project and we will be happy to assist you.

      Thanking you.

      Delete
  4. Dear Sir,

    I heard some States are also providing subsidies over and above the 30% MNRE subsidy. Is this true? Also how can a Solar project be viable in the absence of subsidies?

    Rgds.,
    Jiten Singh

    ReplyDelete
    Replies
    1. Dear Mr. Jiten,

      It is indeed true that some States including Haryana, M.P., Chhattisgarh provide subsidies over and above MNRE subsidy. It is typically 15%.

      However kindly note that even MNRE subsidy of 30% is being planned to discontinue as Solar power projects have become viable even in the absence of subsidies. As mentioned in the article above a Solar project could become viable especially in the current scenario wherein the cost of power generation from a Solar project has come down significantly and now stabilized.

      For an Industrial plant or a Commercial facility paying INR 6 per kWh and above the payback is attractive. Additionally a tax paying business can also claim 80% accelerated depreciation.

      Hope your query is resolved.

      Thanking you !

      Delete