Thursday, 11 April 2019

Solar Project Financing - CAPEX vs OPEX / RESCO - which is better for you?

Solar CAPEX
(Investment by Power Off-taker / Consumer)
Solar OPEX / RESCO / BOOT
(Investment by ENERCO)
Capital investment of upto INR 4.0 Crores per MW would be done by the consuming company.
Capital investment of upto INR 4.0 Crores per MW would be done by ENERCO. No initial investment required by the consuming company.
40% Accelerated Depreciation as per Indian IT Rules can be claimed by off-taker.
40% Accelerated Depreciation as per Indian IT Rules will be claimed by ENERCO.
Operation and Maintenance of the Project is the scope of Consuming Company., typically about INR 6-8 Lakh per MW per Annum + replacement cost of equipment, if any.
Operation and Maintenance of the Project is in the scope of ENERCO.
After initial investment recovery period of about 3 to 5 years, FREE power is available to consuming Company for 20+ years.
Off-taker continues to pay to ENERCO for the duration of PPA (typically 10 to 20 years).
Technology risks are more as once installed the projects would have a life of 25 years.
Technology risks are lesser as technology up-gradation could be negotiated with the ENERCO (subject to conditions).
Expected Project IRR would be 15% (+Tax Benefits)
Consumer will start saving from the first day of project commissioning on discounted grid tariff (typically INR 4.5 per kWh for a MW+ project)
Assets owned by off-taker from the 1st day of operations.
Assets can be transferred to off-taker with a buyback option for each year post commissioning.
Performance of the project is responsibility of one-time Contractor chosen for the project.
Performance of the project is responsibility of ENERCO to give ensure most optimum output.
There are other possible FINANCIAL models such as :
1.    EMI with payback option of 3 to 5 years.
2.    Combination of above 2 models i.e. Performance linked PPA.
3.    Open Access OPEX / 3rd party Open Access.
4.    Deferred EPC + Customized EPC Package etc.
5.    Customized Financial model.

You can download the above FREE in PDF format from - Solar CAPEX vs OPEX (PDF)

Contact us to NOW know more : www.econserve.in / solar@econserve.in /
   +91 9890737447
ENERCO ENERGY SOLUTIONS LLP (estd. 2009) is India’s oldest and most reputed Solar Power Company. Clientele – Reliance Industries, Aditya Birla Group, JSW Steel, Ambuja Cement, Emami Group, Essar Steel, Mahanagar Gas Ltd. etc. to name a few.

Monday, 26 February 2018

Solar Energy - Can it boost your Company's Profits?



Solar Energy installations in India have grown in the recent years with widespread acceptance due to fall in cost of project installation. The erstwhile target of 20 GW by 2022 set by the previous Government is already achieved in 2018 and we are now poised to achieve 100 GW (new target set by the incumbent Government) of Solar Power installation by 2022.

So far the installed Solar projects have been of utility scale with very few Captive Solar Projects. Another interesting point is out of 100 GW set Solar Energy target, 40 GW is for rooftop (or ground mounted) captive Solar Power Projects.  It is now estimated that a big number of Solar projects in 2018-19 would come up on Captive basis due to the following reasons :
  1. Solar Energy can boost a Company's profits.  (Really? Yes, read below.)
  2. Ease of project financing with a wide variety of financing options.
  3. Availability of net-metering in major States.
  4. Rising cost of conventional grid power.
  5. Improving business prospects.
While you would willingly agree on the other points., the point 1. above needs further detailing and explanation. Here is how Solar Energy can boost a Company's profits -


A. Direct savings by Solar BOOT / OPEX model 
(Recommended for immediate gains as a Company starts saving from first day of commercial operations of Solar Project)


BOOT OPEX SAVINGS CALCULATION
for a 500 kW PV Solar Project
Year
Solar Power Generation
Price Difference between Grid and Solar (INR per kWh)
Per Annum Savings
(INR per annum)
1
750000
2.50
1875000
2
749250
2.58
1929319
3
748501
2.65
1985211
4
747752
2.73
2042723
5
747004
2.81
2101900
6
746257
2.90
2162792
7
745511
2.99
2225449
8
744766
3.07
2289920
9
744021
3.17
2356259
10
743277
3.26
2424520
Total


21393092

Key points:
  1. A Company can save nearly INR 20 Lakhs (per Annum) by going Solar through BOOT / OPEX route., which translates into a savings of INR 2 Crores+ in 10 years WITHOUT any upfront investment.
  2. The projected savings are much higher as the grid power escalation is conservatively estimated at 3% whereas it is expected to shoot up much higher in the coming years.
  3. The above table is only considering 10 years but actual Power Purchase Agreements (PPAs) are for 15-20 years (or more) thereby more savings for the Company Year On Year.
  4. We have given the calculations for a 500 kWp PV Solar Power Project. For higher capacity installations savings could be much higher due to economies of scale.
(Check out our latest post on - Solar Project Financing - CAPEX vs OPEX / RESCO BOOT )

These savings can directly and positively impact the Company's bottom line as the savings translate into reduced cost of production.

B. Revenue addition by hedging against power cost rise + asset creation (CAPEX)
(Recommended for medium to long-term gains as Company starts saving once the project has paid back -> typically in 3 to 5 years and then FREE Power for remaining 20+ years)



Key points :
  1. CAPEX Project with Capital investment from the Company wherein payback can be anywhere in 3-5 years and the asset then delivers FREE Power for 20+ years.
  2. In the real world payback would be much shorter as we have considered a nominal grid tariff of INR 6.0 per kWh but the tariff is much higher than this for Industrial and Commercial users. 
  3. Per annum escalation in grid tariff is considered at a nominal 3% which is conservative as grid tariff is expected to shoot up at a much higher rate in the coming few years as Government continues to shut-down conventional older generation power plants.
  4. A Company can also claim 40% Accelerated Depreciation (as per Indian IT rules) benefit for investment made in Solar Power Project thereby reducing the Company's tax liability.
(Another interesting article - Does Energy Audit really save energy?)

We have only considered CAPEX (self-funded) and OPEX (100% 3rd party funded) financing models as they are the most popular ones in India. Additionally there are a variety of other financing options possible too. A customized financing option can work out in favor of all the stakeholders involved thereby providing maximum benefits to your Company.

If you have any comments / feedback / queries then please comment below. Alternatively you could also send a mail to ENERCO@YMAIL.COM    OR    SOLAR@ECONSERVE.IN  if you have any specific query pertaining to your requirements or in general.

Enerco Energy Solutions LLP (estd. in 2009) specializes in INDUSTRIAL & COMMERCIAL Solar Project Financing & Execution., we offer -
  1. Maximum possible financing options (OPEX / Low-cost EPC / EMI / Deferred CAPEX etc.) and assist you in choosing the most suitable financing option inline with your requirements.
  2. High-end Techno-Commercial solution to  ensure optimum project size and best output.
  3. Variety of Project Configurations including Captive / Open Access / Group Captive / 3rd Party  etc.
Do visit www.econserve.in to know more....














Wednesday, 23 November 2016

Solar Energy Projects : Why do they Fail?

Solar Energy Projects : Why do they Fail?

Solar Energy could be used to generate Power through direct conversion of Sunlight by use of Photo Voltaic cells, commonly known as PV Solar. The other way is by the use of heat energy of the Sun to generate steam for running power turbines, commonly known as CSP or Concentrated Solar Power. 

Solar PV is a clear winner among the two due to lesser capital requirement for project installation, ease of commissioning, modularity, scalability, minimal O&M and minimal water requirement etc. It is comes as no surprise that CSP forms less than 1% of total Solar installations across the Globe whereas 99% of the Solar market is dominated by Solar PV.

Solar Energy Global Cumulative PV Installation Graph
Fig. 1 Global Cumulative PV Installation (in MW)

Despite good number of Solar installations and a very good experience there are a number of Solar Projects fail. The failure cannot be necessarily attributed to Technology aspects alone but also to financial and other aspects. Read on to know more including a few Case-studies.
Technology Aspects
PV Solar Project, although relatively easier to install and commission as compared to other Renewable Technologies, has it's own share of Technology challenges. These could be related to selection of wrong technology, manufacturing defects, O&M related issues etc.

To begin with the chosen technology for a site plays a crucial role in optimum output, project reliability as well as longevity. PV Solar has various types of technologies under Crystalline and Thin Film. A particular technology suitable for one site may not be suitable for another one. This depends on the radiation levels, climatic conditions, environment, project layout etc.

There have been instances of projects with output issues and downtimes. A critical analysis of these projects point out a lack of feasibility check and preliminary study. Some of these projects are listed on MNRE website too and the list is updated quite frequently. A case in point is a 5 MW PV Solar ground mounted project installed in Gujarat. As can be seen in Fig. 2 there has been a rapid degradation primarily attributed to the selection of wrong (outdated) technology and improper vendor.

[Other Popular Post - Solar Energy Project : Execution Steps]

Fig.2 Degrading output for a wrongly chosen PV Solar Technology for a
5 MW PV Solar Power Project

Another important point of consideration is the quality of PV panels or modules which play a key role. A PV panel may appear perfect to the naked eye but could be micro-cracked the result for which would be visible only 3-5 years down the line. This may also be a result of sample / batch testing which could range from as low as 10% to 20% of all the modules being produced by the manufacturer. Good quality manufacturers generally rely on random and periodic testing (more than 50%) of the modules being produced. This results in good quality and reliable output.

Similarly there are claims of 100% PID (Potentially Induced Degradation) free panels by several PV Module manufacturers whereas as per a recent study more than 95% of the Module manufacturers have failed the PID test. Like in the previous case a PID affected module will start showing rapid degradation after 3-4 years in operation. Lack of safety measures such as absence of lighting protection or appropriate earthing with refer to general electrical safety., which are expected to be practiced in all projects.

Fig. 3 Micro-cracks visible through Electro-Luminence (EL)
tests and not to a naked eye
While manufacturing defects can be avoided by careful evaluation of vendor and their testing parameters, a developer or investor should also pay close attention to the insurance of the module manufacturer against manufacturing as well as against performance related issues.

A typical static PV Solar project requires minimal or zero maintenance. But the panels need to be kepts clean and may require periodic or frequent cleaning - depending on the air quality and site conditions. Design aspects, Dust collection or bird droppings can result in issues such as hot-spots which could disrupt operations (in severe cases) or negatively impact output. Hot-spots could also be a result of manufacturing defects.

Fig. 4 Hot Spots in PV Array revealed through Thermography

Commercial Aspects
In addition to the Technical aspects the success of a Solar Project depends largely on Financing. Correct financial structuring of the project is imperative and it is necessary to know all the financing options available before finalizing on the most suitable one.

[Others are reading - Solar Energy : OPEX / RESCO vs CAPEX - which is the right one for you?]

There cannot be one-size-fits all approach in this space too. For instance a company which is looking for tax benefits would prefer funding the project itself. The IRR could range between 13% and 16% depending on various factors. Alternatively if a company is looking to cut on it’s energy bills would prefer a 3rd party invested project. Another company may look for a low-cost debt financing or an innovative financing mechanism for joint ownership or performance-linked loan to ensure high quality. There is a need for customized financial solution which fits inline with the long-term vision and strategy of the Company.

In several cases the financial modeling is not done appropriately either due to lack of options or due to lack of awareness. For example a Company was looking to save on it's Electricity Bill but was not aware of the BOOT / RESCO  / OPEX option of 3rd party financing. They installed a 1 MW Rooftop Project under the CAPEX model but realized they could have saved more by going in for 3rd party financing.

Later when they were approached with the option of 3rd party financing they were surprised to know that such an option existed. Due diligence before installation and commissioning of the project is imperative as it enables one to understand all the Techno-Commercial aspects as well as financing options available.

It becomes difficult to refinance such projects due to the quality of components used and at times the drafting of the agreement. It is thus imperative to consider all the financing options (there are various options and not just BOOT and EPC) which should be considered before execution of the project.

Even for a OPEX or a 3rd party financed project it is necessary to evaluate all possible factors and draft the PPA accordingly. This is important as the PPA is for 15 to 20 years and the rooftop / ground of the off-taker is blocked for that period. The cost of opportunity needs to be incorporated with all future eventualities.

Policy Aspects
Although there is a Central Policy for Utility scale projects, each State has it's own policy as well. The State policy drives the rooftop market as well as utility scale projects. 

In the utility scale projects, which are basically multi-MW projects the State drives the PPA conditions primarily about payment security, transfer of ownership, tariff escalation etc.

[Have you read Solar Energy FAQs?]

In the rooftop space there are many more aspects especially related to net-metering. Many of the States (viz. Maharashtra, Gujarat, Karnataka, Andhra Pradesh, Madhya Pradesh etc.) have adopted Net-metering policy. Under this policy a PV Solar power generator could export excess power to the grid. Each State has defined the tariff, banking period, rollover period etc. inline with the State requirements. However it is necessary to understand the policy aspects in detail so as to avoid any issues.

A case in point is a developer which installed a small rooftop Solar project of 20 kW under the net-metering scheme in Maharashtra. The reason they opted for Net-metering scheme was the operating process plant (a small remote plant) was not operational over the weekends (Saturday and Sunday). In view of this the excess power would have been fed to the grid. However they failed to realize that the policy only allows 40% of rated transformer capacity under net-metering. Owing to this nearly 10 kW of power generated goes waste every weekend. Annually this would translate into a wastage of INR 80,000 over an investment of INR 13,00,000. The payback has become longer than anticipated.

If you are planning to Go Solar or have any queries related to Solar Power, feel free to drop us a mail on SOLAR@ECONSERVE.IN

Enerco Energy Solutions LLP is one of the most experienced Solar Energy Consulting Companies with a Consulting & Advisory experience including TOP 10 Indian Companies as Clients. We offer the maximum number of Financing options possible for a Solar Energy Power Project.

Thursday, 18 February 2016

Solar Energy : Why the sudden interest?

Solar Energy : Why the sudden interest?

India has been witnessing a steady rise in the installation of Solar Energy projects in the last few years. Focus has been primarily on Photo Voltaic (PV) Solar Power projects rather than on Solar Thermal. Utility scale projects have dominated the Indian Solar scenario with very few rooftop Solar projects up till now.


Fig. 1 Solar Rooftop Target India (State-wise)

While everyone agrees that a Solar-rich developing Country like India should consider Solar Power generation as a serious competitor to grid power., it is only recently that the Solar boom can actually be seen on the ground.

The net installed Solar power capacity in the Country is at 5000 MW (Jan 2016) which is 1/4th the erstwhile target of National Solar mission by 2022.  With the new target of 100 GW (1,00,000 MW) by 2022 these are certainly interesting times for Solar Power in India. What with a huge target of 40,000 MW for rooftop Solar with each State being given a target to achieve the same as seen above).

Major factors that are contributing towards the sudden interest in Solar Energy Power Projects in India are as follows :

  1. Reduced cost of project execution : The EPC cost for Solar project was in the range of INR 8 Crores per MW till a few years back. Recently the EPC cost for the projects have come down to about INR 5.5 Crores per MW. This could be further brought down using imported equipment or even major equipment linked with credit. In this the major factor has been the price of PV modules which has witnessed a significant downtrend globally as can be seen in Fig. 1 below. Moreover the price of PV modules is expected to come down further towards the end of 2016 - primarily attributed to Chinese oversupply. Also with increasing competition the price of Inverters has also come down. With the introduction of innovative business models such as reduced pricing EPC model the EPC costs could be brought down further.

    (
    Contact us today to know more about reduced pricing EPC model)
    Fig. 2 Global Price Trend in PV Cell prices
  2. Ease of Financing + Various Financing Options : There were limited financing options for Solar Projects. Recent spike in demand is also backed by the fact that several investors are looking at India as a Country for long-term Solar asset development. In addition to 100% BOO financing there are various other options including Leased model, reduced percentage (in the range of 5% to 8%) debt financing etc.

    There are certain Government bodies which offer reduced interest rate loans for Solar Power Projects with holiday period and extended loan period for better returns. As Solar Projects are now covered under PSL i.e. Priority Sector lending there are relaxed norms for getting project loans for Solar for kW (household level) upto MW (commercial level).

                                                                                                                                        
  3. Increase in grid power prices : Grid power prices have been on the steady rise across India mainly for Industrial plants and Commercial facilities (see fig below). This has led to increased viability of Solar projects. Earlier Solar projects were viable for captive consumption for grid prices above INR 6.0 per kWh. However now the viability of Solar projects for captive consumption comes in for grid prices as low as INR 5.0 per kWh.

    Going by the past trend and considering other major factors such as economic growth in the Country and the financial health of the DISCOMs the grid prices will continue to rise significantly in the foreseeable future., thereby consistently improving the commercial viability of Solar projects.                                                                                                                   
    Power Tariff in India by States
    Fig. 3 Power Tariff in Major States of India
  4. Government supportThe Government support for Solar Power Projects has increased in recent times owing to the revised ambitious targets. For eg. the 80% Accelerated Depreciation is a sought after benefit by businesses who set off their taxes in existing businesses by investing in Solar Projects. In fact many of the companies which were planning for Solar Projects on 3rd party funding are now looking at investing in these project themselves., primarily driven by the fact that equity is paid back in 2 years merely by considering 80% Accelerated Depreciation.

    In addition to the same there are various tax benefits including 10-year tax holiday on revenues from Solar, Electricity Duty waiver, Discount on wheeling charges etc.


     
    [Others are reading : Solar Energy Job and Business Opportunities]                   

                                                                                                                                          
  5. Renewable Purchase Obligation : The Solar RPO or the Renewable Purchase Obligation was introduced quite a while back but was not being taken seriously up until now. However with the new regime and the revised Solar target it is very much likely that the Renewable Purchase Obligation (RPO) would be strictly enforced with heavy penalties for non-compliance. Several reputed Companies, who were not earlier taking RPO seriously, are now looking to fulfill the same as can be seen in the REC market.

    Sooner or later many of the Obligated Entities have realized that investing in a Solar Power Project is a better business decision than to buy RECs which are merely certificates to fulfill an obligation. If the Renewable Energy Bill becomes an Act then a non-complying entity could be penalized upto INR 1 Crore and also INR 1 Lakh per day for continued violation.

Owing to the above reasons it is believed that the Solar Power Projects in India would continue to see a significant uptrend in the coming times. Going forward Solar rooftop projects are expected to dominate the scene while the number of Utility scale projects continue to rise steadily backed by Government schemes such as VGF (Viability Gap Funding).

Do let us know your comments or feedback in the comments section below.

Updates of 05th April 2016

All along the articles have been focusing the green-energy aspect of a Solar Power Plant. Which is undoubtedly the best reason for going Solar. Additionally there is another important aspect which requires attention.

Water, another scarce natural resource is depleting much faster than one could imagine. While there is enough water on the planet, majority of it is not potable. Most of the conventional power plants use water from natural sources such as rivers and springs which are potable water. Due to this a vast majority of population across the Globe does not have access to clean water.
Water used by Power Plants
Fig. 4 Water used by various types of Power Plants

As one can see Solar PV is a clear winner in terms of water required to generate power -  way ahead of conventional power plants. This is a significant differentiating factor considering the water conditions today. Minimal quantity (less than 1/2 litre per MWh) maybe required in case of some Solar Projects for cleaning of panels., however no water is required for operation of PV Solar power projects.

Enerco Energy Solutions LLP has been a pioneer in the field of Solar Energy especially for manufacturing plants across India including highly reputed Companies in manufacturing sector. We offer end-to-end Techno-Commercial Solution including :

1. Techno-Commercial Project Evaluation and Site Study.
2. Execution of PV Solar Projects on EPC basis (reduced pricing model).
3. Financing of Solar Power Projects on BOO / BOOT / RESCO basis.
4. Debt Financing of Solar Power Projects at reduced interest rates (%).
5. Optimizing output of Solar Power Projects.
6. Trading of Solar PPAs and Renewable Energy Projects (including Wind).
7. Solar Park Development (Land Acquisition, Govt. Liaison, Clearances etc.).
8. Strategic Investment and Diversification Advisory Services.

To know more - simply visit us on www.econserve.in or write into us on solar@econserve.in .