Andhra Pradesh Solar Policy – What It Means To Industries, Domestic and Other Segments - India Renewable Energy Consulting – Solar, Biomass, Wind, Cleantech
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The AP solar policy announced last week created significant buzz. At EAI we have gone through the policy and detail and provided a distilled summary and analysis of what the policy means to the two key segments – industrial/commercial and domestic. We have also provided an analysis of indicative returns investors in this policy could look forward to.

Salient Points

1. Target – 1000 MW by 2017 is the goal

2. Feed-in-tariffs? – No mention of feed-in tariffs or mechanism for determining tariff (only REC method & wheeling, banking, open access dicussed; perhaps on purpose?)

3. Incentives – A whole host of incentives depending on motivation for producing solar power:

  1. No wheeling & transmission charges, electricity duty, cross-subsidy charges for 3rd party sale/captive use to entities within state through 33 kV lines subject to industry demand staying within contracted limits. For those outside the state though, wheeling & transmission charges/Open access charges will apply as determined by the APERC.

2. This policy makes provision for sale of electricity to other states as well

3. Sale of Power to EB: Through REC Mechanism (Pooled power price will be paid to developers; this price is Rs 2 at the moment). RECs will  be issued after the required procedure of accreditation by state accreditation agency & registration with the central agency.

Furthermore, on incentives:

–    VAT paid for all the inputs will be refunded by the commercial tax department.

–    Industries department will refund stamp duty & registration charges for the land purchased for setting up solar projects.

–    All projects developed with the above incentives will be eligible for REC benefits.

–    Injection into the grid for captive consumption on premises will also be considered for the issue of REC.

4. Duration of incentives – These incentives will apply for 7 years for projects commissioned by June 2014.

5. Loss charges – Wheeling & Transmission losses, Open access charges & losses will be borne by developers.

6. Banking – 100% banking is permitted from January to December. There can be no banking of energy produced for consumption on the same day. Banked energy cannot be consumed/ redeemed between February-June and also between peak hours of 6:30-10:30 PM. Banking charges are 2%. Energy banked cannot be carried over to the next year.

7. Evacuation infrastructure – In matters of grid connectivity & evacuation infrastructure, this policy follows other states’ policies in that the evacuation line from the interconnection point to grid substation would be laid by the APTRANSCO/DISCOMS at the cost of the project developer. Alternatively, the developer can lay the lines themselves by paying supervision charges to the APTRANSCO/DISCOM. NREDCAP will be the state government nodal agency for clearance, facilitation and implementation of proposed solar policy.

Implications of the policy  for the commercial and domestic sectors

This policy is commercial consumer-centric focusing on providing maximum incentives to industries that capitalize on the abundance of solar power in the state. These incentives make it easier & cheaper for them to produce and consume their own power by:

  • Allowing them to use the state’s infrastructure for transportation of power at no transmission charges (only losses will be applicable).
  • Banking at 2% with the state electricity board to use when required

for the next seven years.

Waiving open access cross-subsidy surcharges will spur the investment in solar power for sales to 3rd parties making it easier & cheaper for industries to tie up with solar project owners and buy power for use providing energy security that isn’t present at the moment.

The policy also makes it easy and beneficial for industries to install captive power on premises since the AP government is willing to consider these entities for the issue of RECs.

The policy also invites investment on captive plants from other states making provisions for inter-state wheeling that is lacking in many of the other states.

It does not provide much in the way of benefits for residential consumers.

Indicative Returns for Investors

The AP policy offers the option of generating and feeding solar power into the grid in exchange for the average pooled cost of power from the state (Rs 2 presently). In addition, RECs will be issued for generation of renewable solar power. The floor price for this is at Rs 9.3 per unit. Together, revenues in the order of Rs 11.30/unit would be available to the generator under this scheme making payback possible in 8-10 years subject to certain assumptions regarding the APPC price and the REC price which implicitly assumes the continuance of the REC mechanism past 2017.

On-premises captive solar plants promise to offer a great alternative to using diesel generators which are widely prevalent for use in the case of power failure.

Owing to the removal of cross-subsidy surcharges, the viability of 3rd party sales will be vastly improved providing further impetus for the development of solar projects to cater to various industries.

About Narasimhan Santhanam (Narsi)

Narsi, a Director at EAI, Co-founded one of India's first climate tech consulting firm in 2008.

Since then, he has assisted over 250 Indian and International firms, across many climate tech domain Solar, Bio-energy, Green hydrogen, E-Mobility, Green Chemicals.

Narsi works closely with senior and top management corporates and helps then devise strategy and go-to-market plans to benefit from the fast growing Indian Climate tech market.

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