SUMMER INTERNSHIP PROJECT REPORT. Under the guidance of Dr. Manisha Rani, Fellow, NPTI. Mr. Alok Tripathi, Director, Power Plus Consultants

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1 SUMMER INTERNSHIP PROJECT REPORT ON Indian Solar Market Analysis Policy, Business Models and Stakeholders for an International Investor & Study of Green Corporate Social Responsibility (CSR) Solutions Under the guidance of Dr. Manisha Rani, Fellow, NPTI & Mr. Alok Tripathi, Director, Power Plus Consultants At Power Plus Consultants, New Delhi Submitted by KALYAN VERMA Roll No: 105 MBA (POWER MANAGEMENT) Sector-33, Faridabad , Haryana (Under the Ministry of Power, Govt. of India) Affiliated to MAHARSHI DAYANAND UNIVERSITY, ROHTAK AUGUST, 2013

2 TRAINING COMPLETION CERTIFICATE ii

3 DECLARATION I, KALYAN VERMA, Roll No. 105, Registration No. 12NPTIF0092 student of MBA - Power Management ( ), XI th Batch at National Power Training Institute, Faridabad hereby declare that the Summer Training Report entitled Indian Solar Market Analysis Policy, Business Models and Stakeholders for an International Investor & Study of Green Corporate Social Responsibility (CSR) Solutions is an original work and the same has not been submitted to any other Institute for the award of any other degree. A Summer Internship Presentation & Report was Presented and submitted on and the suggestions as approved by the faculty were duly incorporated. Signature of the Guide Signature of the Candidate Countersigned Director/Principal of the Institute iii

4 ACKNOWLEDGEMENT I express my gratitude to the management of Power Plus Consultants who have shown confidence on me and bestowed upon me this valuable task. I take this opportunity to express my sincere thanks to Mr. Alok Tripathi (Director, Power Plus Consultants) for his support and guidance throughout the course of the project. I also thank Mr. S.K. Choudhary (Principal Director), Mrs. Manju Mam (Director), Mrs. Indu Maheshwari (Dy. Director), for providing me such a nice opportunity to work with this organization. My internal project guide Dr. Manisha Rani (Faculty) provided me constant support and motivation during the course of the internship. She also helped me in structuring this project report and also on various other aspects of the study. I am very much thankful to her for her support. I thank all members of CAMPS rendering kind help during the project work. Last but not the least; I am grateful to my family, friends & seniors at CAMPS, NPTI. Thank you all for being there for me always. KALYAN VERMA ROLL NO: 105 MBA (POWER MANAGEMENT) iv

5 EXECUTIVE SUMMARY The Project work in the first phase required preparing a pre-feasibility report for an international investor for setting up a solar power plant. The investor being totally unfamiliar with the Indian power sector scenario had to be briefed right from India s energy mix to drivers for solar power in India and how solar power fits in the Indian scenario. India has a very good GHI (5.1) and large no. of sunny days (330 approx) per year in most parts of the country. With support from the Government in the form of policies and subsidies, it will not take long for solar power to achieve parity with other sources of energy generation. We targeted the following six states for our analysis Rajasthan, Gujarat, Andhra Pradesh, Punjab, Madhya Pradesh and Maharashtra. We collected data about the different states performance in terms of the four major parameters for establishing a solar power plant i.e. radiation levels, ease of land acquisition, ease of Governmental clearances and local support. Analysis of the Regulatory framework and the historical growth of the solar sector in India gave us an overview of the sector. A Comparative, in-depth study was then carried out for JNNSM and the target states solar policies. A market study in the form of leading developers, module manufacturers, EPC players, inverters (technology and manufacturers) and viable business models to sell the solar power was then carried out to get exact statsitics required for making an investment. The second phase of the project was studying the various Green CSR methods which the companies can implement as part of their mandatory CSR spending and also how CSR can be implemented as a business strategy. The new companies bill mandates large sized corporations to spend 2% of their net profits on Corporate Social Responsibility (CSR) activities. A large part of this potential fund can be channelized for sustainable development. Sustainable development forms one of the nine verticals which qualify under CSR. Green CSR can be implemented through Renewable Energy based CSR interventions, Energy Efficiency and Renewable Energy Certificates. v

6 LIST OF FIGURES: Figure 1 : Solar Power Capacity Requirement by Figure 2 : Sources of Research... 4 Figure 3 : India - State-wise Wastelands Distribution... 7 Figure 4 : India's Energy Mix (As of ) Figure 5 : YOY INCREASE IN SOLAR INSTALLED CAPACITY (MW) Figure 6 : JNNSM (Phase I, Batch I) Projects Status Figure 7 : JNNSM (Phase I, Batch II) Projects Status Figure 8 : Rajasthan Solar Policy (Projects Status) Figure 9 : Gujarat (Solar RPO Target) Figure 10 : Gujarat (Projects Status) Figure 11 : Andhra Pradesh (Projects Status) Figure 12 : Maharashtra (Solar RPO Target) Figure 13 : Punjab (Projects Status) Figure 14 : Punjab (Tariff Discovered) Figure 15 : Madhya Pradesh (Projects Status) Figure 16 : Developers break up State-wise Figure 17 : Existing EPC Models Figure 18 : Preferred Technology Figure 19 : Preferred Technology (NSM Phase I, Batch I) Figure 20 : Module/Cells supply break-up Figure 21 : Inverter break up in Indian Solar Domain Figure 22 : APPC + REC Business Model Figure 23 : Pseudo Captive Business Model Figure 24 : Segmentation of Corporate Social Responsibility Figure 25 : Spending on CSR Activities by 100 Profitable Companies in India Figure 26 : Segment wise CSR Spending by Organizations in Figure 27 : Sectors Contributing in CSR Activities in Figure 28 : Boundaries Defining Green Energy CSR Figure 29 : All India Generating Capacity (In MW as of ) Figure 30 : Source wise and YOY Targets set during 12th Plan Period (MW) Figure 31 : Renewable Energy Initiatives under CSR Activities Figure 32 : Planned Installed Capacity from Solar (MW) Figure 33 : Solar powered cell charging stations Figure 34 : Off-Grid RE Capacity (MW) Figure 35 : Concept of Renewable Energy Certificates Figure 36 : Registered Capacity under REC Mechanism (MW) Figure 37 : Various Energy Efficiency Measures Figure 38 : Electrical Energy Savings in Terms of Equivalent Avoided Capacity (MW) vi

7 LIST OF TABLES: Table 1 : Incremental Solar Capacity (MW) - YOY... 2 Table 2 : State-wise Irradiation... 5 Table 3 : State-wise Distribution of Wastelands... 7 Table 4 : Solar Potential in India... 8 Table 5 : Performance of States on parameters vital for Solar Plant Installation... 9 Table 6 : PV VS CSP (COMPARATIVE ANALYSIS) Table 7 : Total Installed Capacity (Solar Power As of ) Table 8 : JNNSM Overall Targets (GW) Table 9 : JNNSM Achievements (Phase I) Table 10 : Tariff Discovered (Jnnsm Phase I,Batch II) Table 11 : Rajasthan Solar Policy (Tariff Discovered) Table 12 : Gujarat (Feed in Tariff) Table 13 : Andhra Pradesh (Tariff Discovered) Table 14 : Key Developers in India (Solar Power) Table 15 : Market Potential Estimation of Unrestricted Voluntary REC Market in India (INR Crore) vii

8 LIST OF ABBREVIATIONS: JNNSM NAPCC GHI APPC CUF MNRE CEA CERC RPO REC PAT DCR RFP RRF IREDA ABT PV CSP EPC CSR ASSOCHAM NGO FMCG VGF DNI JAWAHARLAL NEHRU NATIONAL SOLAR MISSION NATIONAL ACTION PLAN ON CLIMATE CHANGE GLOBAL HORIZONTAL IRRADIANCE AVERAGE POWER PURCHASE COST CAPACITY UTILIZATION FACTOR MINISTRY OF NEW AND RENEWABLE ENERGY CENTRAL ELECTRICITY AUTHORITY CENTRAL ELECTRICITY REGULATORY COMMISSION RENEWABLE PURCHASE OBLIGATIONS RENEWABLE ENERGY CERTIFICATES PROFIT AFTER TAX DOMESTIC CONTENT REQUIREMENT REQUEST FOR PROPOSAL RENEWABLE REGULATORY FUND INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY LTD. AVAILABILITY BASED TARIFF PHOTOVOLTAIC CONCENTRATED SOLAR POWER ENGINEERING, PROCUREMENT AND CONSTRUCTION CORPORATE SOCIAL RESPONSIBILITY ASSOCIATED CHAMBERS OF COMMERCE AND INDUSTRY OF INDIA NON-GOVERNMENTAL ORGANIZATION FAST MOVING CONSUMER GOODS VIABILITY GAP FUNDING DIRECT NORMAL IRRADIANCE viii

9 TABLE OF CONTENTS: Indian Solar Market Analysis Policy, Business Models And Stakeholders For An International Investor & Study Of Green Corporate Social Responsibility (CSR) Solutions TRAINING COMPLETION CERTIFICATE... ii DECLARATION... iii ACKNOWLEDGEMENT... iv EXECUTIVE SUMMARY... v LIST OF FIGURES:... vi LIST OF TABLES:... vii LIST OF ABBREVIATIONS:...viii TABLE OF CONTENTS:... ix INDIAN SOLAR MARKET ANALYSIS POLICY, BUSINESS MODELS AND STAKEHOLDERS FOR AN INTERNATIONAL INVESTOR... 1 CHAPTER INTRODUCTION KEY DRIVERS OF SOLAR ENERGY IN INDIA HOW SOLAR FITS IN OBJECTIVE OF THE PROJECT ABOUT THE ORGANIZATION RESEARCH METHODOLOGY... 4 CHAPTER SCENARIO OF SOLAR POWER IN INDIA STATES WITH HIGHEST IRRADIATION LAND AVAILABILITY COMPARISON OF TARGET STATES BY EASE OF LAND ACQUISITION INDIA S ENERGY MIX LITERATURE REVIEW REGULATORY FRAMEWORK ENABLING GROWTH OF SOLAR SECTOR PV V/S CSP : INDIAN SCENARIO ix

10 2.6.1 KEY ISSUES IN CSP CURRENT STATUS OF PROJECTS CHAPTER SOLAR POLICIES ANALYSIS NATIONAL SOLAR MISSION JNNSM NATIONAL SOLAR MISSION JNNSM (PHASE I, BATCH I) ASSUMPTIONS LESSONS LEARNT NATIONAL SOLAR MISSION JNNSM (PHASE I, BATCH II) ASSUMPTIONS LESSONS LEARNT RAJASTHAN SOLAR POLICY KEY FACTS GUJARAT SOLAR POLICY KEY FACTS ANDHRA PRADESH SOLAR POLICY KEY FACTS SOLAR POWER IN MAHARASHTRA KEY FACTS PUNJAB SOLAR POLICY KEY FACTS MADHYA PRADESH SOLAR POLICY KEY FACTS CHAPTER STAKEHOLDERS ANALYSIS KEY DEVELOPERS EPCs SOLAR PROJECTS DIFFERENT MODELS EXISTS SOLAR EPC MARKET SPACE BUSINESS MODELS FOR SOLAR PLANTS : FINANCIAL VIABILITY APPC + REC x

11 4.3.2 PSEUDO CAPTIVE MODEL Third Party Sale + REC BIDDING IN STATE POLICIES/ NSM CHAPTER RESULTS PSEUDO CAPTIVE MODEL : WIN WIN SITUATION FOR ALL OPEN ACCESS + REC PROJECTS UNDER SOLAR POLICIES AN OPPORTUNISTIC MARKET FOR LOCAL DEVELOPERS BUSINESS MODEL WHERE VIABILITY DEPENDS ON REC ARE NOT BANKABLE APPC + REC CHAPTER CONCLUSIONS STUDY OF GREEN CORPORATE SOCIAL RESPONSIBILITY (CSR) SOLUTIONS CHAPTER INTRODUCTION TO GREEN CSR ORGANIZATION SPENDING ON CSR ACTIVITIES SEGMENT WISE CSR SPENDING SECTORS CONTRIBUTING IN CSR ACTIVITIES FOCUSSING ON ENVIRONMENT AND SUSTAINABILITY GREEN CSR INITIATIVES RENEWABLE ENERGY INVESTMENTS OFF-GRID SOLUTIONS RENEWABLE ENERGY CERTIFICATES (REC) ENERGY EFFICIENCY MEASURES WAY FORWARD FOR GREEN ENERGY BASED CSR INITIATIVES BIBLIOGRAPHY xi

12 INDIAN SOLAR MARKET ANALYSIS POLICY, BUSINESS MODELS AND STAKEHOLDERS FOR AN INTERNATIONAL INVESTOR CHAPTER-1 INTRODUCTION 1.1 KEY DRIVERS OF SOLAR ENERGY IN INDIA Energy Deficit of 12% of peak demand If India continues to grow at an average rate of 8% for the next 10 years, the country s demand for power is likely to soar to 315 to 335 GW by 2017 which will require a generation capacity of 415 to 440 GW (Mckinsey Report) About 68.1% of India s energy generation capacity is from fossil fuels with coal accounting for 58% of India s total energy consumption (Central Electricity Authority) High dependence on imports for energy requirement, total imports represents 13% of the total primary energy supply ( Energy Statistics Report 2013) Rising price of electricity based on coal and gas Environmental concerns 1.2 HOW SOLAR FITS IN High Solar Irradiation (annual average GHI of 5.1) in most of the parts of country Large number of sunny days available (apprx. 330 ) Availability of large area of land at comparatively low costs High solar potential near main load areas in country (Western and Southern India) Support from Government under NAPCC and Renewable Purchase Obligation (RPOs) In parity with other resources of energy generation with costs still going down 1

13 Figure 1 : Solar Power Capacity Requirement by ~ 33,000 MW Solar Capacity Incremental Solar Capacity (MW)- YoY Table 1 : Incremental Solar Capacity (MW) - YOY Solar Energy Energy Requirement Solar Capacity Incremental Requirement Solar RPO (MU) for RPO Requirement (MW) at Solar Capacity FY (MU) (%) compliance 19% CUF (MW)- YoY % % % % % % % % % % % Source : Energy Requirement Data from 18 th EPS Survey 2

14 1.3 OBJECTIVE OF THE PROJECT The basic objective of the Project is to : 1. Exhaustive analysis of the Indian Solar PV market complete value chain which includes but not limited to policies, stakeholders and business models for an international investor 2. Study of how the companies can implement the Green Corporate Social Responsibility (CSR) obligations and CSR as a business strategy 1.4 ABOUT THE ORGANIZATION Power Plus Consultants is a young and dynamic organisation promoted by alumni of National Power Training Institute (Ministry of Power). Team Power Plus Consultants consists of young dynamic power managers and retired government officials as mentors to support the vision of the company. The core expertise of the team of Power Managers lies in Regulatory advisory and Market analysis. Services offered by Power Plus Consultants include: Renewable Market Analysis Renewable Project Development Regulatory Advisory Power Sector Analysis Energy Portfolio Management Market Intelligence Strategic Alliances Power Plus Consultants also maintains the website indianpowersector.com (IPS). In its three years of operation, IPS has become India s premier knowledge portal for 360 degree coverage of power sector getting more than 2.0 million hits every month. The portal provides all knowledge for free, also reaching the subscribers through daily newsletters. Team IPS believes in educating, updating, promoting and creating awareness amongst all the stake holders in the energy sector with the latest national and international news updates and market analysis. In the short period of 3

15 its existence, IPS has published numerous reports on a number of topics related to power sector. IPS is leading media partner with all national energy sector conferences and exhibitions. Power Plus Consultants continues to work for various national and international clients in energy sector ranging from coal,renewable energy, generation, distribution and smart grid. 1.5 RESEARCH METHODOLOGY To carry out the research, I have collected data from various associations with various information organizations. State Energy Development Agencies, Ministry of Power, Central Electricity Authority, Central Electricity Regulatory Commission are few to name. Most of the research inputs are obtained from Secondary sources such as Journals, Reports, Publications and from primary sources like Conferences and telephonic conversation with many power project developers. The inputs received and the data collected from the various sources is utilized in the formulation of business solutions and models for setting up a solar power plant. Figure 2 : Sources of Research Market In-house Expertise Industry Experts Key Data Sources Literature Review 4

16 CHAPTER-2 SCENARIO OF SOLAR POWER IN INDIA 2.1 STATES WITH HIGHEST IRRADIATION Key states like Rajasthan and Gujarat already have a dedicated solar policy in place and are seeing the highest interest in solar installations. Tamil Nadu, Andhra Pradesh and Madhya Pradesh have also released their solar policy. Irradiation matches almost directly with the current solar growth hubs within India. Table 2 : State-wise Irradiation GHI States/ Sample (kwh/m 2 / Union Territories Location Year) Rajasthan Barmer Rd 2054 Gujarat Gada Village 2020 Tamil Nadu Salem 2005 Pudducherry Pudducherry 1998 Andhra Pradesh Anantapur 1995 Lakshadweep Lakshadweep 1991 Madhya Pradesh Neemuch 1991 Daman & Diu Daman & Diu 1966 Karnataka Bidar 1957 Maharashtra Dhule 1946 Dadra & Nagar Dadra & Nagar 1905 Goa Bicholim 1897 Chhattisgarh Kunkur 1895 Orissa Deogan 1887 Jharkhand Hazaribagh 1860 Kerala Thodupuzha

17 Haryana Bhiwani 1803 Uttar Pradesh Farrukhabad 1798 West Bengal Durgapur 1777 Punjab Moga 1774 Andaman Nicobar Andaman 1762 Bihar Munger 1750 Uttarakhand Haridwar 1746 Delhi New Delhi 1735 Himachal Mandi 1707 Mizoram Aizwal 1707 Chandigarh Chandigarh 1699 Jammu Kashmir Baramulla 1695 Manipur Palel 1678 Tripura Agartala 1662 Assam Tangla 1557 Meghalaya Shillong 1543 Nagaland Mokokchung 1526 Arunachal Dambuk 1295 Sikkim Sikkim 1260 Note : Irradiation data in India is not accurate 2.2 LAND AVAILABILITY Rajasthan has been leading state in JNNSM phase 1 as it has a waste land area of more than 25% of the total land. The four states of Gujarat, Madhya Pradesh, Rajasthan & Andhra Pradesh have wastelands in the range of 10 15%. These four states are also amongst the high power consuming states 6

18 Table 3 : State-wise Distribution of Wastelands SI. No. STATE NAME TOTAL WL TGA % to TGA 1 Andhra Pradesh Gujarat Madhya Pradesh Maharashtra Punjab Rajasthan Figure 3 : India - State-wise Wastelands Distribution Source : Wastelands Atlas of India 7

19 Table 4 : Solar Potential in India Solar Potential in India Total land Area 3,287,263 No. of sunny days 300 Unit potential from 1 sq mt 4 kwh/day Conversion efficiency (%) 15% 1 sq km (mn units per year) % of the land area (sq km) 16,438 Potential units (bn units) 1,972 The Potential is based on two assumptions. Assumption 1 : Unit potential for 1 sq. m area is 4 kwh/day and taking solar cell efficiency conversion 15%. Assumption 2: Assuming that 0.5% of the land s area is brought under the solar net over 1900 billion units of electricity can be generated. 2.3 COMPARISON OF TARGET STATES BY EASE OF LAND ACQUISITION A solar plant of scale greater than 10 MW requires a land of around 50 acres (5 acres/ MW). In India the land ownership in rural areas is distributed and hence convincing all the owners/ farmers can be a tough task. For large scale serious developers, it is important to develop land banks well in advance. The four main factors to be considered are quality of land surface, grid availability, availability of water and right of way.5 8

20 Table 5 : Performance of States on parameters vital for Solar Plant Installation Andhra Gujarat Madhya Maharashtra Punjab* Rajasthan Pradesh Pradesh Radiation data (kwh/m 2 / Year) Land prices (lakhs/acre) Ease of land acquisition 4 to 6 6 to 8 5 to 6 8 to to Ease of Governmental clearances Local Support : Effective and streamlined process 2: Moderate with some problem areas 3: Difficult to execute *data not available/ private sources Gujarat and Madhya Pradesh lead in terms of ease of land acquisition, ease of Governmental clearances and local support ( i.e. in all the three parameters important for setting up a solar power plant). 2.4 INDIA S ENERGY MIX India primarily depends on fossil fuels to meet its energy needs and with increased volatility in prices in fuel market, India must focus on RE sources to maintain our energy security. India has an installed power capacity of almost 225 GW of which only 12.7% (over 28 GW) is based on renewable energy sources. Among renewable energy sources, nearly 68% of the capacity is contributed by wind power alone and Solar Photovoltaic Plants account for 0.78% of the total installed capacity (As of ). 9

21 Figure 4 : India's Energy Mix (As of ) 9.01% 0.50% 2.10% 58.60% 17.54% 12.71% 9% 2% 0.56% 1.03% 0.04% 0.78% Coal Gas Diesel Nuclear Hydro Wind Small Hydro Power Biomass Bagasse Cogeneration Waste to Energy SPV Source : MNRE Website 2.5 LITERATURE REVIEW REGULATORY FRAMEWORK ENABLING GROWTH OF SOLAR SECTOR Electricity Act 2003 (e) promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution license; NAPCC % RPO by 2022 Tariff Policy 2006: Amendment in January Non-conventional and renewable sources of energy generation including cogeneration: 10

22 (1) Pursuant to provisions of section 86(l)(e) of the Act, the Appropriate Commission shall fix a minimum percentage of the total consumption of electricity in the area of a distribution licensee for purchase of energy from such sources, taking into account availability of such resources in the region and its impact on retail tariffs. Such percentage for purchase of energy should be made applicable for the tariffs to be determined by the SERCs latest by April I, (i) Within the percentage so made applicable, to start with, the SERCs shall also reserve a minimum percentage for purchase of solar energy from the date of notification in the Official Gazette which will go up to 0.25% by the end of and further up to 3% by Jawaharlal Nehru National Solar Mission GW of solar power by 2022 Phase I : 1000 MW Phase II : 9000 MW Phase III: MW CERC: REC Mechanism 2010 Solar Specific RECs Renewable Regulatory Fund Fund created for spreading the costs due to disparity in scheduled generation and actual generation of Solar and Wind power 2.6 PV V/S CSP : INDIAN SCENARIO Indian Solar market is relatively a new market and inclined towards PV. PV is a much simpler technology having a less gestation period. Other features are ease of installations and ease of O & M KEY ISSUES IN CSP Requirement of high DNI 11

23 Scarcity of water at high DNI areas Long gestation period Projects only viable for higher capacities as compared to PV plants Table 6 : PV VS CSP (COMPARATIVE ANALYSIS) PV CSP Technology Uses the light of the sun to generate electricity Focuses the heat of the sun to generate heat and uses liquids to transfer heat to turbines to generate electricity Commissioning period Plant can be commissioned with 3-6 months Plant commissioning anywhere from 6-36 months Types PV, TF Fresnel, Parabolic Trough, Sterling, Tower Storage Indirect Grid, Battery Banks Direct Molten Salt, Oil, Steam Application Advantages Disadvantages Small to large scale Grid, Rooftops, Residential, Off-grid, Small installations Easy to deploy, short installation time, low skill requirements, easily maintainable, Lower costs, Minute installations, Ubiquitous and long life Low efficiencies, Expensive direct storage, Unviable for residential power Hybrids, Large Scale Grid, Industrial Processes, Cooking, CHP Efficiency higher than PV, Improve efficiencies of existing systems Significant water requirement for cooling and cleaning, Needs vast tracts of contiguous land, High DNI requirement, Specialized skills, High raw material usage, Lengthy Installations for large scale projects 12

24 Total PV capacity : 1,815 MW Total CSP capacity : 55.5 MW Average project size in India : 6.9 MW 2.7 CURRENT STATUS OF PROJECTS India has touched the mark of 1800 MW Solar installed capacity as of with most capacity addition after the introduction of JNNSM. Figure 5 : YOY INCREASE IN SOLAR INSTALLED CAPACITY (MW) Source : MNRE Website 13

25 Table 7 : Total Installed Capacity (Solar Power As of ) Sr. No. States Installed Capacity (MW) 1 Andhra Pradesh Arunachal Pradesh Chhattisgarh 4 4 Delhi Goa & UT Gujarat Haryana Jharkhand 30 9 Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Tamil Nadu Uttarakhand Uttar Pradesh West Bengal 2 Total Source : MNRE Website and Bridge to India Solar Compass Reports 14

26 CHAPTER-3 SOLAR POLICIES ANALYSIS 3.1 NATIONAL SOLAR MISSION JNNSM National Solar Mission is a part of NAPCC policy and a main instrument of federal Government to promote solar energy in India. Has a target 20 GW grid connected and 2 GW off grid by JNNSM policy mechanism was created to provide the supply side driver for RPO s. It is a federal scheme with payment security mechanism to infuse confidence in the investors. The overall target is based on total installed capacity under JNNSM, state policies and open market. JNNSM is a key driver of down ward trend of solar price in India through competitive bidding. DCR is applicable only for NSM. Table 8 : JNNSM Overall Targets (GW) Targets (Overall) Connectivity Phase I Phase II Phase III Grid 1.1GW by 2013 Initially 3 GW by 2017 Currently 9GW by GW by 2022 (Cumulative) Off - Grid 0.2 GW by GW by GW Table 9 : JNNSM Achievements (Phase I) Achievement (Phase I) Phase I - Batch I Phase I Batch II Allotted Installed Allotted Installed (Till may 13) 140MW 130MW 340MW 300MW 15

27 MW 3.2 NATIONAL SOLAR MISSION JNNSM (PHASE I, BATCH I) JNNSM (Phase I, Batch I) was launched in FY Projects were awarded by reverse bidding mechanism, where developers provided discount on CERC benchmark tariff. Other key features were payment security mechanism to secure payment in case of default by discom and project size limited to 5MW which is unattractive for bigger players, domestic content requirement of crystalline modules and tough time lines to adhere with 12 months to commission from the date of signing of PPA. Figure 6 : JNNSM (Phase I, Batch I) Projects Status Bids invited Bids received Projects alloted Projects completed ASSUMPTIONS Capacity 5 MW Capex Rs. 125 million CUF 19 % Tariff 25 years Debt : Equity 70 : 30 Repayment 12 years 16

28 MW Interest 14 % O&M Rs. 1.1 million LESSONS LEARNT Difficulties in financial closure to new player with the timelines and due to high rate of interest The lower project size of 5MW with limitation of only one application per Company including its Parent, Affiliate or Ultimate Parent-or any Group Company Reduction in tariff is possible if capacity to be allotted is high. Availability of unallocated power for bundling 3.3 NATIONAL SOLAR MISSION JNNSM (PHASE I, BATCH II) Launched in FY 2012, in JNNSM (Phase I, Batch II), the Project maximum capacity was increased to 50 MW with max. 3 projects at different locations by one developer, subject to a maximum of 100 MWDCR extended to solar cells (only for crystalline). The PPA structure is same as batch I. The Time given for financial closure is within 180 days from the date of signing Power Purchase Agreement. The Tariff quoted by Solar Direct is INR 7.49, first sub 8 tariff in India which initiated tariff war in India. Figure 7 : JNNSM (Phase I, Batch II) Projects Status Bids invited Bids received Projects alloted Projects completed 17

29 Table 10 : Tariff Discovered (Jnnsm Phase I,Batch II) Tariff Discovered Minimum Maximum Wt. Avg. Tariff Discount Tariff Discount Tariff CERC Benchmark Tariff is ASSUMPTIONS Capacity 12.5 MW (average) Capex Rs million CUF 19 % Tariff 25 years Debt : Equity 70 : 30 Repayment 12 years Interest 13.5 % O&M Rs. 1.1 million IRR projections not including AD benefits 18

30 MW LESSONS LEARNT As tariff is same irrespective of the location, most of the projects are concentrated in Rajasthan Availability of unallocated power again a problem A total of 340 MW projects are being developed in batch 2 Of which 300 MW have been commissioned. 3.4 RAJASTHAN SOLAR POLICY Launched in FY 201, Rajasthan Solar Policy has a target of MW by FY 2022 as the state aims to achieve grid parity by The policy got delayed as initially government floated the RfP for 200MW which was later suspended.. RRECL the nodal agency acts as the PPA signing authority for a period of 25 years. There is a requirement of first registering the project with RRECL, with 20 lakh per MW as fees. RRECL followed L1 bidding process for the allocation of projects i.e. developers were asked to match the lowest bid. Out of 100 MW target, only 75 MW matched the bids. The weak financial condition of the state Discoms is a cause of concern for the developers. 50 MW RfP for 1 MW solar rooftop project is currently open. Figure 8 : Rajasthan Solar Policy (Projects Status) Target Allocations Bids Received Alloted 19

31 Table 11 : Rajasthan Solar Policy (Tariff Discovered) Tariff Discovered Minimum Maximum Wt. Avg. Tariff Discount Tariff Discount Tariff RERC Benchmark Tariff is KEY FACTS Net worth criteria Rs. 3 Crore/MW Bank guarantee Rs. 20 lakh/mw Earnest money deposit of Rs. 5 lakh/mw The minimum and maximum sizes of PV Projects are 5 MW and 10 MW Creation of Rajasthan Renewable Energy Infrastructure Development Fund (RREIDF) for Transmission network For solar PV and CSP projects, if the power plant lies within 15km of the nearest substation, the cost will be borne by the DISCOM and for any length above 15km, the cost will be borne by the developer. Solar based generation shall not be covered under scheduling procedure for Intra-state Availability Based Tariff (ABT) Allotment of government 10% of market rate 20

32 MW 3.5 GUJARAT SOLAR POLICY On of the first states of India to have Solar Policy, before NSM was launched in FY 2009, applicable up to FY 2014.Envisages productive use of wastelands and introduced the concept of Solar Parks (Charanka Solar park, current installed Capacity 214 MW). The Projects are allotted at a fixed two part tariff which is front loaded on first come basis. The policy targets only 500MW by 2014 whereas MW of solar projects have already been installed. No new allocation is expected in near future due to already achieved RPO targets and Gujarat being a energy surplus state. Implementation of RRF can attract new projects for sale of solar power to other states. Figure 9 : Gujarat (Solar RPO Target) % 1 % 0.5 % Figure 10 : Gujarat (Projects Status) Projects alloted Projects commissioned as on 31st July '13 21

33 Table 12 : Gujarat (Feed in Tariff) Feed in Tariff for Photovoltaic (PV) plants Commissioned in period 29 th Jan 10 to 28 th 29th Jan '12 to 31st 1 Apr '13 to 31st 1 Apr to 31st Jan 12 Mar '13 Mar '14 Mar '15 With Accelerated Depreciation (AD) Rs/Kwh For first 12 years For subsequent 13 years Levelized tariff for 25 years Without Accelerated Depreciation (AD) Rs/Kwh For first 12 years For subsequent 13 years Levelized tariff for 25 years KEY FACTS PPA with state distribution utilities. Waiver from paying Electricity Duty and Exemption from demand cut to the extent of 50% of installed capacity. The policy also defines projects under sale through open access out side the sate and project for direct sale to obligated entities in the state. No Cross subsidy surcharges applicable for Open Access obtained for third party sale within the state. 22

34 Developer to furnish a 50Lakhs/MW at the time of PPA signing, to be refunded if the developer commissions the project in time as per PPA. Sharing of Clean development mechanism (CDM) benefit in ratio of 50:50 between Solar developer and state distribution utility with whom PPA is signed. Solar based generation shall not be covered under scheduling procedure for Intra-state Availability Based Tariff (ABT). Minimum Financial Criteria: Net worth criteria of INR 2,00,00,000/ MW of the capacity Annual turnover of INR 4,80,00,000/ MW of the capacity Internal resource generated of INR 1,20,00,000/ MW of the capacity 3.6 ANDHRA PRADESH SOLAR POLICY Andhra Pradesh Solar Policy was launched in FY 2012, applicable up to FY The Policy has a target of 1000 MW. Bids of 1000 MW were invited and a total bids of 1712 MW were received. Average tariff discovered in bidding was Rs per unit with average project size of around 10 MW. Subsequently all bidders were asked to match the fixed price of INR 6.49/unit, which was only accepted for 418 MW. Initially only 53 MW unconditionally agreed, while other have conditions such as change in location, size etc. The viability of projects at this tariff is highly dependent on CAPEX and long term performance of plants. The arbitrary and post bidding changes in tariff identification will hurt investor confidence permanently. Strong balance sheet of the state distribution utility is a positive factor. 23

35 MW Figure 11 : Andhra Pradesh (Projects Status) Capacity announced Bids received Bidds accepted as on 31st July ' Table 13 : Andhra Pradesh (Tariff Discovered) Tariff Discovered Minimum Maximum Wt. Avg. Tariff Tariff Tariff Tariff of Rs decided after bidding (L1) KEY FACTS PPA with state distribution utilities for a period of 20 years. Incentives for a period of seven years from the date of implementation. No wheeling and transmission charges for sale of power within the state. 24

36 No Cross subsidy surcharges applicable for Open Access obtained for third party sale within the state. Waiver from paying Electricity Duty for captive consumption and third party sale within the state. Refund of VAT (paid in AP) for all the goods used for Solar developers. Refund of Stamp duty and Registration charges paid for land purchase. Banking of 100% of energy permitted for one year. The settlement of banking to be done on monthly basis. The policy promotes solar plants for captive use or sale of power to third party. The evacuation line shall be laid by the APTRANSCO or distribution utility at the cost of the project developer. 3.7 SOLAR POWER IN MAHARASHTRA Maharashtra has no state solar policy. Maharashtra Govt. cleared the proposal of Mahagenco to set up 150 MW solar energy project in Dhule district in May, 2011 to fulfill their RPO requirements. Out of 150 MW, 100 MW of power to be produced through crystalline technology and 50 MW through thin film technology. MahaGenco commissioned 125 MW out of the 150 MW in June, This is the single largest solar PV plant in India. Maharashtra has an installed solar capacity of MW as of July, Similarly Reliance has developed a 40 MW project in Gujarat to sell power to Distribution company of Reliance in Mumbai to fulfill their specific SPO. Tata Power is also developing a 28 MW project in Maharashtra for their own Discom. The Mahagenco 150 MW project is funded by the State Govt. and KFW, a German financial institution. MERC has fixed the rate of solar energy at Rs per MW, but for this project, the rate would be Rs. 12 per MW. Out of 125 MW, 75 MW has been commissioned by Lanco and Juwi and 50 MW by Megha Engg & Aries Ingeneria Sistemas 25

37 % target Figure 12 : Maharashtra (Solar RPO Target) KEY FACTS The Mahagenco 150 MW project is funded by the State Govt. and KFW, a German financial institution MERC has fixed the rate of solar energy at Rs per MW, but for this project, the rate would be Rs. 12 per MW Out of 125 MW, 75 MW has been commissioned by Lanco and Juwi and 50 MW by Megha Engg & Aries Ingeneria Sistemas 75 MW produced by crystalline modules and 50 MW from thin film Maharashtra is further planning development of 500 MW solar power projects at various locations in Maharashtra MW of total installed capacity 3.8 PUNJAB SOLAR POLICY Set a target of 1 GW of new solar capacity by 2022 in its New and Renewable Sources of Energy Policy 2012 with a target of 1000 MW by the year 2017 Solar RPO Target of 3% (2500 MW) by Punjab is the first state to allow the use of agricultural land for setting up projects. 50 MW is to be allotted for companies with no experience in setting up solar projects. The minimum capacity of the project shall be 1 MW and the maximum capacity shall be 4 MW. The net worth criterion is 2 Crore/MW. 250 MW is to be allotted for experienced companies. 26

38 MW The minimum capacity of the project shall be 5 MW and the maximum capacity shall be 30 MW. The net worth criterion is 1 Crore/MW. RfP for 300 MW grid connected Solar power was launched in March Selection process was through competitive bidding. The benchmark tariffs for the bidding process were the CERC tariff for SPV plants for companies not availing accelerated depreciation and 7.87 for companies availing accelerated depreciation. Projects under this category were underbidded. Figure 13 : Punjab (Projects Status) Target Allocations Bids Received Projects Allocated The projects have to be commissioned within 13 months Figure 14 : Punjab (Tariff Discovered) Tariff Discovered (Rs./KWh) Minimum Maximum Wt. Avg. Category- I ( 1 to 4 MW) Category- I ( 5 to 30 MW) 27

39 3.8.1 KEY FACTS PPA with PSPCL for a period of 25 years Punjab Energy Development Agency (PEDA) is the nodal agency Project developers are given various incentives such as exemption from 100% electricity duty Value Added Tax (VAT) on equipment Entry tax for equipment supplies Payment of fee and stamp duty for registration/lease deed charges for the project s land requirement Change of land use (CLU) charges, External Development charges (EDC) NOC from pollution control board Domestic content requirement The developers have to submit bank guarantee worth Rs. 40 Lakhs Higher tariffs than other states due to high cost of land and lower irradiation Developers face a fine of 30% of this guarantee in case the project is delayed upto one month and full guarantee will be encashed for delay upto 2 month The RfP allows a period of six months for achieving a financial closure and 13 months for commissioning from the date of signing of PPA 3.9 MADHYA PRADESH SOLAR POLICY Launched in FY Target under the policy will follow the state s declared RPO. MP has declared a solar RPO of 1% by In order to fulfill its RPO; installation of 360MW is required. Before the policy the government invited bids for 200 MW. It received bids for 430 MW. But only125mw was allocated; Welspun (105 MW), Alpha Infra (20 MW) while

40 MW MW was awarded at pre-determined tariff of Rs per unit to four developers (25 MW each).policy to promote setting up of solar technology parks, for solar systems and ancillary equipment manufacturing and generation units. These parks will be given preference in land allocation & other facilities. Figure 15 : Madhya Pradesh (Projects Status) Capacity announced Bids received Bidds allocated KEY FACTS PPA with state distribution utilities for a period of 25 years. There will be four categories of Solar projects Competitive bidding process for selling power to MP Discoms For captive use or sale of power to 3rd party within or outside the state Under REC mechanism Under JNNSM Details for category 2 projects For project on government land (Minimum capacity MW, Maximum capacity 100 MW) Project land use permission within 3 months. 29

41 Financial closure within 11 months. Project commissioning within 17 months. Performance guarantee of Rs. 5 lakh/mw Wheeling grant of 4% of energy injected. Electricity duty exemption for 10 years. Banking of 100% of energy with 2% banking charges VAT & entry tax exemption for solar equipments purchased. Net worth criteria Rs. 3 Crore/MW. Bank guarantee Rs. 5 lakh/mw. Earnest money deposit of Rs. 20 lakh/mw The evacuation line shall be laid by the developer. For government land, maximum land use permission at 3 hectares/ MW. For private land, exemption of 50% on stamp duty. 30

42 CHAPTER-4 STAKEHOLDERS ANALYSIS 4.1 KEY DEVELOPERS Over 1.8 GW of total installed capacity The developers can be segregated into two categories Large developers dedicated to large scale solar farms Small developers single time investors Around 1450 MW installed under state policies and JNNSM 1452 MW of projects are concentrated in Gujarat and Rajasthan only Table 14 : Key Developers in India (Solar Power) Key Developers in India MWs Commissioned Pipeline Key States Indian Developers Welspun MW Madhya Pradesh 55 MW Rajasthan 100 MW Chhatisgarh Mahagenco 125 Maharashtra Azure 57 Rajasthan, Gujarat, Punjab Kiran Energy 40.6 Rajasthan, Gujarat Mohan Brewries 100 Tamil Nadu Malpani Group 51 Rajasthan 31

43 Adani 40 Gujarat Reliance 40 Rajasthan Figure 16 : Developers break up State-wise Gujarat Rajasthan Maharashtra AP Jharkhand Tamil Nadu Others 47% 33% 10% 5% 2% 2% 1% 32

44 4.2 EPCs SOLAR PROJECTS DIFFERENT MODELS EXISTS The existing business model consists of various stake holders Utilities IPP s EPC contractors Sub contractors/component suppliers Figure 17 : Existing EPC Models EPC with full scope Includes PV module BOS Generation warranty or Performance ratio EPC w/o modules Modules/inverters excluded Plant performance guarantee Generation warranty is generally not accepted PV OEM as EPC Sub contractor Guarantees only supplier products and systems Inverters, String boxes, MV/LV switchgears, transformers and substation Ebop as one package Scope starts from land development upto power evacuation Sources the components from different players Source : ABB 33

45 4.2.2 SOLAR EPC MARKET SPACE There are several EPC companies in India both from India as well as international market Mosebaer EPC is the leading Indian EPC company with over 200 MWs of installed capacity in India alone Also the company is having presence in other countries as well L&T EPC is having commissioned projects of 155 MW All its commissioned projects are in the states of Gujarat and Rajasthan( 1 MW in UP) JUWI is an international EPC company with having a successful track record in international solar market They have also commissioned 77 MW in India Sterling & Wilson is another leading Indian EPC Currently 83.5 MWs of projects have been commissioned They have employed crystalline technology majorly in MW projects Waree is also an Indian EPC company having an experience of 5o MW of solar PV projects EPC companies are ready to work in various models and arrangements with the developers. Also it is important to understand that the industry benchmark is followed throughout, however the companies structure their contracts in such a way that Limits their scope of work Additional charges for additional services offered Sometimes the warranties and performances may get compromised due to the financial pressure from the developer. 34

46 NSM(551 MW) + GUJARAT(627.37) Figure 18 : Preferred Technology Crystalline, Thin Film, In the International solar domain crystalline silicon (c-si) technology is the dominant PV technology. The Indian market, however, has seen a 65 % share of thin film technology(with the data available). A significant driver for thin-film technology in India has been the performance of thin-film technology under Indian climatic conditions. Low-cost EXIM bank financing has shifted developers towards American technology which is primarily thin-film till now. The cost advantage of thin films has tilted the Indian market in its favour. The various EPC Warranty Types are: Defect warranty Module capacity warranty Performance ratio warranty Structure warranty 35

47 Figure 19 : Preferred Technology (NSM Phase I, Batch I) Thin Film Crystalline Both 29% 67% 4% Figure 20 : Module/Cells supply break-up NSM (551 MW) Foregin Domestic 29% 71% 36

48 Statcon Ansaldo Schneider Electric SMA Figure 21 : Inverter break up in Indian Solar Domain SMA Bonfi glioli Inverter Market share : 1439 MW Powe r One Schne ider Electr ic ABB AEG Ansal do RefuS ol Sieme ns Statco n Electr onica Sante rno Sales (MW) Other s As of January 2013, central inverters accounted for 95% of the installed capacity in the country. 4.3 BUSINESS MODELS FOR SOLAR PLANTS : FINANCIAL VIABILITY APPC + REC KEY FACTS Physical energy sale to local discom at APPC Redemption of REC at exchange The APPC is normally rolling and for payment purpose previous year APPC is taken Every Discom has its own way to calculate APPC The main viability of project depends on REC revenue The bankers are not interested in such projects due to high uncertainity of REC revenue Requires links in Govt. & Discoms to sign PPA No need to pay open access charges Less losses as injection is at nearest substation 37

49 Figure 22 : APPC + REC Business Model Developer Developer Green attribute Trading of REC at Exchange Physical sale of electricity APPC High revenue but non compliance flow due to REC trading & RPO compliance Low & continuous Author s Analysis Least attractive model nowadays in industry Raising debt funding an issue As based on REC revenue hence no financial projection can be done post 2017 As injection is at local discom network for localised consumption, grid downtime can be high More suitable for states with somewhat higher APPC & high % growth in APPC 38

50 4.3.2 PSEUDO CAPTIVE MODEL What is a Captive Plant in India Qualifying Criteria according to Electricity Rules 2005 not less than 26 % the ownership is held by the captive user(s), and not less than 51 % the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use. Interesting model to qualify under captive The Power consumption criteria can be easily fulfilled as consumer will use almost 100% of the power. The 26% stake criteria can be engineered as below, given all other conditions match the criteria of investor and consumer The power is sold to the off-taker through a captive route It is a win-win proposition for both the parties as both can achieve significant profits by this type of a collaboration This model is currently being implemented by ReNew Power backed by Goldman Sachs for two 1 MW projects in Haryana where they have signed a PPA of around Rs. 9.5/unit with ASAHI India & Coca Cola India. 39

51 Figure 23 : Pseudo Captive Business Model Equity in SPV 99% preferential shares (held by the investor) 1% common shares 26% held by the consumer 74% held by the investor Third Party Sale + REC KEY FACTS Physical sale of power to private consumers at mutually agreed price Sale of REC through exchanges Viability of project depends on PPA with private party Requires open access clearances Sale of power outside state is difficult due to high losses and infirm nature of solar 40

52 Required to pay CSS and other wheeling and transmission charges which add up to the landing cost of power Such projects are already going in the wind sector Emmvee has done an open access project funded by IREDA AUTHOR S ANALYSIS Need extensive search for potential clients Identification of consumer/off taker is the key to success, but requires rigours background study Due diligence of consumers for financial strength and future of their industry Open access clearances are not easy to get, as the Distribution companies are never willing to let go the high paying industrial clients. Open access might result in additional time consuming processes with added costs. High returns can be achieved in states like Maharashtra and Andhra Pradesh where tariffs are on higher side The Viability of the project depends on cross subsidy surcharge, wheeling and transmission charges. The project location should be near to consumer to save transmission and wheeling losses The load curve of consumer should match solar generation BIDDING IN STATE POLICIES/ NSM The biddings are crashing as new or strategic developers bid aggressively. The PPAs are however one of the most bankable. Also a lot of capital and time is invested in the bidding process 41

53 CHAPTER-5 RESULTS 5.1 PSEUDO CAPTIVE MODE : WIN WIN SITUATION FOR ALL Incentives Hurdles Highest rate of return Least number of government clearances Minimal losses, as consumption near to generation Optimal use of available space Pre-defined exist policy; with transfer of asset to developer at the end of contract Sharing of REC between developer and consumer No upfront investment by consumer Consumer adds value to its brand by going green Consumer Identification is crucial Niche market segment Strength of PPA & contract Customer Industry performance and forecast is a big risk In case of dispute/ week contract ; change of off-taker not possible 42

54 5.2 OPEN ACCESS + REC Incentives Hurdles Highest IRR in states where: Open Access clearances are a tough Tariff is high task T&D charges and losses NoC from discom; as are low due to loss of high Cross Subsidy paying consumers their Surcharge is low revenue takes a beating Can be a solution for energy deficit Grid connectivity is a states cumbersome process High potential and ease of installation Addition to capital cost near load centre Tough competition from thermal and Green Corridor and RRF will support wind energy the mechanism further Inclusion of Open Access charges in Improvement in overall structure of the financial model is difficult as they power sector will: change periodically Reduce the losses further Reduce the existing Cross Subsidy Surcharge 43

55 5.3 PROJECTS UNDER SOLAR POLICIES AN OPPORTUNISTIC MARKET FOR LOCAL DEVELOPERS Incentives Hurdles Long term bankable PPAs in Aggressive and un-realistic comparison to Open access biddings by local developers projects leading to crashing of FiT market Less government clearances are Financial strength of local required DisCom is a concern State government provide single Fear of change of state policy like window clearances through nodal in Andhra Pradesh where agencies developers are asked to match No need to pay hefty CSS charges the very low L1 bid and like Developer has to bear network Gujarat where State DisCom losses only up to the point of approached regulatory injection commission for lowering of Lucrative investment opportunity existing tariffs. for local cash rich investors to High net worth criteria and pre- take benefits like A.D expense of bidding eligibility Less competition than JNNSM Risk of non-selection Incentives 44

56 5.4 BUSINESS MODEL WHERE VIABILITY DEPENDS ON REC ARE NOT BANKABLE APPC + REC Incentives Hurdles Ease of getting PPA at APPC cost Viability of projects completely No need to take cumbersome open depends on the REC market which access clearances in turn depends on RPO Payment of network charges and compliance losses only up to the point of Non-compliance of RPO by most injection of the obligated entities in absence of any penalty mechanism No clear picture of picture regarding REC pricing post 2017 Banks are pessimistic about financing such projects 45

57 CHAPTER-6 CONCLUSIONS Project Economics & Costing Profitable Sales Models Commercially Viable solar Project Market Scenario The market is still nascent with more than 50% of developer belongings t pure investor category It will move towards Open Access & Captive based models from FiT based models as India approach grid parity Developer should target FiT market in states on opportunistic basis Highly Recommended Pseudo Captive model Third Party Open Access sale with highly bankable PPAs Viable Options Projects under state policies through competitive bidding or through direct allocation Opportunistic NSM through Viability Gap Funding APPC + REC 46

58 STUDY OF GREEN CORPORATE SOCIAL RESPONSIBILITY (CSR) SOLUTIONS CHAPTER INTRODUCTION TO GREEN CSR The rapid pace of industrialization has exposed the environment to higher levels of risk. Pollution, greenhouse gas emissions, global warming and depletion of ground water level are serious issues which cannot be addressed with the Government s interventions alone. CSR (Corporate Social Responsibility) is the buzzword and it s time for the Corporates to do their bit for the environment which has been endangered with the industrial activities. Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. Corporate Social Responsibility is broadly categorised by corporates under nine different segments as highlighted in Figure 24. Figure 24 : Segmentation of Corporate Social Responsibility 1. Eradicating Extreme Hunger and Poverty 2. Promotion of Education 3. Promoting Gender Equality and Empowering Women 4. Reducing Child Mortality, Improving Maternal Health 5. Combating Diseases Such as AIDS, Malaria 6. Ensuring Environmental Sustainability 7. Employment Enhancing Vocational Skills 8. Social Business Projects 9. Funds For Socio-economic Development 47

59 7.1.1 ORGANIZATION SPENDING ON CSR ACTIVITIES Currently, it is very difficult to find information on CSR activity in India. This problem partially stems from the fact that a lot of current CSR activity is donation based rather than project based, and as such there is only a small amount of information on company websites and in financial reports. There are very few project impact studies and long term studies detailing the kind of positive impact CSR activity has on a given community. An additional problem appears to be that very few companies are spending anywhere near 2% of their average profit after tax (PAT). Figure 25 : Spending on CSR Activities by 100 Profitable Companies in India % Among Top 100 Companies in India, 92% of them spend less than 2% of their PAT on CSR 47% In 2012 Spending on CSR, INR 1763 Crore, whereas 2% of PAT, INR 5655 Crore 6% 1% Companies Spending less than 2% PAT Companies Spending more than 2% PAT Companies Spending 2% PAT Unknown CSR Spending Source: Forbes India Survey According to a Forbes Study, the top 100 most profitable companies (based on net sales in 2012) are only spending a total of Rs crore on CSR activity, whereas 2% of PAT would be Rs crore. This accounts for a difference of Rs crore that should have been spent on CSR in the fiscal year Important to note is that 47% of companies surveyed either did not have CSR data or were not profitable. Therefore, the actual funds that should have been spent on CSR activity could in fact be greater than the stated Rs crore SEGMENT WISE CSR SPENDING CSR in India has been slowly developing over the last forty years, but has taken a great leap forward in the last five, and again has been increased with the mandatory stipulations in the 48

60 Companies Bill As of 2010, approximately 49% of India's 500 largest companies are reporting on CSR. The majority of this CSR expenditure appears to be donation based rather than project based, and unfortunately there is not much information on the amounts being donated, nor measurable impact of said donations. Figure 26 : Segment wise CSR Spending by Organizations in 2012 Most of CSR spending is Donation Based rather than Project Based 37.59% 18.83% 15.65% 12.72% 9.05% 5.16% Community Welfare Education Environment Health Care Rural Development Others Source: ASSOCHAM SECTORS CONTRIBUTING IN CSR ACTIVITIES Based on an ASSOCHAM study, there are clear areas of improvement for corporations to invest in CSR activities, as currently only half of the top 500 Indian corporations are reporting a measurable amount of CSR activity. More reporting is clearly necessary if adequate data is to be collected on the state of CSR activity in India. If corporations can partner with NGOs, there should be a measurable increase in reporting of CSR activities, as well as data collected regarding the success of CSR projects. However, without good reporting standards in place it becomes very difficult to measure both the scope and the effect of CSR across the country. With partnership between corporations, NGOs and the government, reporting standards should increase and become more transparent, and thus will result in greater sustainability both of projects and of profits. 49

61 Figure 27 : Sectors Contributing in CSR Activities in 2012 FMCG, Chemicals & IT Sectors Contribute 35% of the Total Spending on CSR in % 13.11% 11.71% 9.65% 8.82% 8.12% FMCG and Consumer Durables Chemicals Software and ITES Textiles Construction Other Source: ASSOCHAM FOCUSSING ON ENVIRONMENT AND SUSTAINABILITY Sustainability, climate change, energy and energy efficiency, green consumption and urban sustainable development are globally recognized challenges for the 21st century. Tackling these challenges requires a strong commitment from companies and private sectors, governments and agencies, NGOs. The managers and professionals of tomorrow will require knowledge to understand the interconnectedness of economic, environmental and social dimensions, and competencies to manage and contribute the change towards a more sustainable world. Corporate social responsibility (CSR) is the way to achieve a greener world. CSR is not a new concept, but over the past decade its focus has shifted from labour issues and local philanthropy toward environmental actions. Numerous factors are driving this trend, including managerial altruism, cost-cutting efficiency improvements, the emergence of a new generation of green consumers, and savvier business leaders who take pro-active steps to avert political conflict rather than reacting to public pressure after the fact. Corporations are becoming more and more aware that they should be more careful with the footprints we leave behind. Huge corporations such as Wal-Mart are selling organic 50

62 products because it promotes a healthy lifestyle for its customers and provides a positive image for the company worldwide. Figure 28 : Boundaries Defining Green Energy CSR Conceptual Ideological Practical Changing Boundries A company's primary responsibility is to owners, shareholders etc. A Company must not confuse its role with others A company has limited resources, expertise and reach What was a boundry a few years ago is now a starting point 7.2 GREEN CSR INITIATIVES RENEWABLE ENERGY INVESTMENTS RENEWABLE ENERGY IN INDIAN ENERGY MIX At present, India has 27, MW of installed renewable capacity excluding hydro power stations. India plans to double its renewable energy capacity to 55,000 MW by 2017 as part of efforts to increase efficiency of its energy use. The contribution of renewable energy to the total power generation is estimated to be 4.7%, 5.5% and 6.4% during , and respectively. Renewable power generation capacity of 14,657 MW has been added in the country during the 11th Five Year Plan period. A potential of over 2, 45,000 MW from various renewable energy sources have been estimated in the country. So far 28,067 MW renewable power generation capacities have been installed. To encourage use of renewable energy sources, the Ministry encourages private sector investment and offers incentives such as Capital Subsidy, Generation Based Incentive, and Accelerated Depreciation for Renewable Energy Projects. 51

63 MW Figure 29 : All India Generating Capacity (In MW as of ) Thermal Nuclear Hydro Renewable Sources Source: Central Electricity Authority The National Action Plan on Climate Change (NAPCC) has taken into consideration the renewable energy potential including wind power potential in outlining the approach for the development of renewable energy in the country. In keeping with the objectives and approach of NAPCC, the Ministry of New and Renewable Energy has set a target of capacity addition of 29,800 MW from renewable energy sources during 12th Plan period. This includes 15,000 MW from wind, 10,000 MW from solar, 2,100 MW from small hydro and 2,700 MW from biomass including waste to energy. A Gross Budgetary Support of Rs. 19,113 crore has been allocated for the renewable energy activities for the 12th Plan period. Figure 30 : Source wise and YOY Targets set during 12th Plan Period (MW) Source Total Wind Power ,000 Small Hydro Power ,100 Bio-Power (including Waste to Power) ,700 Solar Power ,000 Source: Ministry of Power 52

64 AMALGAMATION OF RENEWABLE ENERGY & CSR Renewable energies, such as wind, solar, and geothermal energies, are no longer considered to be merely complementary to thermal or nuclear power generation. Rather, they are widely recognized to have a core role in fulfilling our energy needs. Renewable energies such as wind, geothermal, and hydraulic power emit very little CO 2, one of the causes of global warming. These energies, by definition, cannot be depleted and help prevent the depletion of finite energy sources. Development and supply of these energies, therefore, is a very rewarding activity that can greatly contribute to global environmental conservation. Businesses can make a very positive intervention in the society by adding renewable energy projects to their Corporate Social Responsibility (CSR) activities, which will help to improve the socioeconomic conditions of the marginalized. Organization s obligations are now extending beyond maximizing shareholder value and now also include steps to improve the quality of life of surrounding community and people. As a part of CSR a business can set up Renewable Energy Technologies like Solar, Biogas to serve energy needs. Decentralized electricity generation using renewable and its distribution can become the new frontiers for CSR activities. Such projects reduce load on the grid, bridge the growing electricity deficit, provide regular electricity supply and generate local employment. As part of a CSR initiative in renewable space, organizations can set up renewable energy systems in villages that will be maintained by villagers who have undergone training. Installing a mix of solar panels, wind mills and biogas plants can make village energy selfsufficient or can opt for procuring renewable energy for their self-consumption from Renewable Energy Certificates of bilateral arrangements with Renewable energy developer. By adding renewable energy projects to their CSR activities, businesses will make a very positive intervention that will go a long way in improving the socioeconomic lot of disempowered. 53

65 Figure 31 : Renewable Energy Initiatives under CSR Activities Off-Grid Solutions Renewable Energy Certificates Grid Connected Solutions Green Energy CSR Energy Effeciency GRID CONNECTED : RENEWABLE ENERGY IS THE FUTURE The growing energy needs of the emerging economics, specifically India, risks enhanced environmental damage from conventional carbon based sources of energy. Renewable Energy technologies are deployed to curb the growing gap between the demand and supply of power, which is due to increase in the per capita energy consumption and importantly, the much hyped climate change concerns. The future of solar photovoltaic development in India seems to be very bright. India s solar mission envisages the promotion of solar energy to harness and distribute environment-friendly power, available with high scalability, for sustainable economic growth by empowering national energy security. Accelerated growth is expected in renewable energy sector with favorable conditions in terms of potential, technical support facilities, policy framework and regulatory environment, robust manufacturing base and investor s confidence in the country INDIA POWERING AHEAD WITH SOLAR India is located within the equatorial belt and receives plentiful solar radiation. Most parts of the country receive 250 to 300 days of bright days in a year. The government and private sectors are currently busy with the development of a large number of Solar Power Projects in India. Even though the percentage of power generated through solar energy in India is just a tiny fraction of its overall power production, it shares the number one spot in solar power generation capacity along with the United States. One of the major Solar Power Projects in India is an ambitious project undertaken by the government where it plans to generate 20 GW of power 54

66 MW from solar energy by the year It further plans to increase this production to 200 GW by the year This project plans to increase the installed solar power capacity by a gigantic level by the year 2030 so as to significantly bring down the cost of electricity generation from solar power, almost at par with the power generated from fossil fuels. Figure 32 : Planned Installed Capacity from Solar (MW) Source : MNRE INDIA RETAINS 5 th POSITION IN WIND Historically, wind energy has met and often exceeded the targets set for it under both the 10th Plan ( ) and 11th Plan ( ) periods. During the 10th Plan period the target set was of 1,500 M W whereas the actual installations were 5,427 MW. Similarly during the 11th Plan period the revised target was for 9,000 MW and the actual installations were much higher at 10,260 MW. Despite poor pace of capacity addition in the states like Tamil Nadu, Andhra Pradesh, Karnataka and Maharashtra, India retained its position in top five world wind energy markets in 2012 The country has potential to set up about 6, 00,000 MW of wind power. The current installed capacity is 18,000 MW. In 2011, the country added 2300 MW of wind power capacity. This had come down to about 1700 MW in 2012 and is likely to be in the same range this year. But next year it could go up to 3000 MW if promised incentives (INR 8 billion allocated to Ministry of Non Renewable Energy for the purpose of reintroduction of generation-based incentive for wind energy projects). 55

67 As per various estimates, the total potential for wind energy is around GW. MNRE envisages wind to constitute ~70% of overall renewable capacity translating to 2-3 GW of new capacity per year till OFF-GRID SOLUTIONS Often remote areas or islands are not connected to the national power grid. They generate their own power from a diverse range of small local generators using both fossil fuels (diesel, gas) and locally available renewable energy technologies (solar PV, wind, small hydro, biomass, etc.) with or without its own storage (batteries) depending on the technologies SOLAR TECHNOLOGIES - ONE OF THE BEST SOLUTIONS TO LIGHT UP AND ELECTRIFY RURAL INDIA The rural solar off-grid market has so far been driven mainly by government and NGO efforts. Though there has been increasing interest from corporates and investors (domestic and international) in exploring viable business opportunities to serve India s vast rural, unelectrified population. In India, close to million households in rural areas (approximately 400m people or 80,000-90,000 villages) lack access to grid-connected electricity. Electrified households in the rural areas pay INR 106 a month on an average for electricity. This is less than the INR150 which unelectrified households spend for light from a kerosene lantern. Assuming such households are able and willing to pay the same as electrified households, the market potential is in the range of INR billion per year. Around 250,000 grid-connected villages with frequent power outages further increase this potential. There are three key options for providing rural, off-grid, solar PV-based electricity solutions: small applications with integrated power generation capacity (e.g. solar lanterns and solar street lights), solar home systems (SHS) and mini-grids. Falling prices of photovoltaic cells in the last two years have increased the viability of solar energy projects. Solar powered cell phone charging stations where the villagers can charge their cell phones for a certain nominal payment will also help boost the off-grid solar PV market along with supporting the rural enterprise. 56

68 Figure 33 : Solar powered cell charging stations Babulal charges the cell phones of the INR SOLAR - HYBRID SYSTEMS With the advent of solar hybrid systems, urban India too is catching up. In these systems, solar PV modules charge the battery during day time while WEGs charge the battery during monsoon. Although current installed capacity of these systems is very low, it is expected that these systems will grow in areas with good wind potential BIOMASS POTENTIAL Most of rural India is dependent on biomass for fulfilling its energy needs. However, burning biomass comes with several hazards to personal health and the environment. Off-grid renewable energy applications present a viable alternative for mitigating the country s energy risk in the face of fuel scarcity. In rural India, energy is mainly required for cooking, lighting and agricultural activities. Biomass is the main source of energy due to easy availability. Around 87% of the off-grid installed capacity in the country comes from biomass (including Waste to Energy). Figure 33 depicts the off-grid RE Capacity (MW) as of : Maximum capacity is from biomass cogeneration followed by biomass Gasifiers while Solar PV Systems have an installed capacity only of 97 MW. 57

69 MW Figure 34 : Off-Grid RE Capacity (MW) Waste to Energy Biomass Cogeneration Biomass Gasifiers Aero-Generators/Hybrid Systems Solar PV Systems (>1KW) Source : Ministry of New and Renewable Energy RENEWABLE ENERGY CERTIFICATES (REC) ABOUT REC Renewable Energy (RE) sources are not evenly spread across different parts of the country. On the one hand there are States (like Delhi) where the potential of RE sources is not that significant. On the other hand there are States (like Rajasthan and Tamil Nadu) where there is very high potential of RE sources. In such States there are avenues for harnessing the RE potential. However, the high cost of generation from RE sources discourages the local distribution licensees from purchasing RE generation beyond the mandated level. Figure 35 : Concept of Renewable Energy Certificates Source : MNRE 58