A thorough analysis on National Solar Mission Phase II Batch I launched by the Indian Government. Covers introduction, salient features, key concerns/risk factors, financial analysis and strategies for bidding.

1.
POWER INDIA
Everything you want to know about...
NATIONAL SOLAR MISSION
Batch I of Phase II
Introduction
What is NSM?
Salient features of NSM Batch I of Phase II
Viability Gap Funding (VGF) support
Techno‐commercials
Key technical & commercial requirements
Tentative inancials of the projects
Sensitivity analysis
Key Strategies
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October 30, 2013

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3. Power India
The Jawaharlal Nehru National Solar Mission (JNNSM or NSM) is a mission
launched by Government of India on the 11th January, 2010 to promote development of solar energy projects in India. by the Prime Minister.
The NSM has set the ambitious target of deploying
20,000 MW of grid connected solar power by 2022 is
aimed at reducing the cost of solar power generation in
the country through (i) long term policy; (ii) large scale
deployment goals; (iii) aggressive R&D; and (iv) domestic production of critical raw materials, components and
products, as a result to achieve grid tariff parity by 2022.
NSM will create an enabling policy framework to achieve this objective and
make India a global leader in solar energy.
NSM was supposed be executed in three phases.
 Phase 1: 1,000 MW (by 2013)
 Phase 2: cumulative 4,000 MW (by 2017)
 Phase 3: cumulative 20,000 MW (by 2022)
In the Phase 1 of the Mission, 950 MW solar power projects were selected in
two batches (batch-I during 2010-11 and batch-II during 2011-12) through a
process of reverse bidding. NTPC Vidyut Vyapar Nigam Limited (NVVN) was
appointed as the nodal authority for purchase of power from developers and
further sale to distribution utilities/ Discoms after bundling with power from
unallocated quota of power from coal based stations of NTPC on equal capacity basis. A total capacity of 420 MW has been commissioned under these
batches by the end of Phase-1. In addition, a capacity of 50.5 MW under migration scheme, 88.8 MW under IREDA-GBI scheme and 21.5 MW under old
Demonstration scheme has been commissioned, taking the total capacity commissioned to 680.80 MW.
For Phase 2 of NSM, on account of unavailability of conventional power for
bundling, the Government has ixed the solar tariff at Rs. 5.45 per unit (Rs.
4.75 per unit if accelerated depreciation is availed) and shall assist the developers by providing Viability Gap Funding to make the solar projects viable at
this tariff.
Detailed guidelines for bidding under NSM Phase 2 Batch I is issued by the
Government of India on 28th October 2013.
Power India
WHAT IS NSM?

4. Power India
Approach
 To incentivize setting up of a large
number of Solar Power Projects
and minimizing the impact of tariff on the distribution companies,
Viability Gap Funding (VGF)
Scheme has been selected.
 Implementation will be by the
Solar Energy Corporation of India
(SECI).
NSM Documents
 Final Guidelines for Batch-I,
Phase-II of JNNSM
 RfS Document for 750 MW
Grid Connected Solar PV
Projects under Phase-II
Batch-I of JNNSM
Total Capacity
 Total capacity: 750 MW
 Minimum capacity: 10 MW and in
multiples there of
 Maximum Project capacity: 50
MW
 The total capacity to be allocated
to a Company including its Parent,
Af iliate or Ultimate Parent-or any
Group Company shall be limited
to 100 MW.
 Maximum of ive projects at different locations with aggregate
capacity not exceeding 100 MW.
 A waiting list of up to 100 MW
may be maintained up to date of
Financial Closure.
Financial Quali ication Criteria
 Minimum Net Worth requirement
at the rate of Rs. 2 crore per MW
of the project capacity up to 20
MW and Rs. 3 crore per MW for
the capacity above 20 MW.
Connectivity with the Grid
 Inter-connection with the transmission network of STU/CTU or
any other transmission utility at
voltage level of 33 KV or above.
 The responsibility of getting connectivity, development & maintenance of transmission system and
metering will lie with the Project
Developer.
Clearances & Approvals
 All the clearances & approvals
required for the project shall be
obtained by the Project Developer.
Domestic Content Requirement
 A capacity of 375 MW to be bided
with Domestic Content Requirement (DCR).
 The solar cells and modules used
in the solar PV power plants must
both be made in India.
Tariff
 Separate tariffs for the projects
availing/not availing accelerated
depreciation bene its are ixed.
 The tariffs are irm for the 25
years of project period.
 With Accelerated Depreciation
Bene it: Rs. 5.45 per Unit
 Without Accelerated Depreciation
Bene it: Rs. 4.75 per Unit.
Viability Gap Funding
 The developer will be provided a
viability gap fund based on his
bid.
 The upper limit for VGF is 30% of
the project cost or Rs.2.5 Cr./MW,
whichever is lower.
 The developer has to put his own
equity of at least Rs.1.5 Cr./MW.
 The remaining amount can be
raised as loan from any source by
the developer.
 The VGF will be released in six
tranches as follows:
50% : Upon commissioning
10% : End of 1st Year
10%: End of 2nd Year
10% : End of 3rd Year
10% : End of 4th Year
10% : End of 5th Year
 If the project fails to generate any
power continuously for any 1 year
within 25 years or its major assets
(components) are sold or the project is dismantled during this tenure, VGF to be refunded back on
pro-rata basis or else a claim on
assets equal to the value of VGF
released, on pro-rata basis.
Power India
SALIENT FEATURES
OF NSM PH II BATCH I

5. Power India
Fees, Charges & Bank Guarantees
 Non-refundable processing fee of
Rs. 1 Lakh for each Project upto
20 MW capacity and of Rs.2 Lakh
for each project above 20 MW
capacity.
 Earnest Money Deposit (EMD) of
Rs. 10 Lakh/MW in the form of
Bank Guarantee.
 Performance Bank Guarantee of
Rs. 20 Lakh/MW at the time of
signing of PPA.
 In addition to the Performance
Bank Guarantee of Rs. 20 Lakh/
MW to be provided
 At the time of signing of PPA, the
Bank Guarantee towards EMD will
also be converted into Performance Bank Guarantee.
Electricity Generation
 The developers have to declare
the CUF upon commissioning
which shall in no case be less than
17% over a year.
 CUF shall be maintained within 15% and +10% of the declared
value till the end of 10 years from
COD subject to the CUF remaining
over minimum of 15% and within
- 20% and +10% thereafter till the
end of the PPA duration of 25
years.
 The lower limit be relaxable to the
extent of grid non-availability for
evacuation.
 Penalty in case of shortfall in CUF
from the minimum level; equal to
the
compensation
payable
(including RECs) by the Discoms
towards non-meeting of RPOs.
 Excess generation from the maximum level of CUF shall be purchased by SECI at Rs. 3 per Unit.
Selection Process & Implementation Agreement
 Request for Selection (RfS) shall
be issued inviting bids quoting the
VGF requirement for setting up
the Solar PV Power projects at
locations of choice.
 Bid submission & evaluation to be
done separately for the categories
of with and without DCR.
 Selection of projects for allotment
will start from L1 (in terms of
lowest VGF requirement) and go
up to the level where the speci ied
maximum MW capacity to be allocated under the chosen Category
is reached.
 Letter of Intent (LoI) shall be issued to successful bidders and
sign Power Purchase Agreements
(PPAs) valid for a period of 25
years.
 The solar power purchased by
SECI shall be sold to State Utilities/ Discoms/ other Bulk Consumers under Power Sale Agreements (PSA) at a ixed tariff of
Rs.5.50/kWh (Rs.4.75/kWh in
case of projects availing bene it of
accelerated depreciation) for 25
years (including Trading Margin
of SECI @ 5 paisa/kWh).
Payment Security Mechanism
 SECI shall set up a payment security mechanism in order to ensure
timely payment to the developers.
 The money received from encashment of BGs, interest earned on
this fund, incentives for early payment, the extra money coming
from 10% lower tariff to developers claiming AD and the grants
from Government/ NCEF will be
used to build a fund for providing
Payment Security Mechanism.
 This fund will have a corpus to
cover 3 months payment.
Power India
SALIENT FEATURES
OF NSM PH II BATCH I

6. Power India
SN
Event
Date
1
RfS Document
Zero Date
2
Issuance of RfS Document
7 days from Zero Date
3
Submission & opening of Bids
60 days from Zero Date
4
Evaluation of Techno-Commercial
Bids & Short listing of Bidders
60 days from Submission of Bids (SN 3)
5
Opening of Financial Bids
7 days from Short listing of Bidders (SN 4)
6
Issuance of LoIs
15 days from opening of Financials Bids
(SN 5)
7
PPA Signing
30 days from Issuance of LoIs (SN 6)
8
Financing Arrangments
210 days from PPA signing (SN 7)
9
Commissioning of Projects
13 months from PPA signing SN 7)
Power India
IMPLEMENTATION
SCHEDULE

7. Power India
Site Selection
VGF Disbursement
 As there is no concept of Solar
Park under NSM Phase II Batch I
and also no support will be given
by the Government for the land
acquisition, the Project Developer
has to identify and select the site
suitable for the Project.
 Parameters such as land availability and costs, solar resource availability, proximity to the grid, water etc have to be considered
while evaluating the sites.
Land Acquisition
 As acquisition of land is the biggest hurdle for the development
of projects in India, the same is of
utmost importance for the Developer.
 Suitable land should be identi ied
and inalized (in terms of inprinciple agreement or agreement
to sale etc) before the submission
of bids.
Clearances & Approvals
 As the VGF to be disbursed over
the period of 6 years from project
start date; the same should take
into account in the inancials models of the Project.
 Further, various political and economical risks associated with the
disbursement of VGF shall also be
considered while arriving at the
biding amount.
 Delay in disbursement of VGF by
the Government will hamper the
inancials of the Projects.
 Obtaining all the necessary clearances & approvals are the responsibility of the developer.
 Hence, the timelines and risks
associated with this are required
to be considered.
DCR Requirement for 375 MW
Projects
 Developer has to take into consideration the domestic modules
while bidding under the DCR Category;
 Availability of modules, quality,
CUF estimation, degradation &
warranty aspects etch are required to be considered.
Grid Connectivity
 In the absence of the Solar Park
concept, the cost of developing
and maintaining the evacuation
systems as well as generation
losses on account of down time of
the grid have to be taken into consideration.
Off-take Risks
 Absence of irm mechanism to
ensure a match between states
willing to buy power at the predetermined prices and developers’ preference of location for the
projects
 Lack of clarity on how the SECI
will ensure the off-take of the
power to states across the country
that might be willing to buy the
power.
Payment Security Mechanism
 Lack of clarity in terms of how the
payment security will be provided
by SECI to the developers.
 The current mechanism of collecting corpus of fund suf icient for 3
months payment is not adequate
considering the lower tariff and
high amount of upfront equity
funding from the developer.
 Further, without the proper payment security mechanism, the
banks/FIs will also be hesitant to
provide funds at D:E ratio of
70:30.
Power India
KEY TECHNICAL &
COMMERCIAL CONCIDERATIONS

8. Power India
TENTATIVE FINANCIALS
Assumptions
 CAPEX: Rs. 6.6 Crs/MW
 VGF Percentage: 25% of the Project
Financials
Considering a standard project size
of 10 MW (11 MWp), the inancials
of the Project will look like below
based on the assumptions depicted
herewith.
 Project IRR: 14.7%
 Equity IRR: 15.0%
Cost
 PLF: 19%
 Interest Rate: 13%
 D/E Ratio : 70/30
 Tariff : Rs. 5.45 per Unit (W/o Depreciation Bene its)
 OPEX: Rs. 6 Lacs/MW with 5% annual
escalation
 Project NPV: Rs. 8 Crs
 Equity NPV: Rs. 5 Crs
 Project Payback: 6.6 Years
 Equity Payback: 11.4 Years
TENTATIVE FINANCIALS
Sensitivity of the change in key variables such as CAPEX, VGF Percentage,
Interest Rate, PLF and OPEX using the radar chart analysis is presented below.
0.7%
Interest Rate (‐
0.5%)
0.5%
VGF Percentage
(+1%)
CUF (+0.2%)
0.6%
CAPEX/MW (‐₹
10 Lacs)
Power India
Grid Lossess (‐
1%)
OPEX/MW (‐₹ 1
Lacs)
0.8%
0.7%
0.6%
0.2%
0.4%
0.2%
0.4%
0.0%

9. Power India
KEY STRATEGIES
Power India
 As the individual project size is 10 MW and in multiples thereof, developers
shall try to reduce the beta of the bid amount by lower VGF in lowest bids
and higher for the highest bids.
 Hoping the VGF disbursement as per the de ined schedule the Developer
shall avail cheaper short term inancing such as buyer’s credit or bridge
loans.
 As the maximum CUF limit is adequately high, developers may try to maximize the DC iled thereby getting higher generation with relatively lower increase in CAPEX.

10.
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