Solar Energy: Path to Grid Parity April 11, 2012

Solar Energy: Path to Grid Parity

April 11, 2012

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative. 2

Contents

Why Solar? Why Solar in India?

What is Stopping Solar?

Our Point of View: Grid Parity

Policy Focus – State and Center


A small piece of land in Rajasthan can meet the power requirement of India!

Particulars Units Value

Area Required ( 55 KM * 55 KM) Sq. KM 3,025

Area Required ( 55 KM * 55 KM) Sq.Meters 3,025,000,000

Average Insolation in Rajasthan kwh per sqm per year 2000

Conversion Efficiency % 15%

Total Power Generation Potential MU 907,500

Indian Power Requirement in 2010 - (EPS Estimate) MU 891,163

© 2011 KPMG Advisory Services Private Limited, the KPMG India member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

Infinite Source

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Three things will drive solar power in India

1.Large Incremental Power Demand

2.Well endowed solar radiation – among the best in the world

3.Emerging grid parity

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India needs to add:

• 80 GW (conventional power equivalent) in next five (5) years

• 200 GW (conventional power equivalent) in next ten (10) years



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India’s solar insolation ~ 1800-2000 kwh/m2/year

Operating hours

KWh/KWp

India

South AfricaChileEgyptBrazil

Average Irradiation SunbeltChina

AustraliaIndonesia

1,800

1,200

900

2,000

Italy

ChinaSpain

SouthKoreaJapanUSA

FranceCzech Rep.

BelgiumGermany

Top 10 PV Markets -

2010

Selected countries in Sunbelt



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With our analysis of grid parity suggesting 2017 to 2019 timeframe, we expect solar power to start making significant contributions to incremental demand by 2015


Contents



Our Point of View



Polysilicon Prices

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10© 2011 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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Contents



Our Point of View



Other Enablers in Short to Medium Term

Enablers

Emerging regulatory regime

India aims to establish itself as a global leader in solar energy by creating policy

conditions for its diffusion across the country

Solar Power Purchase Obligation

Mandates utilities to source upto 3% of their total power demand from solar power

resources by 2022

TariffGovernment supported lucrative Feed-In-Tariff (FIT) programs and high peak prices in

the merchant market make solar an attractive proposition

ResourcesAvailability of sunshine for longer hours with greater intensity and abundance of large tracts of barren land suitable for solar

Cost leadershipUpcoming state-of-the-art manufacturing capacities at competitive costs will position

India as a hub for Solar Energy

GeopoliticalSolar power will occupy a central place in India’s quest for energy and environmental

security – depleting fossil fuel reserves and their black content endow solar an

inherent advantage

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Proactive Government Support for Solar Market….

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Renewable Energy Certificate (REC)

MarketState level solar programs

Jawaharlal Nehru National Solar Mission

(JNNSM)

I II III

Power Purchase Agreement (PPA) – Subsidy Driven Market Driven

• Grid Connected:

Phase – 1:

• 1000 MW by 2013

(500 MW of Solar thermal)

• 20,000 MW by 2022

• Rooftop & Small Scale Solar

Power Generation

100 MW already allotted

• Off-grid & Decentralized Solar

Applications

Market size of 200 MW by

2013

• Several states have come out with

solar power policies to encourage

deployment of solar power.

• Gujarat: Signed PPA's for about

965 MW of solar power.

• Rajasthan:

• Phase-1 (up to 2013)

• Maximum Capacity to be

developed 200 MW

• Phase-2 (2014 -2017)

• Maximum Capacity to be

developed 400 MW

(Additional)

• Developers can trade

REC with utilities that

are short of the

mandated quota of

renewable energy for

each state in the power

exchange

• REC market started

trading in India


Gujarat

• PPAs totaling 965 MWs signed

• Executing First Solar Park (~350 MW) in India that will be operational in 2011

– Pre feasibility study for Second Solar Park being undertaken

Rajasthan• MOU with Clinton Climate Initiative (CCI) for developing 3000-5000 MW in Solar Parks

– Feasibility study being done• State Solar Policy (2011):

– Targets 600 MW of generation capacity by 2017

West Bengal• India’s first grid integrated 1 MW solar power plant at Asansol.

• Targets more than 100 MW by 2012.

India – Radiation Map (kWh/m2/Day)

Andhra Pradesh• Emerging as a key Solar

Manufacturing hub with players like Solar semiconductor, Surana, Suryachakra, Xl Telecom and Titan energy systems.

• Land banks for solar projects have been identified in 12 districts.

Source: TERI

6.6 – 6.4

6.4 – 6.2

6.2 – 6.0

6.0 – 5.8

5.8 – 5.6

5.6 – 5.4

5.4 – 5.2

5.2 – 5.0

5.0 – 4.8

4.8 – 4.6

4.6 – 4.4

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State PoliciesCertain States are active in the Solar space….

…several states have signed MOUs and PPAs with developers for setting up solar power plants


Renewable energy at preferential tariff

Environmental Attributes

Environmental Attributes

ElectricityElectricity

REC MechanismOption to sell renewable energy in REC market has been a major incentive for RE generators

RE Generator

Option 1

Option 2

At least 250kW grid connected renewable energy projects

Small Hydro

Wind

Solar

Biomass

Urban or municipal waste

All other sources

recognized or approved by

MNRE

Obligated entities

REC Mechanism

Solar

Non- Solar

Pow

er

Exch

an

ge

Discoms

Captive power consumers

Open access consumers

Other obligated entities

Host distribution

utility

Third party sale

Captive power plant

Power exchange

Price not exceeding pooled cost of power

Mutually agreed price

Market determined price through power exchange

RE C

Commodity

Sell the ‘electricity generation’ to one entity and the ‘environmental attributes associated with renewable energy generation in the form of RECs’ separately through the market based mechanism like REC to any Obligated Entities

Sell the ‘renewable energy’ at preferential tariff fixed by the concerned Electricity Regulatory Commission to an entity


■ REC values the renewable energy attribute of electricity generated from renewable energy based projects

■ Price of REC is discovered in the power exchange based on the demand and supply of the RECs in the market, subject to a forbearance price

(ceiling price) and floor price determined by CERC

■ No solar RECs have been traded so far. Currently, non-solar RECs are being actively traded on both the exchanges (IEX and PXIL) and trading of

Solar RECs are also expected to commence soon.

REC Mechanism Floor and forbearance price for Solar RECs has been fixed till FY15 at INR 9,880/MWh and INR 13,690/MWh respectively

Source: CERC, NLDC, REC Registry of India

Forbearance priceCeiling price within

which certificates can be dealt

Floor priceMinimum price above which certificates can

be dealt

►Solar►INR 13,690/MWh

►Non- Solar►INR 3,480/MWh

►Solar►INR 9,880/MWh

►Non- Solar►INR 1,400/MWh

Basic minimum requirements for ensuring the viability of RE projects set up to meet the RE targets cover loan repayment & interest charges, O&M expenses and fuel expenses in case of Biomass and Cogeneration

Applicable from 1st April 2012

Highest difference between cost of generation of RE technologies / RE tariff and the average power purchase cost of 2010-11 for the respective states

Pricing of RECs as per REC framework


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Contents



Our Point of View



Solar Power in India Market Potential is Significantly Large

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• We expect the Solar Market to be about 68 GW by 2022 unlike JNNSM target of 20 GW

• We forecast 36% of the 56 GW market (from 2017-18) to come from utility-scale solar potential

• Solar rooftops and solar-powered agriculture pump-sets may require government interventions to encourage solar adoption

• However, utility-scale solar installations would be driven by cost economics of solar power

Solar Potential In GW

2012-17 ~9.8

2017-22 ~57.3


Solar Grid Parity – When?The point at which grid parity occurs is a function of the rate of increase in conventional power prices and the rate of decrease in solar prices

• We expect landed cost of conventional energy to consumers to increase over the next decade at the rate of 4% p.a. in base case and 5.5% p.a. in an aggressive case

• This factors in increasing proportion of raw material imports, cost of greenfield generation and network assets and improvements in operational efficiencies of the utilities

• We expect solar prices to decline at the rate of 5-7% p.a over the next decade

• This factors in increasing economies of scale in equipment manufacturing and advancements in product technology thereby improving solar-to-electricity conversion efficiency

Note: We expect to reach grid parity in about the same time in the case of CSP too


Solar Grid Parity – Rooftop MarketThe difference between the landed cost of power and the solar power price at consumer end is on the decline

Category Small Capacity(<5 kW)

Medium Capacity(~50 kW)

Large Capacity(>50 kW)

Profile Domestic Households

Small Commercial Establishments

Large Commercial Establishments /

Industries

Indicative Solar Rooftop Power Cost (INR/kWh)

12.5 12 11.5

Prevailing Levelised Tariffs in Gujarat (INR/kWh)

LT - Domestic6.64

LT – Industrial6.24

HT – Commercial7.40

Applicability of Accelerated Depreciation Benefit – (INR/kWh)

NA Applicable1.0-1.5

Applicable1.0-1.5

GAP (INR /kWh) 5.90 4.7 3.1

ILLUSTRATION

For large scale commercial and industrial establishments the gap between solar

power and tariffs is already very low


Solar Grid Parity – Decentralized Applications

Solar power is already economical when compared to diesel powered applications market

Today, Solar power price is competitive with the effective price of diesel based power for applications like telecom towers, agricultural pumpsets

India has about 17 mn grid powered pumps and close to 7 mn diesel

powered pumps* - Only 7,500 solar pumping systems have been

installed for agricultural use

Market Potential

*Source: Energy Alternative India (EAI)

ILLUSTRATION


Solar Water

Heaters

70 million sqm of

collector area by 2022

Solar Powered Telecom Towers

3,500 MW by 2022

Solar rooftops

19,000 MW by 2022

Solar Powered

Agricultural

Pumpsets

16,000 MW by 2022

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Solar Power in IndiaDecentralized Stand-alone Applications can contribute 65% of the total demand during 2017-22


2012-17 2017-22

USB Bn USB Bn

Small Scale Solar Market (Rooftops, Agriculture Pumpsets, Telecom, Solar Lighting)

5 64

Utility-scale Solar Farms (CSP & PV) 15 28

Cumulative Investments in 5 year periods 20 92

2012-17 2017-22

USB Bn USB Bn

Solar PV Segment

Inverter Market 1.8 12.3

Solar CSP Segment

Parabolic Troughs 0.6 1.8

Mirrors 0.4 1.2

Subtotal 1 3

Total 2.8 15.3

2012-17 2017-22

USB Bn USB Bn

Solar PV Segment

EPC Services Market 1.5 7.5

Solar CSP Segment

EPC Service Market 0.5 1.6

Civil Works 0.2 0.6

Subtotal 0.7 2.2

Total 2.2 9.7

Supporting IndustriesSolar Specific Vendor Market

Solar Investments in India

(Source: KPMG’s Solar Market Size Model)

Solar Power in IndiaIndian solar sector offers significant investment opportunities


According to a KPMG study, these three drivers could mean the following…

1. Solar power can potentially meet 7% of India’s power requirement in next ten years

2. It can mitigate 2.6% of India’s carbon emissions

3. It can enhance India’s energy security by reducing dependence on energy imports

• Oil imports stand at around 75%

• Coal imports expected to increase from 15% to 30% in next 5 years

• Solar energy can offset 20% of India’s coal imports and save 5% of India’s diesel consumption annually within 10 years, which can result in cumulative savings of USD 25 billion over the next 10 years

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Thank You

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Solar Energy: Path to Grid Parity April 11, 2012