Solar Lessons: Learning risk mitigation strategies from Madhya Pradesh

While India’s uptake of ground-mo­u­nted solar projects is impressi­ve, progress in the rooftop solar sp­ace has been limited. Madhya Pradesh has done pioneering work in the rooftop space, which has been lauded by several stakeholders. NITI Aayog has decided to replicate Madhya Pradesh’s rooftop projects under an initiative titled “Sun’s Ble­s­sings and Health (SuBaH)”, to set up roof­top so­lar projects for health institutions. SuBaH will provide inexpensive gr­een po­wer to go­vernment health institutions, and play a big role in reducing their overall expenditure. The features of the Madhya Pra­desh model that this initiative plans to replicate are as follows…

Madhya Pradesh model

The RESCO model has been successfully implemented in Madhya Pradesh, and over a hundred rooftop projects are functioning – all set up without any investment by beneficiaries, enabling savings for beneficiaries from day one. This includes central government organisations, IIM-Indore and substations under the Central Acade­my of Police Training and Power Grid Cor­po­ration of India Limited, as well as nu­merous sta­te government organisations such as co­lleges, police stations, medical colleges and universities. IIM-Indore, till date, has sa­ved Rs 10 million in electricity costs – almost Rs 350,000 per month. Mean­while, medical colleges – which ma­de zero investments – have saved almost Rs 2 million per month and over Rs 40 million in total. The tariff rates achieved in Madhya Pra­desh were by far the lowest in India – Re 1.38 per unit (with 3 per cent annual escalation). This was with the then available su­bsidy of 25 per cent from the Mi­nistry of New and Renewable Energy, and 18 per cent from the Madhya Pradesh government.

Risk mitigation strategies

The participation of developers in these pr­ojects, and improvements in tariff attr­a­ctiveness, have been achieved by mitigating risks and uncertainties for de­velopers. This has been accomplished th­rough numerous innovations, robust pro­ject preparation, an efficient transaction str­­uct­ure, balanced risk allocation and careful contractual terms. Usually, in RESCO tenders, the marketing exercise is left to developers. In Madhya Pradesh, various government departme­n­ts were convinced of the RESCO mo­del and pre-clearance was obtained on power purchase agreement documents. This saved bidders from spending their resources on identifying procurers, and reduced project uncertainty. Moreover, a data room was created to address information asymmetry. This in­c­luded information such as Go­o­gle coordinates of buildings, indicative solar photovoltaic array layouts superimposed on Go­ogle images, and electricity consumption history. The bidders even knew the number of panels and inverters, and the length of cable, needed to implement the project. The data room was developed with tech­nic­al assistance from the World Bank. The de­velopment of the data room greatly re­du­ced the risk profile of the projects and enabled more infor­med bid participation, le­ading to low bid rates. To reduce payment security risk, it was provided that the procurer or procurer’s administrative de­p­artment shall provide pay­ment security th­ro­ugh a letter of credit, bank guarantee, fix­ed deposit or government guarantee/ za­s­s­­urance. Mul­tiple pre-bid meetings were conducted, wh­ere extensive pre-bid con­sul­tations were held with pro­spective bidders. Many of the suggestions fr­om the bidders we­re accepted, and the necessary mo­difications we­re ma­de in the project documents.

The way forward

A key concern in the rooftop space is that several state governments have regulations that discourage its uptake. In addition, under the Electricity (Rights of Consumers) 2020 rules, net metering can be set up by a prosumer only for loads up to 500 kW or up to the sanctioned load, whichever is lower. For loads beyond 500 kW, gross metering must be used. Madhya Pradesh and other states used to have a net metering ceiling of 1 MW; however, the Electricity (Rights of Consumers) 2020 rules have nudged several of them, in­cluding Madhya Pradesh, to retrogress and decrease the ceiling to 500 kW. It is important to note that many consumers have already set up 500 kW rooftop projects, but their demand is much higher – over 2 MW. These consumers cannot opt for net metering beyond 500 kW. To solve this issue, the state is developing a “No Export Model”. Under this, a larger system can be used but the electricity generated cannot be exported. The additional electricity may be stored or wasted. However, the net metering and no-export models will not be able to co-exist. Opting for the former means that the latter will have to be given up. n

Based on a presentation by Manu Srivastava, Principal Secretary, Technical Education, Skill Development & Employment Department, Government of Madhya Pradesh at Renewable Watch’s 16th Solar Power in India conference.