REC Market updates in India :

REC Market updates in India:

At present there is very weak enforcement action by electricity regulators of different states, which has widened the demand supply gap of REC (Renewable Energy Certificates).

As per a news published in the Business Standard, Mr. Tarun Kapoor (Joint Secretary of MNRE) said “ we have realized that few state discoms and private companies are not following regulations of RPO and not complying with minimum RPO targets for the year. To make it mandatory, we have proposed an amendment to the Electricity Act.”

It will be a big push to strengthen the REC market in India, as this will be the strong driving force of RPO, being regulated by this enforcement. At times, state regulators tend to postpone enforcement of RPO obligations. Considering law is being amended, state regulatories would have to strictly enforce it and a penalty could be imposed for non-compliance, which in turn would put pressure on discoms to meet their obligation properly, during the year.

REC mechanism can be installed properly only by Government make it mandatory and enforce binding provisions to meet RPO on timely intervals. If Solar REC certificates are not sold, their incentive for setting up of Solar Power Project declines and make it totally unviable financial project for developers. State discoms are largely benefited by REC, as they are real beneficiaries due to availability of electricity on pooled cost under 25 years PPA with solar project developers. This availability of solar power is going to reduce their dependency on environment harmly pollutive electricity being generated by coal, gas, lignite and other sources.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Intangible Assets...........Depreciation available in Income Tax Law in India

Intangible Assets………Depreciation available in Income Tax Law in India

In the era of Globalisation, business has become more knowledge based; giving more importance to intellectual property rights. Section 32(1)(ii) of the Income Tax Act 1961, was introduced in financial budget of year 1998, providing that depreciation would also be allowed on intangible assets; acquired on or after 1^st April, 1998.

Definition of Intangible Assets includes followings:

--Marketing rights

--Contract Rights

--Brand Name

--Know-how Patents

--Copyrights

--Trademarks

--Licenses

--Franchise

--Non Compete payments

--Tenancy Rights

--Membership Rights

--or any other business or commercial rights of the similar nature.

Goodwill is a bundle of rights which include, inter alia, patents, trade marks, licenses franchises etc. and they assume importance in commercial world as they represent a particular benefit or advantages or reputation built by a person / company / business house over a period of time and customers associate themselves with such assets; hence depreciation would be allowable on the same.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Solar Power Project................now with Investment Guru's

Traditional industry and economy suffering from lesser ROI statements by Investment experts in financial world; Solar Power projects have become hot cake with Investment Guru.

In the era of Green and Clean electricity; technology prices of Solar Panels and Equipments have drastically come down. Solar has not taking shape as an affordable investment project for Indian companies. Various Incentives, Power Purchase by Govt., supportive policies and awareness of business man with alternative / renewable energy is crowing meetings with Project Consultants to finalise Solar Project for various companies in India and abroad.

Financial attractions to set-up Solar Power Project:

--Lesser price of per MW installation

--Income Tax Benefits

--Depreciation Benefit

--Assured income with 25 years PPA

--Maintenance free project

--Green and Environment friendly project

--Leading companies in India providing full turnkey installation of Solar Project

--Higher Solar radiation in Western Rajasthan; specially in Jodhpur District

--Large number of Solar Projects working in Rajasthan

Solar Power Industry is getting bigger support by a number of deals done thru PE players with overseas funding. Most of the projects are sourcing funds for this project at very lower rate of Interest. Entry of global technical companies into turnkey installation of Solar Project has made this project bankable with easy and secure funding options.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

(Author is an expert in consultancy and financing of Solar Power Projects in Rajasthan)

Rising Power Prices…a boom for Solar Power Projects

Rising Power Prices…………a boom for Solar Power Projects

Average Power Prices at the Indian Energy Exchange (IEX), which trades more than 90% of the country's power, have more than trebled due to a delayed monsoon and soaring demand.

Average prices have crossed the Rs. 6 per power unit mark on June 8 in all regions except south India where it is more.

The average price in southern India, which mostly remains above that in the rest of India, have, in fact, almost touched Rs. 8 per power unit in last six days. In South India prices had touched Rs. 19 per power unit for electricity bought between 6 pm and 7 pm on July 20.

Prices are higher in Southern sates since the region does not have adequate power wheeling capacity to transport electricity from other parts of the country.

In the rest of India, barring the southern states, average price reached Rs. 7.70 per power unit for supply during the evenings.

This week, national shortfall has been hovering between 13,000 mw and 14,000 mw every day. Punjab, Haryana and Uttar Pradesh have witnessed daily shortfalls of 2,500 mw, 2,000 mw and 1,600 mw, respectively. The western region is seeing shortfall of about 3,000 mw every day due to lack of rain.

Authored by :

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Financing of Solar Projects in India

Financing of Solar Power Projects in India:

Solar project developers have come out of the challenges of technology and ground work. Financing of Solar Power Projects still remain as a challenge in Indian scenario. Financiers usually look for project performance operational data for 4-12 months. Since Solar is more a subjective generation of power varying with Sun-Radiation during four seasons in a year, its very difficult to benchmark a particular season. So financiers have to wait for minimum completion of 12 months to take a study of average generation during all four seasons.

Financial closure for Solar projects within the required time frame / dead line, as suggested by authorities, has been a major challenge for the country like India. Where regular debt funding by bankers is at much higher rate of interest and solar power projects are not having special class of interest bearing debt.

Only faster financing mechanism would enable developers to complete the projects within the specified time frame. MNRE has already set stringent deadlines for JNNSM projects. Currently securing the required funding takes more than 9 months, which in meantime reduces timeframe of installation of the project.

The first set of solar projects are models of innovative financing rather than efficient technology. Most of the developed solar projects in India have scouted for arranging overseas funding, exim bank funding, PE funds, VC funds and there remain the survival, due to lowest cost of interest. Inbuilt condition of exim funding / overseas funding is to purchase major equipments, panels, fitting etc. from financier’s origin country, which inturn boost their local industrial development.

Govt. of India is allocating solar project capacities thru JNNSM phase-I and phase-II, state govt. also allocating solar project capacities thru various state PPA schemes. During demand of funding by Solar PV projects, banks have adopted a wait-and-watch policy to learn from the experience of other financiers. The government should try to incentivise investments in the sector and shall determine to implement a large number of projects for green and clean energy generation in India. Reluctancy of bankers to fund solar power project is due to their wide exposure as per RBI prescribed exposure of 15% for infrastructure projects and 40% to power sector lending.

Despite all these challenges the Solar Power Generation industry in India is poised for significant growth in the near future. The high insolation levels will ensure consistent generation and encouraging financiers to enter the segment. So far, their experience has been mixed, but there still exists a major financing opportunity in the solar power sector.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Solar REC trading commenced in India

With the Indian Government planning to promoter Solar Power projects in India, commencement of REC (Renewable Energy Certificate) trading in Indian power exchanges is starting of Solar Revolution in India.

Wind power REC is already traded in power exchanges in India; Solar REC trading in India has commenced during May-2012. First trade taken place with 249 certificates changing ownership hands on exchange with an average realization price of INR 13,000=00 per certificate.

In open market REC trade mechanism, a project developer is required to setup up Solar Power project without any tariff bidding or allocation of capacity. Solar project developer can setup Solar Power project with chosen technology and start supplying electricity to nearest grid station. Wherein developer company will get revenue from Sale of Power + revenue from sale of REC in open market.

Demand for Solar REC is likely to be much higher than its supply by developers in India, because various state electricity utilities, captive power generation industries and other big industrial users have to meet their renewable purchase obligations; as per prescribed guidelines by regulator.

Huge capacity addition in Solar Project have been noticed, after implementation of REC mechanism. Initial bottlenecks of arrangement of debt funding is still making it difficult to get proper debt:equity mix for setting up of Solar Power project.

Regulator has already decided Floor price and Forbearance prices (upto INR 13,400=00) for Solar REC to be generated and traded in coming years. Which makes a good business mix to start with most tempted Solar Power Generation Projects in the State of Rajasthan.

Rajasthan is hub of Solar Power projects with maximum installation in JNNSM allocations. Highest Solar radiation in Western Rajasthan is generating best ROI for Solar Power projects in Rajasthan. Procedures of Govt. of Rajasthan are much favourable for allotment of land, clearance of project, grid connectivity etc., making it speedy installation of Solar Project in Rajasthan.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Solar Professional shall be in huge demand upto year 2022. 

Solar Energy sector shall be best job option for coming time and will prove as best placement destination in employment sector. For fulfilling targets of 20,000 MW of installed capacity under the National Solar Mission, the Indian solar energy industry will need an estimated 1 lakh people by 2022 across service sector, industry, maintenance, installation, power generation and ancillary industries. The space has been abuzz with activity with all big corporate business groups have been foraying into Solar Power segment in last one year. " Birla Solar Project Co.....

Solar power projects can be implemented in a very short time of 3-4 months compared to traditional means of power like coal and hydro and they also have a long gestation life of 5-10 years. Besides, there is an additional advantage of acquiring assets like land at lower rates with help from the government, which means huge returns in the long run. Funding too is easily available with foreign investment banks like Goldman Sachs, Blackrock, JP Morgan investing heavily in the space. This is why there has been a flood of entrants in the sector. 

There has been huge increase in demand for skilled and trained manpower from these players. The profiles range from project head, engineering, procurement and construction (EPC) head, project directors, GM operations/project, senior manager projects, manager projects, purchase manager, solar engineer, assistant technical manager, assistant procurement manager to manager purchase, manager operations. Both sides of the solar business- equipment manufacturing and power generation-need people to cash in on the growth in the solar industry.

On the manufacturing side, it would be electrical engineers and mechanical engineers to design, civil, operations and maintenance engineers in power generation with experience in traditional power sector who are in high demand across levels.

The scarcity of talent is severe as there are few colleges or institutes offering courses dedicated to solar energy or renewable energy. According to some estimates, there are 25 institutes in India offering courses on energy studies, with renewable energy as one of the subjects.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

REC and Green Energy in India..................

Renewable Energy Certificate (REC) is awarded to developers generating power from renewable energy sources like windmills, biomass and solar plants, and not getting higher regulatory tariff by Govt. It provides sufficiently attractive returns, justifying their investments in renewable energy sector. However, for this to work, a key parallel activity is the development of a robust market for renewable energy certificates and here is where action is needed urgently now.

REC had started taking shape in year 2011 and green shoots are growing well. It is recognised the world over that the REC market is a key component for the renewable energy industry to develop at a healthy pace. The REC is basically a tradable unit given to a producer of renewable power, who opts not to sell the power for a preferential tariff.

The producer that owns a windmill farm; will get the REC even if it sells the power to a part-owner of the wind farm at a negotiated price; provided it does not get the benefit of any other incentives or higher tariff from Govt. The RECs, which are based on generation, are sold through the power exchanges, within a prescribed price band.

Those who buy them are the ‘obligated entities’, or the power distribution companies or bulk consumers of power, which are mandated by law to buy either green power at high prices in the market, or to buy the RECs instead from third party producers.

Urgent action is imperative if only because more and more RE power capacities are coming into the REC regime. Income from RECs can be substantial. The stock market does not as yet have either a sufficient understanding or awareness of the RECs, as is reflected in the low prices of renewable energy company stocks; but when the awareness builds up, valuations will rise, enabling companies to raise more funds for further investments in renewables. But fundamental to all these are measures to deepen the REC market.

Enforcement is largely in the hands of State electricity regulators and a lot depends on how strict they are in making the obligated entities discharge their Renewable Purchase Obligation (RPO). Industry watchers have noted that obligated entities in some States still question the application of the RPO to them, in the hope of wriggling out the burden by another few years.

Obviously, the first step is to tell them that there is no wriggling out. An effective way of sending this signal is to ask for a ‘compliance undertaking’ at the beginning of each financial year, stating that the utilities must meet its obligations. A corollary of this is making compliance quarterly, against annual. Otherwise, the market will tend to get skewed, with most of the activity happening at the year-end. The supply side of the market has been fairly well taken care of. But the demand side is still a niggling issue and the question ‘what if there are no takers for the RECs’ is still weighing on the minds of many.

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com

Solar Equipment Pricing………

Present industry structure in India is that the Solar manufacturing industry mainly comprises cell manufacturing and module assembly segments. For indirect materials like EVA films, Tedlar backsheets and other machinery and supporting equipments; Solar Project developers are mainly dependent on imports. Considering small size of solar module market in India, no investments have been made in polysilicon and warer production so far. Solar cell and glass manufacturers import wafers and raw glass and just process a one step value addition to sale finished product. Chain of value addition process in one integrated industrial complex is missing in Solar Industry development in India.

Solar Industry scenario has changed dramatically in last 2 years, wherein main responsible factors are:

-economic slow down in Europe

-revision of feed-in tariffs in Europe and USA

-overcapacity of module manufacturers in Crystalline and Thin-film segments

-throat cut competition from low-cost Chinese panel makers

-cutbacks in government subsidies in many European countries.

All these factors have resulted in oversupply and stock pile-ups of solar modules in European market, which is waiting to be sold in recently emerging market of India. Its crucial time for European solar equipment manufacturers and golden opportunity for India Solar farm developers.

Global market situation has also affected Indian solar equipment manufacturers, wherein several manufacturers are operating at sub-optimum capacity and some have shut down production. Manufacturers are failing in their debt repayment commitments, restructuring their debt and in talks with bondholders to extend the tenure of its bonds. Indian solar market taking a bigger size, still required demand for solar panels is not in place. Further the declining prices failed to simulate enough demand for manufacturers to operate at full load; it is opening new markets but the volumes are still not enough.

Solar Project developers in India took advantage of this situation of lower equipment prices and quoted very competitive tariffs in the reverse tariff bidding under various Central Govt. and State Govt. programmes. Solar tariff is as down as Rs. 7 per unit in India tariff bidding auctions. Developers are importing solar equipments and arranging overseas low interest bearing debt funding to meet low tariff bidding projects.

Indian Solar scenario, where prices of solar equipments are governed by a wide gap between demand & supply and excess capacity worldwide, its right time to install solar farms in India and take benefit of changing global solar recession into Indian solar farm potentials…………………The Journey to begin with…………...

contact:

CA Yogesh
Director
BWPM Co.

visit us at : www.Yogesh-CA.blogspot.com