REC trade-ability and future of Solar Projects in India

Entrepreneurs, Investors, Industrialist and Capitive consumers are setting up grid connected Solar Power Generation Projects in India along with inbuilt REC certificate mechanism. Wherein along with every unit of electricity generated, project become liable for REC certificate earnings. Later on monthly interval, REC are traded on Power Exchanges in India with open trade options for buyers and sellers.

As a Project Professional and Financial Advisor for renewable energy projects, I have to reach on conclusion that, which one is bigger risk......... The Tariff or The REC revenue realisation. In my views, REC is proving itself as non-revenue earning certificate credits. As we cross the halfway mark of this financial year, there has not been any change in the pattern that has been observed during almost every trading month since April 2014 – ever increasing number of sell bids, but a very stable and extremely low levels of buy bids. The only difference this time is that the number of RECs available for sale has gone beyond the 1 Crore mark.

The monetary value of these unsold RECs at their floor prices (Rs. 9300) is calculated at Rs. 1816 Crore (including of Rs. 350 Crore for unsold Solar RECs and Rs. 1466 Crores for unsold non-solar RECs). If this does not lead to any action from the regulators and policymakers to protect the investors, nothing else will boost the solar energy development in our great India.

Authored by :

CA Yogesh
Director
BWPM Co.

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

Lessons from the Past…….for betterment of FUTURE Solar Project

Lessons from the Past…….for betterment of FUTURE Solar Projects

Based on the experience of implementation and strategic consultancy for variety of solar projects, ranging from 1mw to 20mw grid connected Solar PV Projects.

Solar PV project implementation is a very complex mix of activities, including :

-Documentation,

-Timely submission and paper work,

-Govt. approvals,

-Planning,

-Designing,

-Land selection,

-Best mix of equipments and vendors,

-Engineering

-Financing etc.

Developers has to remain very alert about updates, since decisions at every stage is very crucial and important to life of the solar project, efficiency for 25 years generation, return on investment, performance ratio, operation & maintenance etc.

Solar Project success depends on raw material (Sun Rays) and accurate calculation of availability of solar radiation is very important. This can be classified under Resource Assessment and selection of optimum suitable location. Then decision regarding equipments, vendor, guarantee, warranty etc. has to be taken in proper decision matrix. After generation of power, it is essential to have proper planning for power evacuation and power transmission. This depends on synchronization between developer’s system and government transmission facilities. Any adverse situation or non-synchronization shall result in direct revenue loss to the developer.

Expertise of developer’s team / consultant (owner’s engineer) shall be into right mix of technology, right mix of equipments, right mix of local situation, right mix of own system and government system. All these factors are more important, rather just opting for a Turnkey Contractor or EPC company on lowest price quotes. Since accurate project planning is going to survive your solar project for the life of 25 years operations and revenue and business interest of Turnkey Contractor or EPC is limited upto the commissioning of your solar project. It is crucial to make prudent investments after incorporating risk control measures.

In the interest of Solar Power business development in India………………

Authored by :

CA Yogesh
Director
BWPM Co.

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

Financing of Solar PV projects in India

Financing Solar PV Projects in India:

Solar Projects installations in India begin in year 2008. Most of the projects are located in the State of Rajasthan and Gujarat. Indian solar market is regulated by Government FIT, Own consumption and REC mechanism.Financing a Solar PV project is a challenging job for any financial consultancy firm. Wherein following options may be availed:

• Corporate Financing
• Lease Financing
• Project Financing

Decision Matrix criterions for Lender institutions……Screening of a Solar PV project:

Following parameters to be simulated for minimum DSCR for different FIT and irradiations.

• Calculation of minimum promoter’s equity required to achieve minimum DSCR
• Calculation of maximum Capex required to achieve minimum DSCR.
• Light business approach with minimum DSCR as key parameter
• Maturity 5-8 years
• Standard down payment 20%-30%
• Mandatory insurance coverage as per banking policy
• Mandatory O&M agreement
• Due diligence by external appraisers
• Performance monitoring agency

How do we structure debt/equity deals for our clients:

• Screening of EPC contracts with various standard and subjective parameters
• Screening of Govt. schemes and FIT regulations
• Payback calculations with FIT, Depreciation benefits, Cost of Debt, Equipment sourcing etc.
• We validate each transaction with a separate financial evaluation team representatives.
• Project financing bankable set of finance contracts with a set of covenants as standarised by Banks and Rating agencies.
• Financial Model goes through several audit checks.

Authored by :

CA Yogesh
Director
BWPM Co.

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

Anti-dumping duty on Solar cells and modules in India

India might impose anti-dumping duty on four major importers of Solar Cells and Solar Modules in the country after listening to the grievances of domestic manufacturers.

Local producers have filed a case last year, alleging that countries such as the USA, China, Malaysia and Taiwan were exporting solar equipment to India at "ridiculously low prices" which was "bleeding the local industry".

Authored by :

CA Yogesh
DirectorBWPM Co.

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

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)