Solar Purchase Obligation

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1 Solar Purchase Obligation Overview& Way Forward Abstract This brief white paper provides an overview of the solar purchase obligations and avenues to satisfy the SPO, in the specific context of the Tamil Nadu Solar Policy. Solar Purchase Obligations The TN Solar Policy has stipulated that a sub-set of electricity consumers in the state (mainly the HT electricity consumers) will need to purchase part of their electricity consumption through solar power. The proportion is 3% until end of 2013 and 6% from Jan There are two important drivers that create demand for solar power in Tamil Nadu: the significant gap between peak demand and supply and the resulting power insecurity, and the Solar Purchase Obligation (SPO), which was introduced as a part of the policy. The SPO is a market mechanism that obligates certain classes of consumers to derive a predetermined percentage of their electricity consumption from solar-generated power. As per the TN Solar Energy Policy, SPO is applicable to select end consumers of electricity. TNERC, in its March 2013 order, has further mandated that those obligated entities who fail to fulfil their SPO will have to buy Solar Renewable Energy Certificates at forbearance price, which is currently Rs 13.40/unit. That is, consumers who do not fulfil the SPO will have to pay Rs 13.40/unit of electricity as penalty, for the mandated amount they are estimated to consume from solar. Obligated Entities The classes of consumers that are obligated under the SPO are: HT Consumers (HT Tariff I to V) Special Economic Zones Industrial connections with guaranteed power supply IT parks, Telecom Towers All colleges & Residential schools

2 Building with a built up area of 20,000 sq. m or more LT Commercial (LT Tariff V) Exempted Entities - LT industrial consumers, domestic consumers, agricultural consumers, power looms, huts, cottage and tiny industries are exempted from the obligation. Fulfilling the Solar Purchase Obligation The following are the avenues to fulfil the SPO requirement for your enterprise. Without Generating Solar Power on Your Own As a consumer, you don t need to produce the solar power you consume. The following avenues will allow you to satisfy the SPO requirements without having to generate power on your own: - Buying from third-party (usually private) solar power plants - Buying solar-renewable Energy Certificates on the national power exchanges, viz IEX and PXIL - Purchasing power from TANGEDCO at solar tariff (tariff to be decided soon) By Generating Solar Power on Your Own The price of solar modules has rapidly declined over the last couple of years. Solar, while still not the cheapest renewable power resource, is much more affordable currently than it was just two years back. Thus, it is also becoming increasingly affordable to have your own solar power plants, either on your rooftop or through power plants owned by you and connected to the electricity grid. Through either of the above methods, you can have captive consumption of solar power generated by power plants owned by you. For those consumers who wish to have solar power plants on their rooftops, but are concerned about the high capital costs involved, attractive business models have emerged in which solar power companies now offer to install solar systems on industrial/commercial rooftops at their cost, on a lease or BOO (build, own, operate) basis, and sell the power to the industry at attractive, pre-determined rates. The Best Route? There is no one best route. The ideal route to satisfy SPO obligations could vary from one company to another, based on the quantum of their obligation, and rooftop/available area and financial constraints. Generating Power on Premises (Through Leasing, BOO, Cost) Buying Power from Elsewhere (TANGEDCO, Third party Sales)

3 - + Largely dependent on available infrastructure & the feasibility of using that infrastructure.various factors such as available space, orientation, shadow effects, structural strength if a rooftop system is planned, seamless integration with existing system etc. have to be taken into account before feasibility is established and the system can be installed without disrupting operations. No infrastructure required at the client end. The power will be transported through the grid through the existing supply. Responsibility of O&M falls on the incumbent unless O&M services are also factored into the purchase cost (if BOO or Lease) or bought additionally. Client operations might be disrupted or stalled for certain periods during installation when the solar system needs to be tied to the existing electrical system and so on. + - There is no responsibility, for the solar power plant, undertaken by the buying party. No such problems since the solar power plant will be commissioned elsewhere. On-premise generation can contribute to achieving energy security and help stave off dependence on the grid. In this context, it can also help shave off diesel costs, cut carbon emissions and contribute to sustainable businesses. Since power is transported through the grid, it is dependent on state infrastructure and cannot be utilized during power cuts unless a dedicated line has been set up. This adds capital and maintenance costs to the incumbent. This also does not cut reliance on diesel. Since the solar system is installed on premises, there is no need to transport electricity via the electricity grid. Even grid-tied systems are not dependent on state infrastructure. Since solar power has to be transported through the grid, additional costs of transporting the electricity have to be incurred. They are passed on to the client usually. The arrangement is between the buyer and the seller. There is no third party involved in the transaction. The state power utility (TNEB in Tamil Nadu) will be involved, as state infrastructure will be used to transport power. There are procedures in getting additional clearances, some of which are undertaken by the seller, in some cases.

4 Fixed power purchase agreement/lease payments/no periodic payments depending on the method with an escalation usually built in. The price of power is fixed and known for the tenure of the PPA. In case of own system, there will be no escalation of costs. Cost will most probably be tied to TNEB price escalation with a portion of the escalation certain to be passed on to the end consumer. Conclusion Solar Purchase Obligations (SPO) is a power purchase obligation that is in its nascent days. With the cost of solar power decreasing all the time, and as the number of technology choices and variety of solution providers increasing simultaneously, diverse avenues are opening up for satisfying the SPO requirements. Companies will be well advised to analyse the various options available and their merits before deciding the optimal avenue. Learn More about SPO & Solar Power Procurement at RENERGY 2013 The Tamil Nadu Energy Development Agency (TEDA), which is the Nodal Agency for implementation of Tamil Nadu Solar Energy Policy, is conducting RENERGY 2013, India s largest Renewable Energy conference in Chennai, May 9th-11th. In an endeavour to educate all the consumers about solar power and SPO, the event will have an SPO workshopby SunEdisonand related expert discussion sessions. The special workshop on SPOwill be held on 10th May, at the Chennai Trade Centre. These workshops will provide answers to critical questions such as the following: Which are the available avenues for procuring solar power? What are the costs and benefits for each of the above avenues? Who are the reliable solution providers? The parallel exhibition will also provide an excellent opportunity for you to interact with many prominent solar power solution providers. Over 150 solar power companies will be present at the exhibition. In addition to the SPO workshop, the conference will also feature solar workshops by the Ministry of New and Renewable Energy (MNRE) and TEDA. ShriTarunKapoor, IAS, Joint Secretary, MNRE & Dr Ashvini Kumar, Director, MNRE have graciously agreed to participate in the event and share their perspectives. The conference will feature 5 other solar workshops(including one by L&T), and expert panel discussions.

5 You can find out more about the solar workshops at To register for the SPO Workshop or for the entire conference, or to know more, talk to Swetha , SMS s13, - spo@renergyteda.com