REVISION OF TARIFF IN RESPECT OF SOLAR POWER PLANTS (INCLUDING SOLAR ROOFTOP PV PROJECTS) FOR FY -20

PREAMBLE:

The Karnataka Electricity Regulatory Commission (KERC), in exercise of the enabling powers conferred under the Electricity Act, 2003 has issued a discussion paper on Revision of tariff in respect of solar power plants (including solar rooftop PV projects) for FY -20

The Commission has invited suggestions/comments/ views of the stakeholders and the general public on the topics covered in the discussion paper.

Below are my response to the discussion paper .

RESPONSE 1 ; Procedural: 

SCENARIO :

As mentioned in the paper , the off-take of RTV projects among the domestic consumers is very low. There may be many reasons for it including high capex.

However, it will be prudent now to take a look at the data published by BESCOM on their website on list of commissioned SRTPV Installations.

The BESCOM website as on 18 March 2019 has the following figures( It is a Screen-shot from the BESCOM Website 

The analysis of the data gives the following table

Sl No	Year	Nos (A)	Capacity in MW (B)	Indicative Capacity of Each installation in KW (Bx1000)/A	Percentage increase in capacity	Percentage increase in no of installations
1	2014-15	27.00	0.32	11.85
2	2015-16	330.00	7.74	23.45	95.87%	91.82%
3	2016-17	507.00	44.39	87.55	82.56%	34.91%
4	2017-18	553.00	32.88	59.46	-35.01%	8.32%
5	2018-19	329.00	18.08	54.95	-81.86%	-68.09%

As seen from the table;

•  In the last 2 years, Capacity of rooftop installations in BESCOM circle is decreasing year on year whereas the cost of solar panels is falling year on year. Prices of solar panels have fallen nearly 40% in the last two years. But the capacity of solar installations instead of doubling has halved.
•   The average size of a rooftop installation is around 50 KW . This means that domestic consumers form a very negligible proportion of the total installations.

Suggestions :

In our experience of handling domestic consumers, most domestic consumers are willing to install solar plants for two main reasons;

•    To offset their energy bill and to hedge against any future increase in energy cost.
•     To be as environment friendly as possible.

 In the above scenario, a better feed in tariff is definitely welcome, however there are many more admirative and procedural changes that are needed to give a much-needed fillip to the domestic consumers. Most installers and consumers in the domestic segment are stressed out by time and cost over-runs dealing with BESCOM.

In our opinion, the following are needed urgently.

1.Ease of application and Aprovals:

Every installer and every SRTPV consumer are irritated by long and lengthy procedures and series of approvals required for SRTPV installations. There is an urgent need for rationalization of processes.

Plenty of precious time is wasted waiting at BESCOM offices for concerned officials. A minimum of 5 visits to BESCOM office is required for one rooftop installation.

SUGGESTIONS:

• Bescom website gives a timeline for various approvals. But it is nowhere mentioned what must be done or what is the next step if the time line is not adhered to.
• As per BESCOM website, it says all SRTPV applications must be done Online Only. In that case, why is format 1 (offline application) Still there in the website? BESCOM officials are insisting on format 1 inspite of applying online. Format 1 must be abolished.
• Submission of completion report (Format 5) must be made online. Submission to commissioning timeline must be strictly adhered to.
• If BESCOM officials find any deviation or discrepancy in installation, the same must be put up online within a time frame.
• The delay in commissioning (If any) after submission of work completion report (Format 5) must be documented and monitored.
• Best is to have a single point of contact for all SRTPV approvals. That is notwithstanding the sub-division, there must be a single point of contact in BESCOM office for all SRTPV approvals.

2.Billing issue:

Almost all SRTPV consumers are having tough time with billing. Following are few of the major issues regarding billing:

•    Most consumers are not receiving the SRTPV bills on time.
•    Some consumers are not receiving bills for months together.
•    Payment is not happening on time.
•   Meter readers are unable to take the EXPORT and IMPORT readings.
•   Inspite of installing SRTPV system, consumer is receiving normal bills with arbitrary readings.

•    Meter reader is sometimes confused with the check meter. There are scenarios where the meter reader has taken the check meter (generation side meter) reading and billed the consumer for the solar energy generated.

SUGGESTIONS:

•    BESCOM must pay interest if there is delay in payment or even delay in meter reading.
•    Meter reading along with meter serial number must be available online for customer to cross check.
•   Call center (1912) must also handle SRTPV complaints.
•   ALL SRTPV bills must be only online.

NOTE:

Consumers who are putting their hard-earned money for SRTPV are in a way doing a great service to nation and environment. If they cannot be incentivised, at least they must not be troubled or harassed or made to run from pillar to post for billing issue. Their due must be paid on time.

RESPONSE 2 ; Need For Competitive Tariff

 Scenario :

Most of our customers argue that feed in tariff is too low. The argument definitely has water. The fact is “BESCOM is buying power from the ‘rooftop solar’ owner at a much lower rate than what they are selling to them or other conumers”. That is, the current feed in tariff is rupees 3.56 per unit while the average selling price of BESCOM is well above rupees 5 or 6 a unit (or even more) . Also, there is no escalation clause in the power purchase agreement (PPA).

This is  an unfair proposition. On the other hand BESCOM revises its selling rate almost every year at an average rate of about 7 to 8 Percent year on year. In the net metering scenario, The SRTPV (solar rooftop photo-voltaic) consumer buys at a rate higher than the rate he sells power to BESCOM.

Given that any excess feed in from a SRTPV consumer is consumed within the radius of the distribution transformer or in most cases by the immediate neighbor, it will be prudent to assume minimum or nil T and D losses from the power generated from a SRTPV unit. So, a SRTPV owner is giving clean power to BESCOM with almost Nil T & D losses with capex coming in from the SRTPV Owner.

Not only that the SRTPV consumer and the installer goes around pillar to post for all the approvals and commissioning.

SUGGESTION:

• The details of the cost incurred by BESCOM for purchasing power is given in their website (https://bescom.org/2018-7/)
• As per the details available in the website, average cost incurred by BESCOM for purchasing power in the year of 2018 is as follows

Sl No	Month	PP Cost (INR/KWh)
1	Jul-18	₹ 5.42
2	Jun-18	₹ 5.73
3	May-18	₹ 5.51
4	Apr-18	₹ 5.23
5	Mar-18	₹ 4.67
6	Feb-18	₹ 4.98
7	Jan-18	₹ 4.82
	Avg	₹ 5.19

• Average power purchase cost by BESCOM is rupees 5.19 rupees per unit.
• At an inflation of 3% year on year, the cost of power purchase by BESCOM for the next 20 year will be as follows

YEAR	PP Cost (INR/KWh)
1	₹ 5.19
2	₹ 5.35
3	₹ 5.51
4	₹ 5.68
5	₹ 5.85
6	₹ 6.02
7	₹ 6.20
8	₹ 6.39
9	₹ 6.58
10	₹ 6.78
11	₹ 6.98
12	₹ 7.19
13	₹ 7.41
14	₹ 7.63
15	₹ 7.86
16	₹ 8.09
17	₹ 8.34
18	₹ 8.59
19	₹ 8.84
20	₹ 9.11
AVG	₹ 6.98

• So in the most optimistic of scenario , the average power purchase cost by BESCOM over the next 20 years will be rupees 6.98 a unit.
• Any consumer who wishes to install SRTPV will be a middle class consumer falling in the second or third slab or BESCOM tariff .
• Currently Bescom tariff varies from 3.5 rupees to 7.65 Rupees a unit depending on the tariff slab.
• Given that Solar is still an expensive proposition, it will be safe to assume that any person who wishes to install solar will fall in the middle slab say who pays an average cost of rupees 5 per unit of electricity.
• So in a scenario where the consumer does not have SRTPV unit in his premises, BESCOM is charging him or her rupees 5 a unit (This is a very safe assumption since most domestic consumer who can afford SRTPV units fall in the higher slabs) .
• In other words, BESCOM charges at a rate of 5 rupees per unit for any domestic consumer.
• At an escalation of 4% every year, the unit rate of BESCOM power for the domestic consumer is as follows .

YEAR	Tariff (INR/Kwh)
1	₹ 5.00
2	₹ 5.20
3	₹ 5.41
4	₹ 5.62
5	₹ 5.85
6	₹ 6.08
7	₹ 6.33
8	₹ 6.58
9	₹ 6.84
10	₹ 7.12
11	₹ 7.40
12	₹ 7.70
13	₹ 8.01
14	₹ 8.33
15	₹ 8.66
16	₹ 9.00
17	₹ 9.36
18	₹ 9.74
19	₹ 10.13
20	₹ 10.53
AVG	₹ 7.44

• So in a 20 year time scale scenario, assuming ambitious very little inflation, BESCOM is buying power from KPTCL , NTPC and others at rupees 6.98 a unit and selling to the consumer at 7.44 rupees a unit.
• So ideally, BESCOM must pay any producer of electricity a minimum of rupees 6.98 a unit.
• However, BESCOM would say that the SRTPV consumer is using the BESCOM infrastructure free of cost. This is however not true. In a NET metering scenario, BESCOM recovers the infrastructure costs as demand charges. So, notwithstanding SRTPV, the consumer is paying for the infrastructure. For example, with or without SRTPV a consumer having sanctioned load of 5 KW pays (1x50) + (4x60) = 290 rupees a month. This is also subject to revision every year.
• BESCOM recovers its T and D losses in the profit earned. In a SRTPV scenario, the SRTPV owner is giving good clean power at nil T and D.
• BESCOM however loses a paying consumer, so to be fair to BESCOM and to account for cross subsidy, rupees 1.25 or 125 paise per unit of electricity can be pegged to account for losing a paying customer and for cross subsidy.
• So Rationally, any SRTPV consumer injecting excess energy into grid must be paid a rational price of (698-125) = 573 paise a unit or rupees 5.73 a unit.
• Competitive tariff for SRTPV owners will also encourage more installations and at the same time bring pressure on KPC and other companies to reduce rates and increase efficiency. 

RESPONSE 3 ; Tariff Determination: 

Determination of tariff: 

The commission in the discussion paper has considered many variables in determination of tariff. Here, we wish to enlist our responses to some of the variables considered by the honourable commission in arriving at the tariff.

Please note that the responses given here are only applicable to rooftop solar plants less than 10 KW.

Life of the plant (i)(Page:3)

In page 3 of the discussion paper, it is mentioned that the life of the plant considered is 25 years since the module manufacturer gives a warranty of 25 years on the panels.

Response :

It is true that the module manufacturer give a warranty of 25 years on the panels. However, another significant part of the system is the inverter. Inverter manufacturers give a warranty of 5 years to 10 years depending on the technology and quality control protocol of the respective manufacturer. The discussion paper does not talk about replacement of the inverter after the warranty period. We wish to bring to the notice of the honorable commission that the cost replacement of the inverter (including inflation in prices) must be incorporated while arriving at the feed in tariff.

 Degradation factor (iii)(Page:4)

In page 4 of the discussion paper, it is mentioned that the reduction of 0.5% of the net generation from the fifth year is considered as degradation factor.

Response :

•  Most commercially available silicon cells have higher degradation is the first year. The value ranges from 2 to 3 percent. Proportionally there will be a drop in energy yield at the end of first year .
•  To substantiate, data sheets of two large solar module manufacturers are attached. Both Trina solar and Vikram solar solar modules have a degradation of 2.5% in the first year.
•   Most commercially available silicon solar modules have yearly degradation of 0.6 to 1%. A supply tender document of BHEL is attached for reference.
• Hence, constant yield of the plant for the first four years is very difficult to achieve.

Capacity utilization factor (iv)(Page:4)

In page 4 of the discussion paper, it is mentioned that the CUF or capacity utilization factor for PV plants considered is 19%.

Response:

• When a degradation is considered for the PV plant, Reduction is CUF must also be considered.
  
• Since the yield of the plant reduces year on year, CUF must also reduce year on year.
  

Capital cost (vi)(Page:5)

In page 5 of the discussion paper, it is mentioned that the proposed capital cost of a domestic rooftop PV plant is rupees 45,000/-

Response:

• Capital cost of 45,000 is very difficult to achieve in the domestic context .
  
• If the real cost of SRTPV system is 45,000, we would have seen a definite increase in installed capacity of RTPVs in the last year. However, the number of SRTPV installations in BESCOM circle has drastically reduced in the last one year.
  
• Other than panels and inverters there are many costs involved in the domestic rooftop segment.
  
• From the developer perspective, there are costs involved in marketing (selling costs), Interest costs , margin money costs, coordination costs.
  
• MNRE has suggested a benchmark rate of rupees 60,000/KW. The copy of the letter is attached for your reference.
  
• Even 60,000 is un-workable for residential/Domestic rooftop segments.
  
• A minimum cost of 60,000 to 70,000 per KW must be considered for a RTPV installation of less than 10 KW , if the plant has to be designed and built to last for 25 years. 

Cash flow analysis of a 2 KW residential plant :

For the sake of argument, let us do a cash flow analysis of a 2 KW domestic Rooftop solar plant . (Full Export)

As per the discussion paper, below are the values of various parameters

Sl No	Parameter	Units	Value	Remarks
1	Sanctioned Load	KW	2.00	Sanctioned Load
2	PV Capacity	Kwp	2.00	Installed Capacity
3	Internal Consumption /Month	Units	1.00	For argument sake
4	Average degradation of Plant for the first (1st) Year	%	0.00	For argument sake
5	Degradation of the plant from year 2 to 25	%	0.00	For Argument sake
6	Increase in power tariff YOY	%	0.00	No increase in demand charges .
7	Increase in maintenance cost YOY	%	5.72%	As per discussion paper
8	Cost of capital or discount rate.	%	6.00%
9	Feed In tariff	INR	₹ 3.93	As per discussion paper.
10	Cost of maintenance	INR	₹ 1,200.00
11	Cost of the plant	INR	₹ 90,000/-	As per discussion paper
12	Replacement of inverters	NA		For argument sake
13	Investment	100% by consumer. No debt

 The resulting cash flow :

Calculated average yield: 4.69 units/KW/Day .(For Bangalore)

YEAR	Running Cost/year (INR)	Energy Exported Per Month (Kwh)	Revenue from Exported Energy (INR)	Demand Charges	Total gain per year (INR)	Cash Flow (INR)
0						=-90000.00
1	₹ 1,200.00	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,881.72
2	₹ 1,268.64	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,813.08
3	₹ 1,341.21	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,740.52
4	₹ 1,417.92	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,663.80
5	₹ 1,499.03	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,582.69
6	₹ 1,584.77	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,496.95
7	₹ 1,675.42	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,406.30
8	₹ 1,771.26	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,310.47
9	₹ 1,872.57	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,209.15
10	₹ 1,872.57	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,209.15
11	₹ 1,979.68	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 10,102.04
12	₹ 2,092.92	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,988.80
13	₹ 2,212.64	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,869.09
14	₹ 2,339.20	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,742.52
15	₹ 2,339.20	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,742.52
16	₹ 2,473.00	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,608.72
17	₹ 2,614.46	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,467.27
18	₹ 2,764.00	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,317.72
19	₹ 2,922.10	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 9,159.62
20	₹ 3,089.25	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 8,992.47
21	₹ 3,089.25	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 8,992.47
22	₹ 3,265.95	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 8,815.77
23	₹ 3,452.77	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 8,628.96
24	₹ 3,650.26	284.18	₹ 1,116.81	₹ 110.00	₹ 12,081.72	₹ 8,431.46
25	₹ 3,859.06	284.18	₹ 1,116.81	₹ 110.00	₹ 16,581.72	₹ 12,722.66

  Consolidated cash flow :

YEAR	CASH OUTFLOW	CASH INFLOW	NET	CUMULATIVE CASH FLOW
1	₹ 90,000.00	₹ 12,081.72	-₹ 77,918.28	₹ -77,918.28
2	₹ 1,200.00	₹ 12,081.72	₹ 10,881.72	₹ -67,036.55
3	₹ 1,268.64	₹ 12,081.72	₹ 10,813.08	₹ -56,223.47
4	₹ 1,341.21	₹ 12,081.72	₹ 10,740.52	₹ -45,482.96
5	₹ 1,417.92	₹ 12,081.72	₹ 10,663.80	₹ -34,819.16
6	₹ 1,499.03	₹ 12,081.72	₹ 10,582.69	₹ -24,236.46
7	₹ 1,584.77	₹ 12,081.72	₹ 10,496.95	₹ -13,739.51
8	₹ 1,675.42	₹ 12,081.72	₹ 10,406.30	₹ -3,333.21
9	₹ 1,771.26	₹ 12,081.72	₹ 10,310.47	₹ 6,977.26
10	₹ 1,872.57	₹ 12,081.72	₹ 10,209.15	₹ 17,186.41
11	₹ 1,872.57	₹ 12,081.72	₹ 10,209.15	₹ 27,395.56
12	₹ 1,979.68	₹ 12,081.72	₹ 10,102.04	₹ 37,497.60
13	₹ 2,092.92	₹ 12,081.72	₹ 9,988.80	₹ 47,486.40
14	₹ 2,212.64	₹ 12,081.72	₹ 9,869.09	₹ 57,355.49
15	₹ 2,339.20	₹ 12,081.72	₹ 9,742.52	₹ 67,098.01
16	₹ 2,339.20	₹ 12,081.72	₹ 9,742.52	₹ 76,840.53
17	₹ 2,473.00	₹ 12,081.72	₹ 9,608.72	₹ 86,449.26
18	₹ 2,614.46	₹ 12,081.72	₹ 9,467.27	₹ 95,916.52
19	₹ 2,764.00	₹ 12,081.72	₹ 9,317.72	₹ 1,05,234.24
20	₹ 2,922.10	₹ 12,081.72	₹ 9,159.62	₹ 1,14,393.86
21	₹ 3,089.25	₹ 12,081.72	₹ 8,992.47	₹ 1,23,386.33
22	₹ 3,089.25	₹ 12,081.72	₹ 8,992.47	₹ 1,32,378.81
23	₹ 3,265.95	₹ 12,081.72	₹ 8,815.77	₹ 1,41,194.58
24	₹ 3,452.77	₹ 12,081.72	₹ 8,628.96	₹ 1,49,823.53
25	₹ 3,650.26	₹ 12,081.72	₹ 8,431.46	₹ 1,58,254.99
26	₹ 3,859.06	₹ 16,581.72	₹ 12,722.66	₹ 1,70,977.66

Cumulative cash flow  :

 Key economic metrics :

For the above cash flow sheet, if we carry out a time value for money analysis; we arrive at the following metrics:

Project Investment	₹ 90,000.00	As per discussion paper
Inflation in power Tariff	0.00%	Percentage increase in Energy cost year on year
Increase in power consumption	0.00%	Net increase in power demand of the house YOY
Inflation in maintenance cost	5.72%	Rise in maintenance Cost Year on Year
Cost Of Capital	6.00%	It is the prevailing interest rate on capital invested
Reinvestment interest rate	4.00%	It is the rate at which one re-invests the profit earned.
Solar LCOE Over the life of the Project	₹1.73	Average Cost Of Solar power over the Lifecycle of the project
Net present Value (INR)	₹39,874.00	This is the present value of investment (system) after incorporating the economic benefits of the investment over the course of its life.
IRR (Internal Rate of return)	10.50%	The internal rate of return on an investment or project is the "annualized effective compounded return rate" or rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero.
Simple Pay back period of the capital invested	8.32	Number of years for the capital to pay off . Note this does not account for Time value of money .

Conclusions :

1. Even under ideal conditions like no degradation of the plant and no increase in demand charges, the customer is only likely to get an IRR of 10.5%. This is also considering no replacement of inverters for 25 years and investment not exceeding 90,000.00.
2. Even under very ideal conditions, feed in tariff of 3.93 rupees. does not give more than 11% return on equity.
   
3. In reality the assumed ideal conditions never exist. These conditions as given in the paper is taken only for argument sake. 
   
4. However most residential consumers prefer net metering where there will be substantial self-consumption. To encourage such consumers, we request the honorable commission to make the process of getting permissions and interconnecting to the grid much faster and easier. 
   
5. Nevertheless, if the investment is to be pegged at 45,000 per KW, then going by the same calculations above, a feed-in tariff of 4.72 rupees a unit will be required to achieve an IRR of 14%. This is again assuming Zero Debt.