CENTRAL ELECTRICITY REGULATORY COMMISSION NEW DELHI Petition No.

242/SM//2012 (Suomotu)

Coram:

Dr. Pramod Deo, Chairperson Shri S. Jayaraman, Member Shri V.S. Verma, Member Shri Deena Dayalan, Member

Date of hearing: SuoMotu

DateofOrder:25thOctober,2012

In the matter of DeterminationofBenchmarkCapitalCostNormforSolarPVpowerprojectsandSolarThermal powerprojectsapplicableduringFY201314 ORDER 1. The Commission has notified the Central Electricity Regulatory Commission (Terms and ConditionsforTariffdeterminationfromRenewableEnergySources)Regulations,2012(hereinafter the RE Tariff Regulations) on February 6, 2012. The first proviso of the Regulation 5 of the RE Tariff Regulations provides that the Commission may annually review the benchmark capital cost normforSolarPVandSolarthermalpowerprojects. 2. The Benchmark Capital Cost Norms as stipulated under Regulation 57(1) for Solar PV power projectandunderRegulation61(1)forSolarthermalpowerprojectareapplicableforsolarpower projectsfortheyearFY201213. 3.InexerciseofthepowerundertheRegulation5ofRETariffRegulations,theCommissionhereby proposesthattheBenchmarkCapitalCostNormforSolarPVpowerprojectsfortheyear201314 shallbeRs.800LakhperMWandBenchmarkCapitalCostNormforSolarthermalpowerprojects fortheyear201314shallbeRs.1200LakhperMW. 4. TherationaleforproposingtheaboveBenchmarkCapitalCostNormforSolarPVpowerprojects andSolarThermalpowerprojectshasbeenelaboratedinenclosedExplanatoryMemorandum. rd 5. Comments /suggestions of the stakeholders on the above proposals are invited by 23 November,2012. Sd/ Sd/ Sd/ Sd/ [M.DeenaDayalan] [V.S.Verma] [S.Jayaraman] [Dr.PramodDeo] Member Member Member Chairperson

NewDelhi Datedthe25thOctober,2012

ExplanatoryMemorandum For BenchmarkCapitalCostNormsfor SolarPVPowerProjects and SolarThermalPowerProjects Tobeapplicable Fortheyear201314 October2012 CENTRALELECTRICITYREGULATORYCOMMISSION NEWDELHI

1. PremisefordevelopmentofBenchmarkNorms Background 1.1 InexerciseofthepowersvestedunderSection61readwithSection178oftheAct and after previous publication, the Commission notified the Central Electricity Regulatory Commission (Terms and Conditions for Tariff determination from Renewable Energy Sources) Regulations, 2012, (hereinafter referred to as the RE Tariff Regulations). The RE Regulations provide for terms and conditions and the procedure for determination of tariff of the following categories of renewable energygeneratingstations: (a)WindPowerProject; (b)SmallHydroProjects; (c)BiomassPowerProjectswithRankineCycletechnology; (d)NonfossilfuelbasedcogenerationPlants; (e)SolarPhotovoltaic(PV); (f)SolarThermalPowerProjects; (g)BiomassGasifierbasedPowerProjects;and (h)BiogasbasedPowerProject. 1.2 As per first proviso under Regulation 5 of the RE Tariff Regulations, 2012, the benchmark capital cost for Solar PV and Solar thermal power projects is to be reviewedannually.TheCommission,forFY201213,specifiedthenormativecapital cost for Solar PV and Solar Thermal Power Projects as Rs1000Lakh/MW and Rs1300Lakh/MWrespectively. 1.3 IthasbeenobservedthatafterthebenchmarkcapitalcostnormsspecifiedintheRE Tariff Regulations2012, there has been downward trend in photovoltaic module prices.AsfarasSolarThermalpowerisconcernednosuchtrendisobserved. 2 BenchmarkCapitalCostNormforSolarPVPowerProjectsfortheFY201314 2.1 ThesolarPVindustryhasseensignificantcostreductionsoverthelastthreeyears showingadecliningtrendofover2022%onannualbasis.Whilethecostofsolar PVcrystallinemodulecostwasaround2USDperWattpeak(Wp),in2009,nowit has fallen down in the range of 0.60.65 USD/Wp. The remarkable reductions in modulepriceshavebeenduetoacombinationoffactorslikeeconomiesofscale,
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technologicaladvancesandmanufacturingprocessadvances,andoverproduction visavisdemand.Therehasbeenobservedsimilardecliningtrendintermsofthe price of balance of system (BoS) due to the reduction in the power electronics, inverters,streamlinedinstallationtechnologiesandprocesses.Thereducedprices in the modules as well as in BoS, and the low cost financing have contributed to thelowcostsolarelectricitysalepriceintherecentbids. The allocation of solar PV projects in Phase1 of Jawaharlal Nehru National Solar Mission (JNNSM) has been done in two batches over two financial years 2010 2011 and 20112012. Solar PV projects of 150MW aggregate have already been allotted in FY 201011 as a part of batch I of JNNSM phase I and subsequently bidding for the remaining Solar PV Projects has been carried out through the secondbatch.InbatchI,therangevariedfrom`10.95/kWhto`12.76/kWhwith anaveragebidpriceofRs.12.12/kWh1.ThewinningbidsforsolarPVunderbatch II of JNNSM phase I varied from ` 7.49/kWh to ` 9.44/kWh with an average bid priceofRs.8.77/kWh2. Recently, Madhya Pradesh Power Trading Company Limited has invited bids for setting up of Solar Power Projects. The lowest two winning bidders have quoted tariffat`7.90/kWhand` 8.05/kWhfor20MWand125MWrespectively.3 PVModuleCost 2.2 AccordingtothePVinsight,theSiliconModuleandThinFilmModulesweeklyspot pricesperwattason22ndAugust2012wereaslowasUS$0.59andUS$0.60per Wattrespectively. SiliconCell&ModulePrices SolarPVModuleWeeklySpotPrice:LastUpdatedon20120822,inUSD/Wp Item SiliconSolarModule ThinFilmSolarModule Source:PVinsights High 1.10 1.02 Low 0.60 0.59 Average Avg.Chg. Avg.Chg% 0.728 0.004 0.55% 0.673 0.001 0.15%

2.3 SimilartrendinspotpriceisalsoreportedbytheEnergyTrend.TheSiliconModule and Thin Film Modules weekly spot prices per watt as on 22nd August 2012 was aroundaslowasUS$0.50andUS$0.45perWp,respectively.

1 2

http://www.eai.in, NTPVVidyutVyaparNigamLimited(NVVN) 3 EAIandBusinessline ExplanatoryMemoforbenchmarkCapitalCostNormsforSolarPVandSolarThermalPowerProjectsPage3

PVSpotPrice(US$),2012/08/2200:00update, (Pricequotesupdated weekly) Item High Low Averag Change e ModulePrice(PerWp) 0.90 0.50 0.704 4.22% ThinFilmPrice(PerWp) Source:EnergyTrend 2.4 The graph below also shows average reference wholesaler price trend in Europe (Germany) for PV crystalline modules of Chinese manufacture. The chart is separated in bankable PV manufactures (i.e. Suntech, Yingli, JA Solar, Canadian Solar, ET Solar, Renesola, etc.) and nonbankable manufactures, for modules certifiedasperCE,IEC61215,IEC61730andusing"Agrade"cells. Price Trend Crystalline Photovolatic Panels, Main Port Europe (net price w/o value tax) 0.80 0.45 0.686 0.00%

Source:AESEuropeGmbH 2.5 According to the Mercoms Market Intelligence Report dated 24th September, 2012,whereintheyhavecomparedpricetrendssincethebeginningoftheyear:in the crystalline Germany category where it is found that the module price decreasedby17.8%thanatthebeginningoftheyear.Priceforcrystallinemodules ofJapanesemanufacturersis,onaverage,loweredbyonly13.3%comparedtothat at the beginning of the year. While the price for crystalline modules of Chinese manufacturers is, lower by 22.8% in comparison to that at the beginning of the year. The report further anticipates an additional slump in prices of 6% to 9% in bothcategoriesbytheendof2012.
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Source:MercomCapitalGroup

Source:MercomCapitalGroup 2.6 TheaboveanalysisrevealsthatthecurrentthinfilmmodulepriceperWpvariesin therangeof$0.4to$1.0andcrystallinemodulepricevariesintherangeof$0.50to 1.0. The tables shown in para 2.2 and 2.3 reveal that the prevailing average crystallinemodulepriceisaround$0.7/Wp.Further,thecrystallinePVprice,have showndownwardtrendgloballyintherangeof13.3%to22.8%sinceJanuary2012 toAugust2012.Mostoftheinternationalstudiesrevealthatthepricesareexpected to decline in future. Considering the same, the Commission proposes to consider base module cost at $0.65/Wp (CIF) i.e. cost, insurance, freight and taxes, for the determination of benchmark capital cost for solar PV projects for FY201314. With theexchangerateofRs.53/US$,themodulecostworksouttoRs.344.5Lakh/MW

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fortheFY201314fordeterminationofbenchmarkcostforSolarPVprojectsforFY 201314. NonModuleCostComponent: 2.7 The nonmodule cost components comprise cost towards land, civil & general works, ground mounting structures, power conditioning unit, cabling & transformer/ switchgears and preliminary/preoperating expenses & financing costs. Each component of above referred nonmodule cost of Solar PV based powerplantisestimatedasunderforthedeterminationofbenchmarkcapitalcost ofSolarPVprojectsforFY201314. Land: 2.8 The land requirement for Solar PV based power project depends upon the technology employed i.e. Crystalline or Thin film, conversion efficiency and solar radiation incident in respective area. The Commission, while determining the benchmarkcapitalcostforSolarPVprojectsfortheyear201213,hadconsidered land requirement of 5 Acre/MW for crystalline PV project and its cost was considered as Rs. 16 Lakh / MW. The Commission proposes to escalate the normative land cost of FY201213 at 5% and proposes the land cost at Rs. 16.80 Lakh/MWforthedeterminationofbenchmarkcapitalcostofSolarPVprojectsfor FY201314. CivilandGeneralWorks: 2.9 The cost associated with civil works includes testing of soil, preparation of soil/ground with all necessary works like earthmoving, digging holes for the foundations/pilingsandleveling,fencingoftheland,developmentofapproachroad, cable trenches, water supply arrangement in solar farm, control room etc. The Generalworksincludesecurityofsolarfarm,settingupofpowerbackupgenerator; yardlighting,EarthlingKits,etc.TheCommission,whiledeterminingthebenchmark capitalcostforSolarPVprojectsfortheyear201213,hadconsideredtheciviland generalworkstogetherasRs.90.00Lakh/MW.Afterallowingcostescalationof5% overthelastyearscosttheCommissionproposestoconsider94.50lakh/MWasthe cost for Civil and General work for benchmark capital cost of Solar PV projects for FY201314. GroundMountingStructures: 2.10 This expenditure includes cost associated with manufacturing, delivery, installation and calibration of either hot galvanized steel or aluminum structures
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including all necessary material, works and installation on prepared foundations/pilings. The Commission, while determining the benchmark capital costforSolarPVprojectsfortheyear201213,hadconsideredthecostofground mounting structure as Rs. 100.00 Lakh/MW. After allowing cost escalation of 5% overthelastyearscosttheCommissionproposestoconsiderRs.105.00Lakh/MW towards the cost for Ground Mounting Structures for benchmark capital cost of SolarPVprojectsforFY201314. PowerConditioningUnit(inverter) 2.11 Powerconditioningequipmentisanimportantcomponentofthebalanceof system. Power conditioners process the DC power produced by a photovoltaic systemtoACpowerandmatchthesamewithutility'spower.Whilespecifyingthe benchmark capital cost for solar PV projects in 201213, the Commission had considered ` 98 Lakh/MW as cost towards Power conditioning unit. Considering thereductionofinverterpricesgloballyandinIndiaitisproposedthatexpenditure towardsPowerconditioningunittobeconsideredasRs.60.00Lakh/MW. CablesandTransformers 2.12 This expenditure includes EPC cost towards DC cabels between Solar PV panels & Inverters including junction boxes, AC cabling between Inverter & sub station, Earthling arrangements and Transformer. The transformer cost includes the EPC cost of a step up outdoor type transformer, breaker, Current Transformers, Potential Transformers, Isolators, LAs, protection relay and TOD meter.TheCommission,whiledeterminingthebenchmarkcapitalcostforSolarPV projectsfortheyear201213,hadconsideredthecostofcablesandtransformers and other associated equipments as Rs. 100.00 Lakh/MW. After allowing cost escalation of 5% over the last years cost, theCommission proposes that Rs. 105 Lakh/MWmaybeconsideredasexpendituretowardscablesandtransformersfor solar PV projects for the determination of benchmark capital cost of Solar PV projectsforFY201314. Preliminary/PreoperatingexpensesandFinancingCosts 2.13 The preliminary/preoperating expenses include transportation of equipment,storageofequipmentatsite,insurance,contingency,taxesandduties, IDC and finance charges etc. Detailed breakup of Preliminary and Preoperative expenses and financing cost, lump sum in percentage of total capital cost is proposedasunder:
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i. ii. iii. iv. v. vi.

InsuranceCost:0.5% Contingency:0.5% InterestduringConstruction(IDC):5% Financingcost:1% Projectmanagementcost:1% PreoperativeCost:1.0%

2.14 Preliminary/Preoperating expenses and Financing Cost contribute to above 10% of total capital cost on average basis. In past years, while determining the benchmarkcapitalcostforsolarPVprojects,theCommissionhadconsidered10% of total capital cost as preliminary /Preoperating expenses and Financing cost. Accordingly,Rs.80.00Lakh/MWisproposedtobeconsideredaspreliminary/Pre operatingexpensesandFinancingcost. 2.15 The table below presents the breakup of benchmark capital cost norm for SolarPVprojectsfortheFY201314: Sr. Particulars No. Table:BreakupforCapitalcostprojection CapitalCostNorm %oftotal forSolarPVproject cost (Rs.Lakh/MW) 344.50 43% 2% 16.80 094.50 105.00 060.00 105.00 080.00 805.80 12% 13% 7% 13% 10% 100%

1 2 3 4 5 6 7 8

PVModules LandCost CivilandGeneralWorks MountingStructures PowerConditioningUnit EvacuationCostuptoInterconnection Point(CablesandTransformers) PreliminaryandPreOperativeExpenses includingIDCandcontingency TotalCapitalCost

2.16 ConsideringtheabovethetotalcostofSolarPhotovoltaicpowerprojectsfor the FY201314 is proposed to be considered at Rs. 800.00 lakh/MW as benchmark projectcostofSolarPVprojects.

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3 BenchmarkCapitalCostforsolarThermalPowerProjects 3.1 As per first proviso under Regulation 5 of the RE Tariff Regulations, 2012, the benchmarkcapitalcostforSolarthermalpowerprojectsistobereviewedannually. The Commission specified the normative capital cost for Solar Thermal Power Projectsinpastareshownintablegivenbelow: Year CapitalCost:` Lakh/MW 3.2 Under the National Solar Mission (NSM), the total aggregated capacity 500 MW of gridconnectedSolarthermalProjectsinPhase1proposedtobedeveloped.Bidders oftheSolarThermalProjectswererequiredtosubmitproposalsofferingmaximum discount on the CERC approved applicable tariff for grid connected solar power projectsforFY201011. 3.3 Seven Solar Thermal power projects (470 MW) have been selected through the bidding process under JNNSM PhaseI and its PPAs signed with NVVN by 10th January,2011.TheCommissioningofsuchSolarThermalProjectsarescheduledby May,2013. 3.4 ListoftheSolarThermalprojectsselectedanddiscountofferedonCERCdetermined tariffofRs.15.31/kWhasfollows: FY0910 1300 FY1011 1530 FY1112 FY1213 1500 1300

SL No 1 2 3 4 5 6 7

Name of Bidder Lanco Infratech KVK Energy Ventures Pvt Ltd Megha Engineering & Infrastructure Rajasthan Sun Technique Energy Aurum renewable Energy Pvt Ltd Godawari Power & Ispat Ltd Corporate Ispat alloys Ltd

Discount offered (Paisa) 482 411 400 334 312 311 307

State (Project) Rajasthan Rajasthan Andhra Pradesh Rajasthan Gujarat Rajasthan Rajasthan Weighted Average

MW (Capacity) 100 100 50 100 20 50 50 470

Tariff Quoted `/kWh 10.49 11.20 11.31 11.97 12.19 12.20 12.24 11.48

Source:DatacollectedfromNVVN 3.5 Apartfromtheabovereferred470MW,30MWofsolarthermalprojectsarelikely tobeputupformigration.OneprojectusesPowerTowertechnologyputupunder migrationscheme,of2.5MWsize.

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3.6 Developers of solar thermal projects in India are reported to be facing some problemsespeciallyintermsoflackofavailabilityofsolarirradiationdatawhichis essential for planning and optimizing a solar thermal power project. Due to much lowerDNIvisavisinitialestimate,solarfieldreengineeringisreportedtohavebeen carriedoutbysomeofthedevelopers.Generationofrevisedtechnicalspecifications andmodificationofrelevantordersplacedonvarioussuppliersmaycausethedelay onthecommissioningoftheprojects. 3.7 Lackofauthenticsolarirradiationdataandlackofdataonprojectcostsofprojects under commissioning in India, electricity generation potential of typical sites and knowledge of performance of technology in India, and possible impact of rupee depreciationonprojectcostaretheissuesbeforetheCommissionwhiledetermining thebenchmarkcapitalcostofthesolarthermalproject. 3.8 TheInternationalrenewableenergyAgency(IRENA)hasinitsreportonRenewable energy technologies: Cost analysis series Concentrating Solar Power (June 2012) mentioned that the estimated cost of CSP plants varies significantly, depending on the capacity factor, which in turn depends on the quality of the solar resources, thermalenergystoragelevelsandthetechnicalcharacteristicsofCSPplant.Thesaid report also states that based on the data analysis, for parabolic trough plants withoutthermalstorage,costcouldbeaslowasUSD4600/kWwithcapacityfactor intherangeof2025%.Reportalsoestimatedpossiblecostreductionby2015.

Source:InternationalrenewableenergyAgency(IRENA) 3.9 HoweverinIndiancontextthetotalinstalledcostisquitelowerincomparisontoUS andEuropemarket.Reasonofvariancecouldbecheaperlabourcostetc. 3.10 Though there are opportunities for cost reductions for CSP plant, the fact remains that the commercial deployment of CSP is still in its infancy in India. As experience is gained, R&D advances, mass production of components occurs and increased competition in technology providers develops, costs will come down. However,significantinvestmentinfurtherR&Danddeploymentwillberequiredto realizethesecostreductions.
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3.11 Consideringtheexpectedreductionincostofthermalpowerprojectsglobally aswellas the tariffquoted bythebiddersselectedunderJNNSM,theCommission proposesthebenchmarkcapitalcostofsolarthermalprojectas`1200Lakh/MWfor FY201314. ********

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