Batch
By
Abhishek
Chaudhary
R. no: 97
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Declaration
I, Abhishek Chaudhary, Roll no. 97, 11th Batch, student of MBA (POWER
MANAGEMENT) at National Power Training Institute, Faridabad hereby declare that the
Summer Training Report entitled Development of Financial Model and Bankable
Feasibility analysis of a 1MW Rooftop Solar PV Project in India is an original work and
the same has not been submitted to any other institute for award of any other degree.
A Seminar Presentation report was made on ___________________ and the suggestions
made by the faculty were duly incorporated.
Presentation in Charge
Signature of Candidate
Countersigned
Director, NPTI
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Acknowledgement
I wish to express my sincere and grateful thanks to the people who helped and extended
their support in this endeavour.
I am grateful to LAHMEYER INTERNATIONAL (INDIA) PRIVATE LIMITED for
allowing me to avail the opportunity of summer internship with the company.
I would like to thank Mr. Bhupendra Singh, Head (HR), Mr. A.P. Singh, Manager (HR), Mr
S.Mazumder (Senior Vice President) Lahmeyer International (India) Pvt. Ltd., for giving me
the opportunity to do the summer internship project in the company.
I express my deepest thanks and gratitude to my project guide MR. SADASIB
MOHAPATRA, General Manager (Project Finance), Lahmeyer International (India) Pvt.
Ltd. , for his guidance and support along with his great insights into the world of Finance.
I extend my thanks to Ms. Deepika Moharana, Senior Engineer (PFP - LE), Lahmeyer
International (India) Pvt. Ltd., who were always ready to provide help whenever required and
without whose help and support it would have been impossible to complete my project.
I also thank Ms. Manju Mam (Director, NPTI) for arranging my summer internship program
with Lahmeyer International (India) Pvt. Ltd and providing assistance and support whenever
required.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Contract & construction management and site supervision and workshop inspections,
O&M audit.
Lahmeyer provides solutions that are optimized technically, economically and ecologically;
Projects are implemented from conception to commissioning, efficiently and successfully.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Lahmeyer-India operates from its engineering offices at Gurgaon in the National Capital
Region of New Delhi and Kolkata, West Bengal.
Vision:
To be a globally recognized engineering consultant, bringing value to our clients through
innovative & optimal solutions.
Quality Policy:
Since the establishment of the company in 1993, LII has gained an outstanding reputation as
independent technical consultants. This image motivates us to improve continually. We strive
to offer our clients the best policy at the fair price and to assure our employees an attractive
and secure employment with potential for development and progress.
Quality Objectives:
Highly professional consulting services to our clients.
To conduct our business with integrity and honesty.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Sectors of Expertise:
The planning and implementation of large infrastructure projects is a complex and
challenging task. Lahmeyer contributes significantly to the success of a project by combining
comprehensive knowledge base, expertise of our personnel and well-coordinated interdisciplinary approach.
Lahmeyer offer technically and commercially optimal solutions to our clients so that projects
are implemented from concept through commissioning on time and within budget. Lahmeyer
combine the expertise and experience gained from our Indian and overseas projects with the
expertise and know how available globally within the Lahmeyer Group to provide worldclass engineering and project management services.
Energy
Transportation
Choosing a feasible project, that offer good return on investment is a very critical decision for
the Developer seeking to be the Plant Owner. Selecting suitable technology, optimization of
plant and facilities and timely implementation will make the project a profitable venture.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Lahmeyer provides expert services to financial Institutions/ Banks/ Lenders / Private Equity
Firms & Hedge Funds during Pre-financial closure phase, Implementation phase,
Performance guarantee testing and Project completion phase and Operation phase of the
projects in evaluating and developing projects and by virtue of an extensive knowledge of the
marketplace, can introduce investors to suitable likely projects.
During the execution of the project, Lahmeyer provides both Basic as well as Detailed
Engineering Services to EPC / Turnkey Contractors in all disciplines such as Mechanical,
Electrical, Civil and Control & Instrumentation.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Abbreviations
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Objective of Internship
The summer internship is an essential part of the curriculum of an M.B.A. program as it is
included to impart a hand on exposure of the industry in which the student is supposed to
work in the future in his career.
The theoretical studies in the MBA course are having importance only when a student knows
how to implement it in the real situation of the organization.
The significance of the internship can be judged by assessing the value addition in the student
so the report made during the internship is reviewed and questioned from different aspect to
incorporate the necessary changes and appraise the performance during the training.
The Basic objective of the training was to:
To learn from the very best professionals the best conduct to run a business.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
Table of Contents
Introduction
11
Executive Summary
13
Definitions
15
18
Technical Considerations
23
Financial Considerations
39
Regulatory Considerations
46
Project Layout
51
65
Conclusion
67
Bibliography
68
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Introduction
In the history of the Indian Electricity Sector, the year 2003-04 would undoubtedly be
remembered as the year in which the new Electricity Act was enacted by the Parliament.
The act has created an enabling environment to promote investment and also to protect the
consumer interest. It emphasizes the role of competition and market development,
obviously because no amount of cost plus regulation can achieve what competition can, in
reducing the price of electricity and ensuring good quality power.
Indian Electricity Sector originally was a Vertically Integrated Utility and thus had the
advantage of natural monopolies. Tariff setting was in the hands of utility and the respective
State Governments resorted to giving subsidies to various consumer categories and cross
subsidizing the Industrial Consumers. However in due course of time these Vertically
Integrated Utilities became inefficient and Indian Power Sector was almost on the stage of
bankruptcy, when various states initiated reforms in their respective states and the reforms
process started. Although this gave a temporary relief to the stakeholders, Industrial
Consumers were still paying higher tariff than other categories of consumers, thus
hampering their profitability, efficiency, productivity and also competitiveness. And even
after paying higher tariff. These Industrial Consumers were not getting uninterrupted and
quality power supply. This lead to the concept of Captive Power Plants but could only be
adopted by those organizations that have a large working capital and can invest in setting up
their own power plants. However Electricity Act 2003 which came in to force on 10th June
2003 gave special provision for Captive Power Plants.
This concept will help these small scale industries and also many other organizations that
need economical, quality and uninterrupted power supply. Group Captive can also be
helpful in capacity addition as the excess power can be either traded or can be transferred
to grid and thus will help in maintaining the frequency.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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However, be it an IPP, a CGU or a captive plant, finance becomes an integral part of the
project. Most of the investment in power projects is through Banks and financial Institutions
due to a huge base capital requirement, and since the Indian Power Scenario is gloomy to
say the least, scrutiny and careful study of power projects becomes a must from the
Lenders perspective. This project is based on consultation and bankable feasibility of a
small rooftop power project with an esteemed organisation. Due to the confidentiality
clause no name or hint as to either of the partys identity shall be revealed in this project.
My role in the project is to prepare a financial model detailing the expected return to the
developer of the plant, and primarily to our client viz. the lender. The model also gives an
estimate of the tariff the developer could charge. The entire model has been prepared at
par with the latest CERC guidelines (Renewables).
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Executive Summary
To Avail the unique opportunity to work with Lahmeyer International (India) Pvt. Ltd.
was a great experience, especially with my guide Mr. Sadasib Mohapatra who had given
me a great job to do with lots of support for making it a success. At the inception of the
training itself I was brought up to speed with the work structure and working environment
of the company and was attached to Development of Financial modelling and Bankable
Feasibility analysis of 1 MW Rooftop Solar PV Project in India.
The main objective of this project is to enable oneself to prepare a Financial Model and
inspect the financial feasibility of the project from both Owners and Lenders perspective
with our prime responsibility being towards the Lender. As any project related to power
sector requires huge amount of investment, it is extremely necessary to make financial
model and do thorough analysis for the financial viability of the proposed project prior
taking any decision regarding the initiation and further proceedings related to the proposed
project.
In this project the necessary inputs are taken from various sources, some are taken as per
CERC Guidelines and some of them are assumed rationally in order to proceed further in
the Financial Modelling process. After compiling the input data various dependent
variables such as Depreciation, Working Capital , Interest on Working Capital, ROE, O &
M cost, Interest on Loan etc. are calculated which are further used to calculate the Tariff. In
order to keep in mind the time value of money the levelised tariff is calculated to denote the
nominal tariffs of different years by a single value. Then the next step is to prepare sheets
of Profit & Loss account, Cash flow statement, Balance Sheet and Debt service coverage
ratio which are main determinants for the analysis of financial viability of any upcoming
power generation project. Once the relationships between various indicators of the financial
aspects of the project are developed (in excel sheet) with the help of financial tools, we
interpolate the different values of the changeable inputs such as Interest on loan, PLF,
O&M expenses etc to find out the different outcomes and the way the changes in these
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
13
inputs impacts the Levelised Tariff. This is done to know the degree and direction of
impact of inputs on the outputs in order to select the best suited set of inputs.
The financial plan and tariff calculation for the Project has been done in light of
regulatory, technical and financial clauses under the CERC RE Tariff Regulations
2012. In Profit & Loss account, the taxation has been done in accordance with IT Act.
Financial modelling tool has been designed to calculate Levelised tariff for 25 years at
15.97% discount rate. The financial model also offers the flexibility to change and
adapt different inputs and assumptions for different projects.
How much would be the actual return on equity (after tax) to the owner?
At what Tariff rate under CERCs guidelines can the project engage in a long term
PPA with a distribution licensee assuming Grid connectivity?
What would be the return if the owner chooses to opt for APPC rate rather than
preferential Tariff structure?
What would be the total income and savings if the owners opts for Captive
generation?
What would be the Debt Service Coverage Ratio over the tariff period?
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
14
Definitions
Levelised tariff
Levelised tariff in the power sector is basically the Sum of the Present value of all the tariff
calculated over the tariff period w.r.t. inception of the project upon the sum of the discount
factors.
Levelised Tariff:
Sum of P.V. of Tariff over the life of the plant/PPA
--------------------------------------------------------------Sum of Discount Factors
CUF/ PLF:
It is the ratio of actual energy generated, to the energy the plant would have generated if it
was operating at its maximum capacity. It is given as percentage and is usually calculated for
a period of one year.
CUF/PLF:
100* Energy Generated in a year
--------------------------------------------------------------Maximum energy generated in a Year
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Discount factor:
The discount factor is the factor by which a future cash flow must be multiplied in order to
obtain the present value.
Debt-Equity Ratio:
It is the ratio of debt and equity employed in any business. It is a measure of a company's
financial leverage calculated by dividing its total liabilities by stockholders' equity. It
indicates what proportion of equity and debt the company is using to finance its assets.
D/E Ratio:
Total Long Term Loan
--------------------------------------------------------------Owners equity
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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NPV analysis is sensitive to the reliability of future cash inflows that an investment or project
will
yield.
Return on Equity:
The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates
with the money shareholders have invested.
ROE is expressed as a percentage of the total equity invested in the project.
RoE:
Net Income
--------------------------------------------------------------Share-holders Equity
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Introduction
Solar energy is a here to stay. The biggest advantage of solar energy is its abundant
availability and the fact that it doesnt require any fuel for operation. While the latter situation
can be said to be consistent with time, the availability may be a problem in a post apocalyptic
world where the sun may be blocked out due to excessive pollution. This energy can be made
use of in two ways the Thermal route i.e. using heat for drying, heating, cooking or
generation of electricity or through the Photovoltaic route which converts solar energy in to
electricity that can be used for a myriad purposes such as lighting, pumping and generation of
electricity. With its pollution free nature, virtually inexhaustible supply and global
distribution- solar energy is very attractive energy resource.
Why Solar?
Solar Energy can be utilized for varied applications. So the answer to Why Solar question
can be sought from two different perspectives: utilizing solar energy for grid-interactive and
off-grid (including captive) power generation.
Grid interactive solar energy is derived from solar photovoltaic cells and CSP Plants
on a large scale. The grid connection is chosen due to following reasons:
2.
Solar Energy is available throughout the day which is the peak load demand time.
3.
Solar energy conversion equipments have longer life and need lesser maintenance and
hence provide higher energy infrastructure security.
4.
Low running costs & grid tie-up capital returns (Net Metering).
5.
Unlike conventional thermal power generation from coal, they do not cause pollution
and generate clean power.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Abundance of free solar energy throughout all parts of world (although gradually
decreasing from equatorial, tropical, sub-tropical and polar regions). Can be utilized
almost everywhere.
While, the areas with easier grid access are utilizing grid connectivity, the places where
utility power is scant or too expensive to bring, have no choice but to opt for their own
generation. They generate power from a diverse range of small local generators using both
fossil fuels (diesel, gas) and locally available renewable energy technologies (solar PV, wind,
small hydro, biomass, etc.) with or without its own storage (batteries). This is known as offgrid electricity. Remote power systems are installed for the following reasons:
Desire for independence from the unreliable, fault prone and interrupted grid
connection
Captive power generation is done mainly considering the replacement of diesel with
solar. Comparison of diesel vs captive power generation is available here. Our tailormade report on Captive Solar Power Generation can be downloaded here.
Technology:
Solar Photovoltaic
Solar photovoltaic (SPV) cells convert solar radiation (sunlight) into electricity. A solar cell
is a semi-conducting device made of silicon and/or other materials, which, when exposed to
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
19
sunlight, generates electricity. Solar cells are connected in series and parallel combinations to
form modules that provide the required power.
Thin-film solar cells: Amorphous Silicon Solar cells (A-Si), CIGS, CdTe
Solar Thermal
Solar Thermal Power systems, also known as Concentrating Solar Power systems,
use concentrated solar radiation as a high temperature energy source to produce
electricity using thermal route. High temperature solar energy collectors are
basically of three types:
Parabolic trough system: at the receiver can reach 400 C and produce steam for
generating electricity.
Power tower system: The reflected rays of the sun are always aimed at the
receiver, where temperatures well above 1000 C can be reached.
Parabolic dish systems: Parabolic dish systems can reach 1000 C at the receiver,
and achieve the highest efficiencies for converting solar energy to electricity.
Economic Value: The generation of solar electricity coincides with the normal peak
demand during daylight hours in most places, thus mitigating peak energy costs, brings
total energy bills down, and obviates the need to build as much additional generation and
transmission capacity as would be the case without PV.
Geographical Location: India being a tropical country receives adequate solar radiation
for 300 days, amounting to 3,000 hours of sunshine equivalent to over 5,000 trillion kWh.
Almost all the regions receive 4-7 kWh of solar radiation per sq mtrs with about 2,300
3,200 sunshine hours/year, depending upon the location. Potential areas for setting up
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
20
solar power plant can be analyzed using Solar irradiation map of India. Our Statewise
analysis of Solar resource, Business Opportunities and Latest trends in the states are
discussed:
Power Shortage: Electricity losses in India during transmission and distribution have been
extremely high over the years and this reached a worst proportion of about 24.7% during
2010-11. India is in a pressing need to tide over a peak power shortfall of 13% by
reducing losses due to theft. Theft of electricity, common in most parts of urban India,
amounts to 1.5% of Indias GDP. Due to shortage of electricity, power cuts are common
throughout India and this has adversely affected the countrys economic growth.
Capacity Installed
SOURCE
Rural / Semi Urban Biogas
Plants
CUMULATIVE CAPACITY
(numbers)
42,77,000
8,13,380
SPV Pumps
7,495
Solar Cookers
6,64,000
S.No State
Photovoltaic
Capacity (MW)
Solar Thermal
Capacity (MW)
1.
Rajasthan
43
400
2.
Gujarat
722
45
Source: (Eai)
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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3.
Maharashtra
133
4.
Karnataka
10
5.
Andhra Pradesh
20.5
6.
Uttarakhand
7.
Punjab
8.
Haryana
7.8
9.
Uttar Pradesh
11
10. Jharkhand
16
11. Chhattisgarh
7.25
13. Odisha
11
12
1006.55
445
TOTAL
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Technical considerations
Solar energy is more flexible and versatile than other forms of renewables such as wind or
hydro. Where wind and hydro are available, they are good sources of energy, but only select
places get good wind, and hydro can have many impacts.
The Sun provides about 100000 TW to the Earth, which is approximately 10000 times
greater than the world's present rate of energy consumption (13TW). Photovoltaic (PV) cells
are being used increasingly to tap into this huge resource and will play key role in future
sustainable energy systems. Our present needs could be met by covering 0.1% of the
Earth's surface with PV installations that achieve a conversion efficiency of 10%.
Photovoltaic cells
A photovoltaic cell is an electrical device that converts the energy of light directly
into electricity by the photovoltaic effect.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Cells are too small to do much work. A typical module has 36 cells connected in
series, plus - minus, to increase the voltage.
With connected cells and a tough front glass, a protective back surface and a frame,
the module is now a useful building block for real-world systems.
Source: (CMU)
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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PV Module
The PV module is the smallest package that produces useful power. The process involved in
manufacturing these modules requires high precision and quality control in order to produce a
reliable product. It is very difficult, and therefore not practical, to make homemade modules.
PV is very modular. You can install as small or as large a PV system as you need.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Example: One can install a PV module on each classroom for lighting, put PV power at a gate
to run the motorized gate-opener, put PV power on a light pole for street lighting, or put a PV
system on a house or building and supply as much energy as wanted.
You can start with a small budget this year, and add more modules and batteries later when
you are more comfortable with solar, or when loads increase. New PV modules can be added
at any time.
The element Silicon is the second most abundant element on the earths surface, next to
Oxygen. Silicon and Oxygen together make sand (Silicon Oxide, SiO2). The Oxygen is
removed at high temperatures, and leaves behind the Silicon. So the basic material of solar
cells is abundant and safe Emphasize that the cells are converters, not original sources of
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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energy. They need the sunlight as their fuel just like conventional motor generators need fuel
to work. But solar cell fuel is delivered for free all over the world.
3
This is intended to be a quick explanation of the basics of direct solar conversion (the
photovoltaic effect). This picture looks at a cross-section of a PV cell. Light actually
penetrates into the cell, it doesnt just bounce off the surface. Particles of light called
photons bounce into negatively charged electrons around the silicon atoms of the cell, and
knock these electrons free from their silicon atoms. The energy of the photon is transferred to
the electron. There are over a billion photons falling on the cells every second, to there are
lots of electrons knocked loose! Each electron is pushed by an internal electric field that has
been created in the factory in each cell. The flow of electrons pushed out of the cell by this
internal field is what we call the electric current.
3
Source: (MIT)
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Technical considerations
Grid connectivity
Design options
Structural considerations
Array Design
Project Management
Crystalline
1. Monocrystalline
2. Poly Crystalline
3. Ribbon silicon
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Roof Mount
1. Flat roof Mount
2. Slate Roof Mount
3. Integrated Mount
Pole Mounts
Ground Mounts
A-Frame Mounts
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Source : (MNRE)
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Hybrid PV systems
Working
The simplest type of stand-alone PV system is a Direct-coupled system, where the DC
output of a PV module or array is directly connected to a DC load. Since there is no electrical
energy storage (batteries) in direct-coupled systems, the load only operates during sunlight
hours, making these designs suitable for common applications such as ventilation fans, water
pumps, and small circulation pumps.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Matching the impedance of the electrical load to the maximum power output of the PV array
is a critical part of designing well-performing direct-coupled system. For certain loads such
as positive-displacement water pumps; a type of electronic DC-DC converter, called a
maximum power point tracker (MPPT) is used between the array and load to help better
utilize the available array maximum power output.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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DC loads can also be connected directly to the battery bank. A more common type of the
standalone system is where the PV system with a battery bank powers the AC loads.
Adjustable, where the frame can be adjusted manually during the year (often not
carried out as years progress)
Tracking, where the frames automatically move to receive optimal sunlight during
the day and throughout the year.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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While trackers are most efficient, they are more expensive and require maintenance.
The most common PV module that is 5-to-25 square feet in size and weighs about 3-4 lbs./sq
ft. Often sets of four or more smaller modules are framed or attached together by struts in
what is called a panel. This panel is typically around 20-35 square feet in area for ease of
handling on a roof.
This allows some assembly and wiring functions to be done on the ground if called for by the
installation instructions.
Balance of system equipment (BOS): BOS includes mounting systems and wiring systems
used to integrate the solar modules into the structural and electrical systems of the home. The
wiring systems include disconnects for the DC and AC sides of the inverter, ground-fault
protection, and over-current protection for the solar modules.
Most systems include a combiner board of some kind since most modules require fusing for
each module source circuit. Some inverters include this fusing and combining function within
the inverter enclosure.
DC-AC inverter: This is the device that takes the dc power from the PV array and converts it
into standard ac power used by the house appliances.
Metering: This includes meters to provide indication of system performance. Some meters
can indicate home energy usage.
5
Source: (Eai)
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Simple to install
Highest efficiency
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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This type of system incorporates energy storage in the form of a battery to keep critical
load circuits in the house operating during a utility outage.
When an outage occurs the unit disconnects from the utility and powers specific circuits in
the home. These critical load circuits are wired from a subpanel that is separate from the rest
of the electrical circuits.
If the outage occurs during daylight hours, the PV array is able to assist the battery in
supplying the house loads. If the outage occurs at night, the battery supplies the load.
The amount of time critical loads can operate depends on the amount of power they consume
and the energy stored in the battery system.
A typical backup battery system may provide about 8kWh of energy storage at an 8hour discharge rate, which means that the battery will operate a 1-kW load for 8 hours. A 1kW load is the average usage for a home when not running an air conditioner.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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The advantages and disadvantages of a battery based grid-tied system include the following:
4. Hybrid PV system
Among the three options that are available, the grid tied captive systems are the most
prevalent in India. These are available up to a capacity of 100 kW, and typically do not use
batteries.
At the same time, stand alone/captive based power plants in India are evolving fast. Globally,
most people do not run their entire load solely off their PV system. The majority of systems
use a hybrid approach by integrating another power source. The most common form of
hybrid system incorporates a gas or diesel powered engine generator, which can greatly
reduce the initial cost. Meeting the full load with a PV system means the array and batteries
need to support the load under worst-case weather conditions. This also means the battery
bank must be large enough to power large loads. These requirements will make the system
unviable owing to the high costs of battery storage. Hence, a diesel-solar PV generator
provides the optimal power supply source for India as well, as the generator provides the
extra energy needed during cloudy weather and during periods of heavier than normal
electricity use, and can also be charging the batteries at the same time. A hybrid system
provides increased reliability because there are two independent charging systems at work.
Another hybrid approach is a PV system integrated with a wind turbine. Adding wind turbine
makes sense in the locations where the wind blows when the sun does not shine. In this case,
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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consecutive days of cloudy weather are not a problem, so long as the wind turbine is
spinning. While in theory this combination appears good, in practice this combination has not
delivered the benefits expected out of it, primarily owing to the less-than-optimal efficiencies
of micro wind turbines.
For even greater reliability and flexibility while using wind and solar, there are
experimentations where a third source diesel generator has been included in a PV/Wind
system. A generator system will act as a third charging source for the batteries. This threesource hybrid is in its nascent stages in India.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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The loans are most commonly non-recourse loans, which are secured by the project
assets and paid entirely from project cash flow, rather than from the general assets or
creditworthiness of the project sponsors, a decision in part supported by financial
modeling.
The financing is typically secured by all of the project assets, including the revenueproducing contracts.
Project lenders are given a lien on all of these assets, and are able to assume control of a
project if the project company has difficulties complying with the loan terms.
Generally, a special purpose entity is created for each project, thereby shielding other
assets owned by a project sponsor from the detrimental effects of a project failure.
As a special purpose entity, the project company has no assets other than the project.
Capital contribution commitments by the owners of the project company are sometimes
necessary to ensure that the project is financially sound, or to assure the lenders of the
sponsors commitment.
Traditionally, project financing has been most commonly used in the extractive (mining),
transportation, telecommunications and energy industries.
More recently project financing principles have been applied to other types of public
infrastructure under publicprivate partnerships (PPP)
Project finance models are usually built as Excel spreadsheets and typically consist of the
following interlinked sheets:
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Capital Expenditure
Debt Schedule
Revenue Sheet
Cost Sheet
Accounting Statements
Terminologies:
Capital Cost
Capital expenditure or CAPEX is the amount of money spent on a project before it gets
operational. All expenses incurred for the project like design, engineering, procurement,
construction, installation, commissioning, duties and taxes etc. contributes to capital
expenditure.It composes a Debt and an equity component.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Debt:
It is the total amount of Long term fixed liabilities. Generally a bank or a Financial institute
Issues debentures to the developing party for fixed period of time ( maturity period) at a fixed
rate of interest.
Equity:
Equity is the amount of owners share capital put up in the total capital cost.
Discount Rate:
The interest rate used in discounted cash flow analysis to determine the present value of
future cash flows. The discount rate takes into account the time value of money.
Balance Sheet:
An accounting statement, classifying all the financial entities into assets or liabilities. The
basic checking point is the value of all the assets should be equal to all the liabilities
Income Statement:
An accounting sheet that displays the flow from total earnings to earnings after tax or the
actual earnings of the company
Working Capital:
A measure of both a company's efficiency and its short-term financial health. The working
capital ratio is calculated as:
Current Assets- Current Liabilities
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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O&M Expenses:
Annual fixed cost incurred for maintenance, repairs and operation of plant. A Normative
O&M Expense is taken with a certain escalation price. Escalation price is an assumed per
annum percentage increase in the O&M costs.
The Basic Idea behind Building a financial Model is to answer these questions that may pop
in the mind of the developer or the lender.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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From a Power Sector Perspective we can add determination of tariff for Power Purchase
agreements to that list. Also we would like to know the volatility of the project viz. what
changes would occur in the tariff, in earnings, in Cash flow if we certain variables factors
change. In case of solar this is all the more plausible as Solar power is dependent on the
intensity of Suns radiation in the project area, which is a factor we have no control over,
atleast not yet.
The Components for calculation of tariff in a solar project has been taken as per the CERC
guidelines.
These are based on Single part Tariff and compose only of the fixed components due to lack
of fuel costs. These are
O & M expenses
Depreciation
Interest on Loan
Return on Equity
All the above except Return on equity are costs incurred by the developer and thus are
included in the tariff. RoE gives a picture of the profit margin of the developer.
As per the IT act, a tax holiday of 10 years is taken into the model.
Preferential
Power Generation
Capacity
MW
%
1
19.02%
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Years
%
Project Cost
Rs lacs
Rs lacs/MW
Rs lacs
Rs lacs
680.00
680.00
0.00
680.00
Financial Assumptions
Debt:Equity
Years
%
%
Rs Lacs
Rs Lacs
25
70.00%
30.00%
476.00
204.00
Capital cost
Normative Capital Cost
Capital Subsidy (if any)
Net Capital cost
Tariff period
Debt
Equity
Total Debt Amt
Total Equity Amt
25
0.70%
Debt Component
Rs Lacs
Loan Amount
Moratorium period
476.00
0
Years
12
4
48
48
13.25%
Equity Component
Equity Amount
Rs Lacs
Return on equity first 10 years
%
204.00
19.38%
24.00%
15.97%
%
%
5.83%
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Rs lacs p.a.
Years
1.54%
O&M Expenses
Maintenance Spares (% of O&M
Expenses)
Receivables
Interest on working capital
Income tax
MAT Rate (first 10 years)
3.63
3.63
5.72%
Working Capital
Months
%
Months
%
1
15.00%
2
13.00%
Tax assumption
%
%
32.45%
20.01%
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Tariff Period: the period for which tariff is to be determined by the Commission on the basis
of norms specified under these Regulations.
Control Period or Review Period: the period during which the norms for determination of
tariff specified in these Regulations shall remain valid;
Hybrid Solar Thermal Power Plant: the solar thermal power plant that uses other forms of
energy input sources along with solar thermal energy for electricity generation, and wherein
not less than 75% of electricity is generated from solar energy component.
Installed capacity: the summation of the name plate capacities of all the units of the
generating station or the capacity of the generating station (reckoned at the generator
terminals), approved by the Commission from time to time
Notwithstanding anything contained in these regulations, the generic tariff determined for
Solar PV projects based on the capital cost and other norms applicable for any year of the
control period shall also apply for such projects during the next year
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Provided the Power Purchase Agreements in respect of the Solar PV projects and
Solar thermal projects as mentioned in this clause are signed on or before last day of
the year for which generic tariff is determined and
Tariff Structure
The tariff for Solar PV Technologies shall be single part tariff consisting of the following
fixed cost components:
Despatch principles
Solar generating plants with capacity of 5 MW and above and connected at the connection
point of 33 KV level and above shall be subjected to scheduling and despatch code as
specified under Indian Electricity Grid Code (IEGC) -2010, as amended from time to time.
Financial Principles
Capital Cost
The norms for the Capital cost as specified in the subsequent technology specific chapters
shall be inclusive of all capital work including plant and machinery, civil work, erection and
commissioning, financing and interest during construction, and evacuation infrastructure up
to inter-connection point.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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For generic tariff to be determined based on suo-motu petition, the debt equity ratio
shall be 70:30.
For Project specific tariff, the following provisions shall apply:- If the equity actually
deployed is more than 30% of the capital cost, equity in excess of 30% shall be
treated as normative loan. Provided that where equity actually deployed is less than
30% of the capital cost, the actual equity shall be considered for determination of
tariff, provided further that the equity invested in foreign currency shall be designated
in Indian rupees on the date of each investment.
Interest Rate
The normative loan outstanding as on April 1st of every year shall be worked out by
deducting the cumulative repayment up to March 31st of previous year from the gross
normative loan.
For the purpose of computation of tariff, the normative interest rate shall be
considered as average State Bank of India (SBI) Base rate prevalent during the first
six months of the previous year plus 300 basis points.
Depreciation
The value base for the purpose of depreciation shall be the Capital Cost of the asset
admitted by the Commission. The Salvage value of the asset shall be considered as
10% and depreciation shall be allowed up to maximum of 90% of the Capital Cost of
the asset.
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Return on Equity
The value base for the equity shall be 30% of the capital cost or actual equity (in case of
project specific tariff determination)
Operation and maintenance expenses shall be determined for the Tariff Period based
on normative O&M expenses specified by the Commission subsequently in these
Regulations for the first Year of Control Period.
Normative O&M expenses allowed during first year of the Control Period (i.e. FY
2012-13) under these Regulations shall be escalated at the rate of 5.72% per annum
over the Tariff Period.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Financial Aspect
Unit
As per regulations
Capital Cost
Rs Lakh/Mw
800
Tariff Period
Years
25
Useful Life
Years
25
Interest on loan
13
20.01
Tax
32.445
CUF
19
Rs Lakh/Mw
11.63
10
5.24
11
20
12
24
13
Discount Rate
10.95
14
Loan Tenure
Years
12
15
13.50
16
5.83
17
1.54
70:30
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Model Layout
Below is a Layout of the Financial model prepared. Modeling was done on Excel worksheet
utilizing various tools and formulas of excel. Most of the data is soft coded and hard coding is
limited to bare minimum. The first sheet is the Input sheet, where the green coded cells
denote the variable input cells, changing which would change the models result provided the
change is within the boundary limits of the coding.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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52
P&L ACCOUNT
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
53
BALANCE SHEET
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
54
TARIFF CALCULATION
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
56
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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58
Year
Generation
No of REC
certificates
Lakh Kwh
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Rs
16.66
16.54
16.43
16.31
16.2
16.09
15.97
15.86
15.75
15.64
15.53
15.42
15.31
15.21
1666.15
1654.49
1642.91
1631.41
1619.99
1608.65
1597.39
1586.21
1575.1
1564.08
1553.13
1542.26
1531.46
1520.74
Total income
generated from
RECS
Rs lacs
9300
9300
9300
9300
6000
6000
6000
6000
6000
6000
6000
6000
6000
6000
Pooled
Purchase Price
Rs
154.95
153.87
152.79
151.72
97.2
96.52
95.84
95.17
94.51
93.84
93.19
92.54
91.89
91.24
Income from
Pooled
Power
Rs lacs
3
3.05
3.09
3.14
3.18
3.23
3.28
3.33
3.38
3.43
3.48
3.53
3.59
3.64
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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Total Income
Generated
Rs lacs
49.98
50.38
50.78
51.18
51.58
51.99
52.4
52.81
53.23
53.65
54.07
54.5
54.93
55.36
204.94
204.25
203.57
202.9
148.78
148.51
148.24
147.99
147.74
147.5
147.26
147.04
146.82
146.61
15
16
17
18
19
20
21
22
23
24
25
15.1
15
14.89
14.79
14.68
14.58
14.48
14.38
14.28
14.18
14.08
1510.09
1499.52
1489.03
1478.6
1468.25
1457.98
1447.77
1437.64
1427.57
1417.58
1407.66
6000
6000
6000
6000
6000
6000
6000
6000
6000
6000
6000
90.61
89.97
89.34
88.72
88.1
87.48
86.87
86.26
85.65
85.05
84.46
3.7
3.75
3.81
3.86
3.92
3.98
4.04
4.1
4.16
4.23
4.29
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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55.8
56.24
56.69
57.13
57.59
58.04
58.5
58.96
59.43
59.89
60.37
146.41
146.21
146.03
145.85
145.68
145.52
145.36
145.22
145.08
144.95
144.83
Year
1
2
3
4
5
6
7
8
9
10
11
12
Yearly interest
Yearly Cummalative
Interest
Yearly Principal
Payment
Yearly Cummalative
Principal
Yearly Total
Payment
Yearly Cummalative
Payment
Rs lacs
Rs lacs
Rs lacs
Rs lacs
Rs lacs
Rs lacs
60.44
55.19
49.93
44.67
39.42
34.16
28.91
23.65
18.40
13.14
7.88
2.63
60.44
115.63
165.56
210.23
249.65
283.82
312.72
336.37
354.77
367.91
375.79
378.42
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
79.33
119.00
158.67
198.33
238.00
277.67
317.33
357.00
396.67
436.33
476.00
100.11
94.85
89.60
84.34
79.09
73.83
68.57
63.32
58.06
52.81
47.55
42.29
100.11
194.96
284.56
368.9
447.99
521.82
590.39
653.71
711.77
764.58
812.13
854.42
DEBT REPAYMENT
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
61
(YEARLY SCHEDULE)
Year
Base value
Depreciation
Depreciated value
Cumulative Depreciation
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
680.00
640.33
600.67
561.00
521.33
481.67
442.00
402.33
362.67
323.00
283.33
243.67
204.00
193.54
183.08
172.62
162.15
151.69
141.23
130.77
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
39.67
10.46
10.46
10.46
10.46
10.46
10.46
10.46
10.46
640.33
600.67
561.00
521.33
481.67
442.00
402.33
362.67
323.00
283.33
243.67
204.00
193.54
183.08
172.62
162.15
151.69
141.23
130.77
120.31
39.67
79.33
119.00
158.67
198.33
238.00
277.67
317.33
357.00
396.67
436.33
476.00
486.46
496.92
507.38
517.85
528.31
538.77
549.23
559.69
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
62
21
22
23
24
25
120.31
109.85
99.38
88.92
78.46
10.46
10.46
10.46
10.46
10.46
109.85
99.38
88.92
78.46
68.00
570.15
580.62
591.08
601.54
612.00
DEPRECIATION
Year
Capex
Rs lacs
0
1
2
3
4
5
6
7
Rs lacs
-680.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
-680.00
139.64
134.39
129.13
123.88
118.62
113.36
108.11
Present Value(
Pre-Tax)
Present Value
(Post-Tax)
Rs lacs
Rs lacs
Rs lacs
-680.00
131.73
126.48
121.22
115.97
110.71
105.45
100.20
-680.00
120.44
99.96
82.84
68.54
56.60
46.66
38.37
Total Debt
Repayment
Rs lacs
-680.00
115.55
97.32
81.82
68.65
57.49
48.04
40.04
Net Cash
Flow
(Equity_PreTax)
Net Cash
Flow
(Equity_PostTax)
Rs lacs
Rs lacs
100.11
94.85
89.60
84.34
79.09
73.83
68.57
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
63
-204.00
39.54
39.54
39.54
39.54
39.54
39.54
39.54
-204.00
31.62
31.62
31.62
31.62
31.62
31.62
31.62
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
102.85
97.60
92.34
96.51
91.25
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
%
%
%
%
94.94
89.69
84.43
80.62
75.37
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
31.49
25.77
21.03
18.95
15.46
8.68
7.49
6.46
5.57
4.80
4.14
3.57
3.08
2.66
2.29
1.98
1.70
1.47
33.28
27.57
22.77
19.07
15.64
7.92
6.95
6.10
5.35
4.69
4.11
3.61
3.17
2.78
2.44
2.14
1.87
1.64
63.32
58.06
52.81
47.55
42.29
15.95%
14.00%
20.37%
16.00%
IRR
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
64
39.54
39.54
39.54
48.96
48.96
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
59.42
31.62
31.62
31.62
33.07
33.07
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
43.53
Cost and T&D Losses: Solar PV is some years away from true cost competitiveness and
from being able to compete on the same scale as other energy generation technologies.
Adding to the cost are T&D losses that at approximately 40 percent make generation through
solar energy sources highly unfeasible. However, the government is supporting R&D
activities by establishing research centres and funding such initiatives. The government has
tied up with world-renowned universities to bring down the installation cost of solar power
sources and is focusing on upgradation of substations and T&D lines to reduce T&D losses.
Land Scarcity: Per capita land availability is very low in India, and land is a scarce resource.
Dedication of land area near substations for exclusive installation of solar cells might have to
compete with other necessities that require land.
Funding of initiatives like National Solar Mission is a constraint given India's inadequate
financing capabilities. The finance ministry has explicitly raised concerns about funding an
ambitious scheme like NSM.
Manufacturers are mostly focused on export markets that buy Solar PV cells and modules at
higher prices thereby increasing their profits. Many new suppliers have tie-ups with foreign
players in Europe and United States thereby prioritizing export demand. This could result in
reduced supplies for the fast-growing local market.
The lack of closer industry-government cooperation for the technology to achieve scale.
The need for focused, collaborative and goals driven R&D to help India attain technology
leadership in PV.
The need for a better financing infrastructure, models and arrangements to spur the PV
industry and consumption of PV products.
Training and development of human resources to drive industry growth and PV adoption
The need for intra-industry cooperation in expanding the PV supply chain, in technical
information sharing through conferences and workshops, in collaborating with BOS (balance
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
65
of systems) manufacturers and in gathering and publishing accurate market data, trends and
projections
The need to build consumer awareness about the technology, its economics and right usage
Complexity of subsidy structure & involvement of too many agencies like MNRE, IREDA,
SNA, electricity board and electricity regulatory commission makes the development of solar
PV projects difficult.
Land allotment & PPA signing is a long procedure under the Generation Based Incentive
scheme
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
66
Conclusion
The project involves study of Electricity Act 2003, National electricity policy, National tariff
policy and Indian electricity rules 2005, Tariff regulations of CERC.
Financial viability of the project has been checked by calculating the Levelised tariff, profit
& loss, cash flow statement, NPV and IRR.
Levelised tariff (under the given assumptions) comes out to be Rs 7.39/kwh
Project IRR (pre-tax) comes out to be 15.95%
Equity IRR (pre-tax) comes out to be 20.37%
The project has an average DSCR ratio of 1.63.
It can be concluded that the development of project is beneficial for both the developer,
considering the DSCR and Project IRR is comparable with other projects. Thus investing in
the project would be beneficial for the lender.
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
67
Bibliography
Bibliography
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Eai. (n.d.). Retrieved from eai.in
Enfinity. (n.d.). Retrieved from http://enfinity.ca/
Feedback Infra. (n.d.). Retrieved from http://www.feedinfra.com/archives/5012
Grtzel, M. (n.d.). Retrieved from
http://rsta.royalsocietypublishing.org/content/365/1853/993.full
Investopedia. (n.d.). Retrieved from
http://www.investopedia.com/terms/f/financialmodeling.asp
Ministry, P. (n.d.). Retrieved from www.powermin.nic.in
MIT. (n.d.). PV Tutorial. 19.
MNRE. (n.d.). Retrieved from http://mnre.gov.in/sec/solar-assmnt.htm
Wikipedia. (n.d.). Retrieved from http://en.wikipedia.org/wiki/Solar_panel
Development of Financial Model and Bankable Feasibility analysis of 1 MW Rooftop Solar PV Project in India
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