Replicating Success In Vadodara.docx

2019

Public Private Partnership Assignment Made by : DHRUV VASHISTH SUBMITTED TO : Dr Puneet Mohan Sharma

2/7/2019

Replicating Success in Vadodara: Rooftop Solar PPPs in India

STORY HIGHLIGHTS A pilot solar rooftop PPP launched with IFC support in Gandhinagar, the capital of India’s Gujarat State, is now generating 5 MW of power and saving over 7 million metric tons of greenhouse gas emissions annually. The solar rooftop concept, now proven, is being replicated in five other cities in Gujarat. A 25-year concession to implement Gujarat’s second solar rooftop PPP was signed in Vadodara in June 2014.

This model has the potential to be widely replicated in India and other countries through transparent, competitive public-private partnership transactions. A visitor to Gandhinagar, capital of the Indian state of Gujarat, is likely to notice the glint of the sun reflecting off solar panels on the city’s rooftops. Some sit atop schools, other on hospitals. Many are perched on residential buildings. Altogether, the panels generate about 5 MW of electricity, providing better access to power for an estimated 10,000 people. The groundbreaking project, a pilot public-private partnership (PPP), attracted approximately $12 million in private financing. Besides adding power generation capacity, it reduces climate emissions by more than seven million metric tons of greenhouse gas emissions annually and complements the 270 MW Gujarat Solar Park, Asia’s largest, in helping the state reach its goal of producing 500 MW annually from renewable sources. But the greatest success of Gujarat’s solar rooftop program, playfully referred to as “rent-a-roof project,” lies in its replicability. Launched in 2010 with the help of the IFC, which served as transaction advisor, the project paved the way for a wider rollout of solar rooftop initiatives by working through technical, legislative, and financial issues. Two private firms, Azure Power and SunEdison, each won 25-year concessions to install solar photovoltaic panels on the rooftops of public buildings and private residences and connect them to the grid. How the “Rent-A-Roof” Concept Works Gujarat, a state of 80 million in western India, enjoys about 300 sunny days a year. To harness this energy, private solar companies selected through a competitive bidding process lease rooftop space from government buildings and private residents, who receive Rs 3 ($0.05) per unit produced. The operators are responsible for installing the panels and connecting them to the grid. They in turn receive a feed-in-tariff of Rs 11.21 ($0.18) under a 25-year concession. The concept sounds simple. But to make it work, numerous technical issues had to be addressed, including connectivity issues, selecting the solar panel system (e.g. concentrated solar power vs. photovoltaic solar panels), and resolving connectivity issues. The optimal terms of the lease and power purchase agreements also had to be determined in light of existing regulations and business conditions.

But most important was the unambiguous vision for solar power articulated by the state government of Gujarat. As early as 2009, it became the first state in India to announce a solar policy, which included ambitious solar power generation goals and plans to develop its capital as a “solar city.” Gujarat has made significant progress towards its goals. In June 2014, The Times of India reported that Gujarat was already producing 891 MW of solar power and had plans to increase solar capacity by an additional 500 MW in the next three years. Replication in Vadodara and Beyond Vadodara, a city of two million, became the second municipality in Gujarat to adopt the solar rooftop concept. In June 2014, Madhav Solar Private Limited won a 25-year concession for a 5 MW solar rooftop PPP based on the one in Gandhinagar. It is expected to attract $8 million in private investment, provide 9,000 people with better access to power, and reduce greenhouse gas emissions by 6,000 metric tons. The Vadodara project clearly benefited from the lessons of Gandhinagar’s solar rooftop PPP experience. Many of the obstacles faced in the pilot project had already been addressed and resolved. The results were proven. Consequently, the Vadodara PPP took less time to implement. Buoyed by two important successes, IFC is helping four other cities in Gujarat – Bhavnagar, Mehsana, Rajkot, and Surat – with rooftop solar PPPs of their own. It is also drawing on its experience to improve the policy framework to encourage replication of the concept. The solar rooftop concept has excellent prospects for becoming established throughout India. Cities outside of Gujarat have taken notice;even Delhi is eyeing the model. And Gujarat itself is providing a helping hand to other Indian states: the Gujarat Energy Research and Management Institute (GERMI) will support to the government of Odisha with its own rooftop solar initiatives. Before long, the site of solar panels on Indian rooftops may become so common that visitors stop noticing them. The state of Gujarat has been at the forefront of the solar energy revolution in India, successfully bringing on line over 800 Mega Watts (MW) of ground based solar PV plants under a state program. In 2010, the government of Gujarat sought IFC’s assistance to develop an innovative 5 MW rooftop solar public-private partnership (PPP) project in the state capital of Gandhinagar outfitting government buildings with solar panels. The

success of this project has helped prove the potential for rooftop solar in India. To help attain its green energy vision, the government looked to replicate the project, but this time with the participation of its citizens, and sought IFC’s assistance to structure a new project in the city of Vadodara with private citizens adopting the rooftop solar concept. Madhav Solar (Vadodara Rooftop) Private Limited (the “Concessionaire”) won the 25year concession for a 5 MW rooftop solar project in the city of Vadodara. Under the concession, the Concessionaire will install solar photovoltaic panels on the rooftops of primarily privately-owned properties such as commercial buildings, homes and industrial units, and sell the energy generated to the local utility. The Concessionaire will offer a lease rental to the owners for accessing and using their roofs. Besides attracting $8 million in private investment, the project is expected to result in 9,000 people receiving increased access to power and a reduction of 6,000 tons of GHG emissions annually. The project agreement was signed in June 2014. The project was implemented with financial support from the Norwegian Trust Fund for Private Sector Development and Infrastructure, the Canada Climate Change program, and the South Asia Infrastructure Facility.

BACKGROUND The state of Gujarat, located in western India, pioneered the solar energy revolution in India. The government of Gujarat successfully brought on line over 800 MW of ground mounted solar power capacity to introduce renewable energy to its predominantly fossil fuel based energy mix. However, the government was keen to push the envelope and launch a rooftop solar initiative in the capital city of Gandhinagar, for which it sought IFC’s advisory services. Being a sunrise sector in India, many technical, regulatory and commercial challenges were anticipated. The project was structured with the selected developer undertaking to install 80% of the rooftop capacity on pre-identified government owned buildings, while the balance capacity was to be developed on private rooftops. The project was successfully bid out in 2012 and is an operational success. With the rooftop solar concept proven, the government of Gujarat looked for opportunities for its citizens to participate in its mission of promoting green energy. This objective could be achieved by expanding the rooftop solar concept to other cities where the large majority of buildings were privately owned. The government sought IFC’s expertise to structure and bid out a 5 MW rooftop solar project in the city of

Vadodara where the developer is responsible for identifying all the rooftops, including homes, commercial buildings and industrial facilities. Successful implementation of the project would help the government showcase the potential of rooftop solar, ensuring large participation of its citizens in green energy generation, while also providing additional valuable power to the grid and reducing GHG emissions. IFC’S ROLE IFC was appointed lead transaction advisor by the Government of Gujarat owned Gujarat Power Corporation Limited, to structure and bid out the Vadodara Solar project. Besides providing transaction advice, IFC’s role included technical, legal and, analytical support, including: • Conducting a detailed technical study including an onground survey of large available rooftop spaces, creating a database of satellite images of all available rooftop space and estimating the feasible rooftop capacity which could be installed by a solar developer in Vadodara. • Reviewing social, legal and commercial issues related to renting rooftop space from residential, industrial and commercial buildings and developing terms for the rental agreements. • Supporting discussions with the client and the local stateowned distribution company, Madhya Gujarat Vij Company Limited, on the design of the power purchase agreement. IFC also recommended a transaction structure and managed the tender process, including preparing bid documents, investor consultations, and evaluating bids. IFC also lent support for: • Knowledge building and training workshops on the rooftop solar concept for staff of Gujarat state distribution utilities. • Creation of a website to provide knowledge and information to citizens on the rooftop solar project, and how they could participate.

TRANSACTION STRUCTURE IFC recommended a 25-year concession on a build, own, operate (BOO) model. Under the agreement, the selected developer would install solar panels on hundreds of rooftops throughout the city of Vadodara with an aggregate capacity of 5 MW. As per the terms of the concession, the large majority of these installations are required to be on private rooftops whose owners would receive rental income for their previously unused rooftop space. The developers would connect these individual systems to the local grid and sell the power generated to the local distribution utility. Total project cost

is estimated at US$8million, all of which would be financed by the winning bidder. BIDDING Interest in the project was strong, with over 40 firms purchasing the bid documents. Madhav Solar (Vadodara Rooftop) Private Limited won the 25-year concession and the power purchase agreement with the distribution utility was signed in June 2014. The project is expected to be operational in 2015-16. 02/2015 EXPECTED POST-TENDER RESULTS • Improved access: 9000 people will benefit from improved energy services at affordable prices. • Mobilization of private sector investment: : the transaction will attract $8 million in private investment to the state. • Climate change: reduces GHG emissions by 6,000 tons of carbon dioxide equivalent annually. • Public benefit and participation: provides rooftop owners economic benefits from their previously unused rooftops by way of rent from the developer. Further, this allows private citizens to partake in the state government’s green energy vision.