Harnessing Solar energy, Options for India

IRR
How much should the government pay to augment household tariff to make it
viable for a developer?
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Optimalfor Project
Developer
25% SPV +
75% Biomass
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5
Generation Based Incentive (`/ kWh)
Figure 11: Decision Points: Household Tariffs Plus the Government’s GBI
Household
Tariff per
kWh
` 2
` 2.50
` 3
Alternative I: It is felt that rural end-users should not be charged more than what the urban
population is paying for grid-based power. Hence, it is assumed that the end-user is charged
between `2 and `3 per unit of electricity. Here are the additional assumptions made:
The village panchayat pays a tariff of `3.50 per unit of electricity consumed by public
utilities.
The developer gets a soft loan at 5% on 70% of the capital cost.
Straight line depreciation and the tax rate of the developer is 30%.
The central government pays a generation-based tariff of:
o `4.5 to `5.50 if the solar component of the microgrid is 25%.
o `6.50 to `7.50 if the solar component of the microgrid is 50%
This would result in an IRR of at least 10% to the developer. If a soft loan of 5% is assumed
for a loan amount equal to 70% of the capital cost, the IRR will be higher than 10%.
Alternative II: Alternatively, a hybrid option of the current structure and the aforementioned option
can be considered – capital subsidy of 10% of the upfront capital cost, with lowered feed-in tariff. A
tariff of `6 per kW p for a system with 50% solar PV and `4.25 per kWh for a 25% solar PV system
results in a 10% IRR for the investor. Here, the end-users and the panchayat pay the same tariff per
unit of power as in Alternative I. The issue with this tariff payment remains, but as can be seen in
Tables 12 and 13, this option is more attractive for the project developer and also entails less
expenditure than generation-based tariffs alone for the government.
Solar Photovoltaic Applications CSTEP | Page 71