Solar parks in India – A boom for industrial investment

MD-Rays Power Infra-Ketan-MehtaThere is a lot of buzz everywhere about solar power, its future potential and the way it is going to change the entire dynamics of energy production in India. But how exactly an investor /individual or a company reaps benefits from this infinite source of energy which nature has endowed us is still not very clear. Here is a layman’s guide to invest in solar power in India and before going into the financials it is important to understand some salient features of a solar power plant (SPP). A SPP produces the same energy just like any other source coal, gas, hydel-based power plants and it can be used in your house, factory, offices etc. The only difference is it uses an infinite source of energy being wasted every second of the day i.e Sun.

The overall objective of setting up the Solar Park is to promote the development of the solar power projects for electricity generation. Solar cells have been used commercially since last 50 years and more than 50,000 MW of solar power panels are installed all over the world. The technology has passed all stringent tests and certifications of international standard and is completely proven.

Solar is the most secure of all energy sources, since it is abundantly available in India. There are different ideal locations to set up solar park such as Rajasthan, Gujarat, Andhra Pradesh, Madhya Pradesh, Tamil Nadu, and Maharashtra. But currently the favorable policies to set up solar park are in Andhra Pradesh and Madhya Pradesh.

According to the Ministry of New and Renewable Energy the policy was amended in January 2011 to prescribe solar-specific RPO be increased from a minimum of 0.25 per cent in 2012 to 3 per cent by 2022. Further, the National Action Plan on Climate Change (NAPCC) suggests increasing the share of renewable energy in the total energy mix at-least up to 15 percent by 2020.

The government took a major step in promoting solar power in India by announcing the Jawaharlal Nehru National Solar Mission (JNNSM) in November 2009. The objective is to establish India as a global leader in solar power generation. The mission also aims to achieve grid parity and feed 20000 MW of solar power by 2022.

Power produced from a SPP is very costly. The SPP costs around Rs.5.5-6 */unit to produce solar power which is very close or even less in some cases than what we use in our daily lives. A SPP can be set up on any low cost barren land anywhere barring some hilly areas where sunlight is low as it will not make commercial sense there.

This is a myth that solar plants cannot be set up by small investors. A SPP can actually be setup at any scale from small to big; in fact smaller systems are very much viable as they can cater to the local demand in the area very well. A SPP can be as low as 0.25MW and can be started with an investment of as low as 200 lacs. And this is only valid on for large solar parks and not standalone projects.

An investor can acquire government incentives for setting up a solar plant. Accelerated depreciation benefit is available if one invests Rs.100/- in solar, one can save Rs.30/- as tax from exiting income, hence net investment is only Rs 70/-. Investor can acquire tax holiday for ten years and Carbon credits can be availed as well as investors will be eligible for Renewable Energy certificates.

A SPP gives a fixed monthly income like a pension through sale of power without much effort as cost of maintenance of a SPP is negligible. The best way to invest is by taking space in an existing solar park where all infrastructure, land etc. is common and arranged by the park owner. Cost of a 1MW SPP is Rs.6.25 crores per MW, it has warrantee life of 25 years and minimum generation of units in 1MW is 15 lacs per year. Power produced can be sold to industries, offices, malls, banks; hotel etc. at levelized average rate (over the life) of Rs.7.25 per unit with the average running cost of solar plant is Rs.10 lacs per MW Per year.

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