The government of Andhra Pradesh today announced its solar policy. The policy does not specify any limit on the total capacity of solar power plants that can be put up under it. It also neither provides for a fixed feed-in tariff (like Gujarat did), nor does it make way for price discovery through a reverse bidding process (as in the case of the National Solar Mission).

However, the policy spells out the state’s stand on issues such as banking of power, wheeling and transmission charges, cross subsidy charges and open access.

In other words, a project developer may put up a project of any size in the State. He can either sell the power to the State’s electricity distribution company at the ‘average pooled purchase cost’ that is determined by the state electricity regulatory commission (which is today Rs 2 per unit), or can sell it to any other consumer directly, whether within or outside the State.

On banking of power (or, injecting power into the grid and drawing it back later), the policy says it allows 100 per cent banking. However, any energy injected into the grid will have to be drawn within that calendar year. No drawing of banked power will be allowed between February and June, and during the peak hours—6.30 pm to 10.30 pm. The developer will have to pay 2 per cent of energy as ‘banking charges’.

Further, if the energy is sold within Andhra Pradesh, the developer is incentivised with exemptions from wheeling and transmission charges and cross-subsidy charges, electricity duty and refund of VAT on inputs purchased for the project and the stamp duty on the registration of land for the project. However, for sales outside the state, wheeling and transmission charges, as determined by the state’s regulatory commission, applies.

A notable feature of the policy is that even the rooftop and off-grid plants will be eligible for the renewable energy certificates, under the ‘deemed injection’ clause.

To avail themselves of these incentives, project developers have to commission their projects by June 2014, whereupon they would get the incentives for seven years from the date of commissioning.

Industry wants details

The solar power industry finds the policy very friendly in terms of being facilitative, without casting a burden on the state government’s finances. Large cement plants, for instance, can discharge their renewable purchase obligations by becoming shareholders of solar power projects and buying the power. As such, there is likely to be considerable interest from the industry.

However, the Government has made public only the ‘abstract’ of the policy. The industry is keen on the details.

For instance, the technical and financial criteria are still awaited. The industry wants to be clear as to who is eligible to apply. (Uttar Pradesh, for example, said that only those who had done a project in India previously could apply.)

Finally, the industry would like grid-related codes and assurances of availability of the grid. How much of renewable power can the grid take? At which point will the metering happen? What is the policy relating to forecasting and scheduling?

These are some issues that need to be cleared out before people begin to put down money in solar projects in the State.

“While the policy states that one of its objectives is to “promote investments for setting up manufacturing facilities in the state”, the policy does not specify any domestic content requirement. This could make Andhra pradesh a very attractive market for the foreign PV module manufacturers who are backed by attractive financing options,” says Madhavan Nampoothiri, Founder and Director of RESolve Energy Consultants.

The Andhra Pradesh solar policy announced a few days ago has generally been hailed as a very investor-friendly policy and one that has the scope to make the State “another Gujarat.”

But nevertheless, some experts see red in the details.

Higher feed-in tariff

The policy does not provide a higher feed-in tariff, instead gives project developers a host of concessions, such as exemptions from several charge and tax credits on inputs, and encourages them to avail themselves of the tradeable renewable energy certificates.

The RECs can be traded in one of the two energy exchanges in India (IEX or PXIL) and the prescribed minimum price is Rs 9.3 a unit of electricity.

Fantastic, said the industry. For Ardeshir Contractor, Managing Director and CEO of Kiran Energy, the AP policy was a “dream come true.” The IFC and Bessemer Venture Parters-funded company had already been working on putting up a 50 MW project in the State and the policy made their deal sweeter.

But now it is dawning on many that things may not be all that simple. The policy, which relies heavily on the REC mechanism to induce developers to put up projects in the State, goes against the very principle of renewable energy certificates — that the entity will get the certificates only if it does not avail itself of other benefits.

The certificates are issued by the National Load Despatch Centre, a body of the Ministry of Power.

NLDC follows the guidelines of the Central Electricity Regulatory Commission (CERC).

CERC guidelines

The CERC guidelines clearly say that RECs will be available only to those developers who do not avail themselves of other concessions, such as lesser or exempt wheeling and banking. NLDC is allowed to follow the guidelines of the respective State Electricity Regulatory Commission, too. However, in the case of Andhra Pradesh, again the APERC’s guidelines also say (in Clause 6 (c) that those who get concessions are not eligible for RECs.

The big worry in the minds of investors is whether NLDC will refuse to issue RECs to the solar projects set up in Andhra Pradesh.

“The State solar policy is expected to create a serious conflict with APERC as well as CERC regulation on REC. The State Nodal Agency being appointed by APERC, would naturally follow the guidelines issued by the APERC. This means, solar project developers participating into REC mechanism might not be able to claim all the benefits that are proposed under the State solar policy,” says Vishal Pandya, Director, REConnect, a consultancy that helps companies secure and trade in RECs.