PPPs for Energy Efficient Street Lighting andPPPs for Rooftop Solar Power Generation

June 15, 2016

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Street Lighting PPPs: Need & Rationale

Reduction in Energy Consumption

Improvement in Service Level

Mobilization of Private Sector

Introducing energy efficient street lighting system in Project area

• Reduction in energy consumption by implementation of Energy Conservation Measures (ECM)

• Maintain environment friendly street lighting system

• Improvement of illumination level

• Reduction in number of non glowing lamps

• Systematic recording of inventory, billing and maintenance data

• Improvement in operation and maintenance practice – single point accountability

• Utilization of private sector expertise

• Deployment of latest technological knowhow – would enable training of municipal employees as well.

Implement a technologically and financially sustainable project which may be replicated in other cities

IFC Experience in India

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Description Jaipur Bhubaneswar

Street Lights in city 170,000 28,916Single Drop points 42,000 9,043

Street lights covered under contract

70,000 19,873

Street lights with functional meters 27,000 Approx. 4,000 (ie 20%)

Annual O&M expenses (staff and R&M)

USD 1 million USD 200,000

Electricity charges USD 4 million USD 1.5 million

Expected electricity charges post project implementation

USD 1 million USD 300,000

Estimated Project Cost USD 8.5 million USD 3.5 million

Winning bidder SMC Infrastructure (LOA issued)

Shah Investments

Energy savings guaranteed (bids received)

77% 80%

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Trust & Retention A/c Agreement

Transaction Structure – Shared Savings Model

Energy Service Company (ESCO)

Distribution Utility

Municipal Corporation (MC)/ Urban Local Body

(ULB)

Street Lighting Network

Financing (Equity, Debt)

Sharing of % of savings + O&M Payment

Energy SavingsMetering

Supply, Billing & Payments

Supply Agreement

Energy Performance

Contract O&M

• The Shared Savings Model (BOOT Model) envisages the capital expenditure and O&M of the project to be undertaken by the ESCO.

• The ULB shares the savings realized from the project with the ESCO as per the provisions of the contract.

• The actual sharing of benefits is as per the actual savings achieved by the ESCO on month to month/ billing period basis.

• The metering and billing by the utility decides the amount of actual energy saved in the project after implementation of the identified energy efficient measures by the ESCO.

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Trust & Retention A/c Agreement

Alternative Model: Notional Savings / Annuity Model

Lighting manufacturer/Operator

Distribution Utility

Municipal Corporation (MC)/ Urban Local Body (ULB) / State Authority

Street Lighting Network

Financing (Equity, Debt)

Annuity

Energy SavingsMetering

Supply, Billing & Payments

Supply Agreement

Supply & Services ContractO&M

• The model envisages the capital expenditure and O&M of the project to be undertaken by the operator.

• The ULB pays an annuity to the operator which is the lowest bid.

• The technological intervention is determined by authority and therefore savings are estimated prior to the bid.

• The operator is only required to meet 1) equipment performance and 2) customer service obligations. Energy savings are not part of the operators performance parameters

Roof-top Solar Power

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• Every building whether home, industry, institution, commercial establishment can generate some solar power by installing PV panels on the rooftop or on unutilized premises

• PV roof-top installations at the tail-end of the grid increase grid-stability and reduce losses

• Savings in land requirement and costs• Savings in development of new transmission infrastructure• Creation of value from under-utilized /unutilized rooftops

The Concept

Rationale

Gujarat Roof-top Solar Case Study

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• Govt. of Gujarat (GOG) envisaged to implement a pilot 5 MW grid connected distributed rooftop solar project in Gandhinagar on a PPP model

• Demonstrate technical, commercial and regulatory viability and sustainability of rooftop solar concept

• Potential to reduce ~ 6000 tons of CO2 equivalent annually• Private sector investment mobilization ~ US$ 10 million• Potential for large scale replication

The Drivers

Envisaged Impact

Gross Metering – Self Owned

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Rooftop Solar PV System SM

Utility (Grid

Owner)

Rooftop Owner

Flow of FundsFlow of Energy

Utility Payments to solar developer based on pre-determined formula

Key mechanisms:1. Feed in Tariffs2. Generation Based

Incentives

Solar meter (Generator Meter)

PPA – Utility & Solar System Owner

THANK YOU

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Roof-top Solar Business Models

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Parameter Gross Metering Net-metering

Objective • Electricity sale to utility • Self-consumption of electricityTariff

Arrangement

• PPA with the utility – utility to pay as per PPA price (FIT)

• No payment by utility for electricity injected into the grid, beyond a limit

Financial burden

• Cost borne by utility & then passed through to the consumer

• Usually Govt. bears burden for any incentive/subsidy to bridge viability gap

Energy Accounting

• Metering arrangement to measure generation only

• Metering arrangement to measure generation as well as respective consumption

Beneficiary • Assist utility in meeting Solar RPO compliance

• Assist consumer directly to reduce its electricity billing

Project Selection • Tariff based competitive bidding • First-come-first serve basis (to start

with)

Utility’s Concern

• Not keen on signing PPA with small rooftop projects – higher FIT & administrative burden.

• Loss of revenue for utility – reduced grid consumption by consumers

Developer’s Concern

• Grid unavailability to impact revenue

• Low level of incentives may impact viability of project for certain consumer segments

Key Features of Shared Savings Model

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Baseline Needs complete functional data on number of lights, performance quality, glowing / non glowing hours, voltage fluctuations, etcWorking meters and robust underlying infrastructure required to ensure proper base liningIf not available, authority needs to incur upfront expenditure to ensure proper baseline either prior to technical due diligence or post bidEngagement with utility to ensure working meters are available at all points

Technology Neutral

Bidding is usually done on the basis of energy savings so choice of technology is left to operator as long as highest savings are achieved

While energy share offered to authority, if base line increases after correction of deficiencies and operational improvement then it results in a net cash outflowOperational & Maintenance expenditure currently being incurred by the authority also transferred to operator to make project viable

Challenges• Need for robust Baseline and Monitoring and Verification (M&V) :

Performance and the payment to the ESCO depend on improvements made over the baseline

• Difficulties in establishing baseline: In the absence of meters, difficult to arrive at the energy cost of the ULB

based on actual energy consumed. Not possible to establish baseline consumption for points not connected

to the street-lighting feeder (single drop points) Baseline needs to assume that all lamps in the city are glowing Need for adequate system infrastructure: poles, cables, and feeder

pillars• Places significant demand on the ULB to undertake robust M&V and make

performance based payments. • Single drop points are not covered – need for a separate contract • Investors not very keen on ESCO model given the payback depends upon

quality of the infrastructure and accuracy of metering/ billing systems • Difficult to raise project finance under ESCO model owing to above

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Key Features of Annuity Model

Project design determined upfront Authority can decide technology, systems required based on objectives, city needs and payment capacity.

Bid will incorporate specific design and input requirementsIf underlying infrastructure is poor, then the project scope can be expanded to include upgradation of entire network

No reduction in energy bills – net cash outflow

Technical demonstrations will determine energy savings at the due diligence stage (prior to bid).

Engagement with the utility will be up to the municipal authority – in the interest of the ULB to push for installation of meters

Authorities will need to get budget approvals upfront based on bid amount

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Challenges• The notional savings/ annuity model assumes that the 1) data available

with respect to number and types of lamps and 2) energy consumption of the street lighting network is up to date and robust and does not require fresh surveys

• The Notional Savings / Annuity model ignores underlying issues that may exist in the network which can only be determined through a survey/detailed assessment

• The operator is not required to demonstrate energy savings so in the absence of adequate data monitoring, the city authority may not realize cost savings under such projects

• The city authority finalizes the technology prior to the bid and they may not necessarily be aware of the latest options in the market

• If sample surveys undertaken prior to the bid are not robust or the estimated number of points is lower than estimated then the authority may end up paying a lot more under such projects

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Key Differences in ModelsPoint of difference Shared Savings Notional savings

Technology / Interventions Selected by bidder Prescribed by ULBEnergy savings Based on bid (minimum

threshold provided by ULB)Prescribed by ULB by way of design (but not measured)

Bid variable Guaranteed energy savings Annuity payable by ULBSavings share with government Can be structured in project

designNot applicable as actual savings accrue to the ULB

Energy Baseline Robust baseline required Not required (sample surveys to demonstrate savings)

M&V Detailed M&V protocol prescribed in bid documents

Minimal M&V required provided technology interventions are as prescribed

Metering Required to establish baseline and for M&V

Not required, though is in the interest of the ULB and preferable for long term sector development

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THANK YOU

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