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Solar Rooftop Projects - "RESCO" Model Overview & Recent trends in India

A Renewable Energy Service Company (RESCO) provides energy to the consumers from renewable energy sources; and such companies have recently gained immense traction for delivery of solar rooftop projects in India.


WHAT IS RESCO MODEL?

Under this model, RESCO would fund, build and maintain a rooftop or onsite solar power plant. The end-consumer pays for the power generated under a long-term power purchase agreement (PPA) at an agreed tariff for a fixed period, typically 15-20 years.

RESCO model is preferred by companies that do not wish to invest their limited capital in non-core operations. Outsourcing their rooftop solar provides the well-priced power they need, conveniently financed and managed by a third-party player. This model is very relevant given the effects of COVID-19 pandemic since companies would continue to preserve cash flow from operations.


Solar Rooftop Projects – “RESCO” Model – Contractual Structure

The figure below provides an illustrative contractual structure for RESCO model.





In subsequent sections, the article provides a review of three (3) key factors which would impact the viability of solar rooftop projects under RESCO model in India, namely Capital Costs, Tariffs and Financing Costs.


1) Capital Costs

The table below provides the benchmark costs by Ministry of New and Renewable Energy (MNRE), Government of India (GoI) for grid-connected solar rooftop projects in India for the last 2 financial years.

Benchmark costs (Rs./W)


The table below provides discovered costs (Rs./W) as per Indraprastha Power Generation Company Limited (IPGCL) tender results announced in May’20.


Below key considerations are relevant from perspective of upfront capital costs:

  • Financial capability of the developer to complete the RESCO projects can be evaluated using benchmark costs defined by MNRE

  • A typical size of the plant may be assumed for computation of capital costs – as per industry, should be around 75-100kW for a mid-size industrial plant


2) Tariffs

The table below provides the range of tariffs discovered in recent solar rooftop bids in India

The average power grid tariff for the Commercial and Industrial (C&I) segment ranges from Rs6-11/kWh; and the levelized cost of energy (LCOE) from a rooftop solar system is Rs3-4.5/kWh. Thus, C&I consumers can achieve cost savings of up to 50% by switching from grid-connected power to rooftop solar.


Below key considerations are relevant from perspective of upfront capital costs:

  • Robust financial modelling or bid modelling capabilities to be able to arrive at the correct costs and returns since there is a narrow range of bid tariffs as per recent wins.

  • Technical capability to be evaluated as per specific needs of the tender floated by the government agencies. For example, in a tender issued by SBI Infra Solutions in Apr’20. the bidder must have installed ‘OPEX mode’ remote monitoring based 3.75 KW (minimum solar panel capacity) solar power systems with battery back-up in minimum 50 branches of state-owned organizations, reputed hospitals, IT organizations, etc. during the last seven years.


3) Debt Financing

Multiple concessional credit lines are available in India for dedicated financing of solar rooftop projects.

Below key considerations are relevant from perspective of debt financing:

  • What are the existing sources of debt for ongoing solar rooftop projects by the developer?

  • Whether refinancing is possible to a lower cost debt through concessional credit?


In India. RESCO model will continue to be the preferred mode of development of solar rooftop projects in the short to medium term due to the need to converse upfront capital costs by end-consumers for such projects. Hence, we recommend the developers and investors to take into account the above mentioned considerations while evaluating any new projects or investments in the solar rooftop market.


ABOUT YOG INFRA

Yog Infra Advisory Private Limited (YOG INFRA) is an infrastructure focused financial advisory firm committed to support sustainable economic growth driven through infrastructure development. We work extensively with Governments, Development Finance Institutions (DFIs) and Private Sector as our clients.

We serve global clients, and have a strong project execution experience in South Asia, South East Asia, Middle East and East Africa.


For a conversation or to understand how we can help in your ongoing/ planned infrastructure developments, please reach out to us at info@yoginfra.com


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