“Following the light of the Sun, we left the Old World “— Christopher Columbus



The rapid decline in Solar PV based power generation cost is a boon for India which has a good solar irradiance.  The Solar PV projects due to a combination of low cost, ease of setting up of the project, not requiring cumbersome obtaining of many permits and clearances and having no fuel risk or market risk, have witnessed 10GW of project installation in the last five year period.

The reverse auction process of selection of solar power developers for the projects through a competitive bid process has been the preferred mode for allocation of projects.  However, due to aggressive bidding by most of the solar developers, acquiring a solar project through bidding process has become quite risky without a commensurate return. The power distribution companies (Discoms) have also started expecting lower and lower tariffs with each successive bid and some states have even cancelled the bids after seeing a lower bid in a different state.

Given these uncertainties, the solar projects through auction process have become unattractive.

While acquiring solar projects through the auction process may have become unattractive, however, with the cost of solar plants declining steadily over the past few years, cost of power from solar plant is lower than the retail tariff from the Discoms. For example,  with the present cost of solar plant, over a 15 year period, the levellised cost of solar power is at about  US Cents 7/KWhr  ( Rs 4.50-  Rs 5.0 / KWhr )  whereas the industrial tariff in most state is in the range of US Cents 12/ KWhr ( Rs 7.5 – Rs 8 / KWhr )  and commercial rates are  US Cents /KWhr  ie + Rs 9/KWhr. Thus for industries & commercial enterprises, there is potential to save over 30% in power cost by setting up solar plants for captive power consumption.

Capital Expenditure for a solar plant is in the range of US 700 K /MW  ( Rs. 4.0 to 4.5 Cr / MW  ) and the high capex is proving to be a deterrent  for setting up of a solar plant for self power generation even though it is profitable.

Pro U,  having vast experience in setting up of downstream petrochemical, specialty chemicals and pharmaceutical plants,   plans to diversify into setting up of Captive Solar plants ( Roof-top  as well as Ground–mounted )  for  its existing / new  clients and intends to provide a one- stop shop solution for setting up the captive solar plant along with financing.

The captive solar plant will be a win-win solution for the user, Investor & Pro-U.

This note details the modality for setting up such captive solar plants.


Modality for setting up captive solar power plants :

The Captive solar plants shall be set up either as a Roof-top plant in case adequate roof space is available or a ground mounted plant at a distant location feeding into the grid and drawing the power at the industrial location.  The annual average energy consumption of an industry with 1 MW demand would be about 5 Million KWhr.  A 1 MW solar plant on an average generates about 1.6 Million KWhr /Yr.   Thus if the entire requirement of 5 Million KWhr is to be met entirely from Solar, that would require about 3 MW solar plant which can be set up as a roof top plant with  roof space of about  36000 sqm.  In case the roof space is not available, the captive solar plant will be set up wherever land is available (within the state) at a cost effective rate and the power plant would be connected to the nearest substation.

The solar power would be injected at the substation and the industry would draw the power at their location after paying the usage charges to the Transmission & Distribution companies.  If own land is not available, the land can be taken on lease by the captive power company from the farmers / owners of the land. The industry shall enter into a PPA (Power Purchase agreement)   for a minimum period of 15 years.

Equity contribution from the customer:

As per Electricity Act, any consumer to be classified as a captive consumer has to have a minimum 26% equity in the solar power company and should absorb minimum 51% of the energy.  Qualification as captive power consumer helps in avoiding the cross-subsidy surcharge that would otherwise become payable.

A typical ground-mounted solar plant is shown below:

Activities that would be carried out by Pro U & Associates:

Pro U & Associates  will act as the single window agency and  will arrange the land ( if required) , arrange all permits and clearances, arrange for financing,  carry out Engineering, Procurement & Construction of the solar plant,   and implement the project and once the project is commissioned, take care of the operation and maintenance thereafter.

Benefits for the industry : The equity contribution needed from the industry for each 1 MW of solar plant would be only about US $ 46 K ( Rs 30 Lakhs ieRs 3 Million  )  and balance equity of about Rs 90 Lakhs/MW ) would be arranged by Pro U,  thru their  investor associate , whereas if the industry were to set up the solar project on their own, equity contribution will be  about  $ 186 K  ieRs 1.2 Crore / MW.

  • The estimated savings from the solar CPP would be about US Cents 3 /KWhr ieRs 2.00 / KWhr.  Annual generation from a 1 MW solar plant would be about 1.6 Million KWhr. Thus the annual saving from the 1 MW solar CPP to the industry would be about Rs 3.2 Million ie US $ 50 K which means a payback of their equity in about 1 Yr.
  • There will be no need for the captive consumer to deploy any technical resources for setting up the solar plant.
  • In addition to the financial benefits, there will be a significant reduction in the carbon foot-print of the industry.


IRR to the Investor :

The investment to be made by the investor is 74% of Rs 1.2 Cr/MW  ( USD 186 K ) equity requirement which works out to Rs 0.89 Cr / MW ( USD 140 K).    The IRR for the investor will be about  12% for a 15 year PPA with a plant  bus bar tariff of about Rs 5 / KWhr ( US Cents 7.75 /KWhr)  with a 10-12 year term loan with interest rate of 10%.


Market potential for Captive Solar Projects:

The Industrial power consumption in India is about 40% of the total power generated and that of residential power consumption is 25% which works out to 500 Billion KWhr/Yr and 300 Billion KWhr /Yr respectively.  Even a 5% shift to solar would translate to 40 Billion Units or 25000 MW of solar potential ie 25 GW  representing an  equity investment potential of  $ 3.5 Billion

In addition to the industrial, commercial & residential consumers, a new category of consumers is coming up viz Electric Vehicles.  The emergence of the EV market combined with the solar power would result in zero-emission vehicles and will give further boost to solar power generation. It is noteworthy that the Government of India commits “A revised   target of Grid Connected Solar Power from 20 GW by 2021-2022 to 100 GW “ –  as  per the Ministry of   New and Renewable Energy


Conclusion :

Solar Captive power projects are very low-risk projects sans market or fuel risks & are thus a win-win solution for the Industrial Consumer & the Investor.