The major portion of the expenditure for a solar plant is taken up by the initial investment required. There are other expenses which we need to consider initially as part of utility scale solar costs, such as the inverter replacement cost, operations and maintenance cost, insurance charges and such.

Initial Capital Investment Required

This should include all capitalized preoperative and setup costs, as well as cost of equipment, land, installation expenses, EPC charges, etc.

Solar Mango has done a comprehensive study of the cost components of a MW solar plant and has arrived at the following break-up of costs for a solar power plant per MW.

Assumptions used:

  • Land costs come to Rs.5 Lakhs per acre (1MW plant requires minimum of 5 acres of land).
  • Grid extension costs could be up to Rs.15 Lakh/Km, depending on the capacity of the extension line (which could be anywhere from 11 kV to 132 kV). Thus, the total cost for grid extension depends on the distance of the site from the nearest substation
  • If trackers are to be used for the power plant, an additional amount of Rs. 40 Lakhs/MW is to be added to the total project cost.
  • The amount quoted below is dependent on the EPC chosen and is subject to variations.
Components Value(in Lakhs per MW AC)
Land 25.00
Modules 330.00
Civil and general works 55.00
Mounting structures 40.00
Inverters 40.00
Electricals – cables, transformers, etc. 65.00
Grid extension and bay extension 40.00
Preliminary expenses – approvals, land  levelling etc. 15.00
 Total Capital Investment Rs. 610 Lakhs/MW
   
Operations & Maintenance 6
Escalation (annual) 5%
   
Insurance 0.15%
Escalation (annual) 0%
   

Inverter Replacement

The inverter is the only major component in a solar plant that is expected to be replaced during the lifetime of the plant.

  • Inverter lifetime – This varies from manufacturer to manufacturer; 10-year lifetime can be considered as a rule of thumb. For conservative calculations, this will mean that the inverter is replaced twice during the lifetime of the plant: once in Year 11 and again in Year 21
  • Inverter cost – This is expected to reduce by 5% annually
    Initial cost of inverter is about Rs. 40 Lakhs/MW. Inverter replacement is eligible for the 80% accelerated depreciation.

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Operations & Maintenance (O&M)

This encompasses routine maintenance of the plant and minor part replacement to ensure maximum generation from the plant. This function is often outsourced to O&M contractors who may be the EPC themselves or 3rd party specialists. O&M annual contracts are typically about Rs. 5-6 Lakhs/MW without trackers and 7-8 Lakhs/MW with trackers, usually escalating annually at 5%.

Kindly note that the above quoted value may vary based on:

  • The EPC chosen (Some EPCs may offer free O&M for the first year of operation of the plant).
  • The employment of trackers.

Insurance

Insurance charges are typically 0.15% of Project Cost, modeled every year throughout the lifetime of the plant with no escalation.

Debt Service

Debt service includes both principal and interest payments made to the lender. The lender can be any of the following:

  • Banks(either domestic or foreign)
  • NBFCs(Non-Banking Financial Company)
  • Renewable Energy Development Agencies(like IREDA)

The rate of interest on the loan availed depends on the financial institution that provides it.

  • Domestic Financing comes at a rate of interest between 11-13%
  • International Financing charges an interest rate between 8-10%.But if you go for international financing you should take into account the hedging costs against currency fluctuations. Also it may take a long time for processing, up to nine months which may delay the project execution.
  • IREDA provides lower interest loans; around 10-11.5%.They require only a collateral security of 10-33% of the loan taken. But the catch here is that they usually fund only large scale projects.

Taxes

The amount of tax payable is calculated on profits after considering interest and depreciation.

  • As most  solar plants can avail accelerated depreciation of 80%, the tax savings in Year 1 can be significant for those availing accelerated depreciation
  • 10-year tax holiday is also available
  • Minimum Alternate Tax (MAT) will still apply.

There are a range of taxes applicable for different components and services in the development of a solar power plant. It should be noted that the Bill of Materials for the project may or may not be inclusive of taxes and it depends on the quote provided by the EPC contractor.

The taxes generally involved are:

  • Central Sales Tax (CST)
  • Service Tax (ST)
  • Value Added Tax (VAT)
  • Work Contract Tax (WCT)
  • Customs Duty (CD)
  • Excise Duty (ED)

 

A table containing typical tax break-up for different components is given below. Please note that this is a tentative list and the actually tax will depend on the EPC contractor. Excise and concessional customs duty are extra unless MNRE duty exemption certificates are generated.

Sl. No. Cost Details Tax type (as applicable)
CD / ED CST VAT ST WCT
1 Modules
Supply – Domestic
Supply – Imported 0%
2 Inverter
Supply 2%
3 Structures
Supply 2%
Service 0% 14%
Civil Works 0% 5%
4 Civil Works
Supply 0% 5%
Service 0% 14%
Civil Works 0% 5%
5 Electrical
Supply 2%
Service 0% 14%
6 Pooling Station (33/132 kV)
Supply 2%
Service 0% 14%
Civil Works 0% 5%
7 Design &Engineering. 0%

 

Conclusion:

Benchmark investment in 2015 for a solar plant in India is about Rs. 6.1 Crores/MW. This includes all the capital expenses. .Like previously mentioned, O&M annual contracts are typically about Rs. 5-6 Lakhs/MW without trackers and 7-8 Lakhs/MW with trackers, usually escalating annually at 5%.Additional to the quoted prices, the taxes levied for the project can be estimated to come to Rs15-20 Lakhs/MW.

It must be noted that the prices quoted are totally dependent on the EPC chosen by the developer and are subject to variations based on negotiations with the EPCs.

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