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Renewable Energy Financing: Modes And Measures

Daksh Mahajan MBA (FINANCE) Candidate FIRST INDIA SCHOOL OF BUSINESS

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PREFACE
As a renewable energy source, solar energy presents an exciting opportunity for India. While the current contribution of solar energy to the total India's energy needs is insignificant, in the medium and long run, it is expected that solar energy, especially solar PV will form a vital component of the country's energy mix. The most important barrier that had stopped Solar PV from becoming a mainstream renewable energy resource is the high cost of producing power from the resource. This high cost is in turn a direct result of the high capital costs of the solar PV panels and the balance of system required. The good news is that the capital costs for solar PV panels are expected to decrease significantly over the next 5-10 years. In addition, solar PV technology is continuously improving in terms of its efficiency. As a result of this combination of capital cost reduction and efficiency increase, by 2015, solar PV is expected to reach grid parity in some parts of the world and by 2020, in most parts of the world. For India, the National Solar Mission and its incentives provide an additional reason for entrepreneurs and investors to explore this industry. The convergence of decrease in capital costs, increase in efficiency and significant financial support by the government is likely to result in a wide range of attractive business opportunities along the entire solar energy value chain in India. While solar power production is the final benefit derived from solar PV, an entire ecosystem entire ecosystem is evolving around this end product, and this ecosystem will result in a range of opportunities for a number of opportunities for a number of industries, businesses and entrepreneurs. This report in particular focuses on Solar energy sector both at the domestic and global level. It also highlights the financing modes and measures in that particular sector.

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ACKNOWLEDGEMENT
I think if any of us honestly reflects on who we are, how we got here, what we think we might do well, and so forth, we discover a debt to others that spans written history. The work of some unknown person makes our lives easier every day. I believe it's appropriate to acknowledge all of these unknown persons; but it is also necessary to acknowledge those people, we know have directly shaped our lives and our work. I express my gratitude to the Madison Street Capital India Pvt. Ltd. (MSC) and Mr. Jaydip Sinha (M.D) for giving me an opportunity to work with them and make the best out of my internship. I specially thank my guide Mr. Pankaj Yadav (Associate) for constantly guiding and supporting me throughout the training period. He really helped me whenever I had faced difficulties during this tenure of 2 months. I would like to thank you one more time for being so patient with me and helping me in every aspect , be it regarding the report or its related to complexities of financial modeling. .I think you are probably; one of the best mentors in my life My heartfelt gratitude also goes out to the staff. I take this opportunity to thank my parents and friends who have been with me and offered emotional strength and moral support.

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OBJECTIVE
While the current contribution of solar energy to the total India's energy needs is insignificant, in the medium and long run, it is expected that solar energy, especially solar PV will form a vital component of the country's energy mix. The most important barrier that had stopped Solar PV from becoming a mainstream renewable energy resource is the high capital cost of the solar PV system. It is being estimated that solar Industry will reach grid parity by 2020 in most part of the world. For India, the recently released National Solar Mission and its generous incentives provide an additional reason for entrepreneurs and investors to explore this industry. The convergence of decrease in capital costs, increase in efficiency and significant financial support by the government is likely to result in a wide range of attractive business opportunities along the entire solar energy value chain in India. Entrepreneurs and investors have a need for a comprehensive resource that provides details on all the critical aspects of the solar PV industry in the Indian context, identifies the key drivers for opportunities, and provides insights on the extensive range of these opportunities. This report was developed to satisfy this clear need.

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METHODOLOGY
In this report, a qualitative methodology has been emphasized. The reason being, when a researcher has a limited amount of experience with or knowledge about a research issue, exploratory research is a useful preliminary step that helps ensure that a more rigorous, more conclusive future study will not begin with an inadequate understanding of the nature of the management problem. The purpose of an exploratory research is intertwined with the need for a clear and precise statement of the recognized problem. Exploratory research has two interrelated purposes, to diagnose a situation and discover new ideas. Much, but certainly not all, exploratory research provides qualitative data. This research is a qualitative exploratory research, as it is an initial research conducted to clarify and define the nature of a problem. Also, this research will work only with secondary data.

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CONTENTS
PREFACE ............................................................................................................................................... 2 ACKNOWLEDGEMENT ....................................................................................................................... 3 OBJECTIVE ........................................................................................................................................... 4 METHODOLOGY .................................................................................................................................. 5 CONTENTS............................................................................................................................................ 6 INTRODUCTION TO RENEWABLE INDUSTRY ................................................................................ 7 SOLAR ENERGY POTENTIAL........................................................................................................... 14 STATUS OF SOLAR TECHNOLOGIES .............................................................................................. 16 STATUS OF GLOBAL SOLAR PV INDUSTRY ................................................................................. 22 SOLAR COST ...................................................................................................................................... 26 GRID PARITY IN CASE OF SOLAR INDUSTRY .............................................................................. 32 GROWTH OF SOLAR INDUSTRY ..................................................................................................... 36 SOLAR COMPANIES .......................................................................................................................... 39 SOLAR INDUSTRY - INDIA ............................................................................................................... 42 RENEWABLE ENERGY FINANCING ................................................................................................ 47 INVESTMENT IN SOLAR PV : INDIA ............................................................................................... 49 GOVERNMENT INITIATIVES TO PROMOTE SOLAR PV IN INDIA .............................................. 56 JAWAHARLAL NEHRU NATIONAL SOLAR MISSION(JNNSM)................................................... 58 INFERENCE......................................................................................................................................... 68 REFERENCES...................................................................................................................................... 70 LIST OF FIGURES .................................................................................................................................... 71

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INTRODUCTION TO RENEWABLE INDUSTRY

Renewable Energy
The search for sustainable energy will dominate the twenty-first century. Renewable energy is set to be the next big technology industry, with the potential to transform the trillion dollar energy industry across the world. If every home on earth were powered with an alternative energy system, it would never cause a shortage of wind, water or sunlight. During recent years, due to the increase in fossil fuel prices and the environmental problems caused by the use of conventional fuels, we are reverting back to renewable energy sources.

Figure 1:Ten Years in Clean Tech: At a Glance

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Renewable energies are inexhaustible, clean and they can be used in a decentralized way (they can be used in the same place as they are produced). Also, they have the additional advantage of being complimentary, the integration between them being favorable. For example, solar photovoltaic energy supplies electricity on sunny days (in general with low wind) while on cold and windy days, which are frequently cloudy, the wind generators are in position to supply more electric energy.

Clean-Tech Venture Initiatives

In 2010, U.S based venture capital investments in clean technologies increased from $3.5 billion in 2009 to $5.1 billion in 2010, an increase of 47%, according to the data provided by clean-tech group.

Figure 2: Clean Tech Venture Initiatives

Of the 10 largest clean-tech venture deals in 2010, five were for solar, two were for EVs, two were for bio-based materials, and one was for geothermal. 8

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Figure 3:Top Venture deals in US

A lookout at the recent IPOs in the global Market clearly indicates the fact that Investors will be bullish on Renewable energy sector. The above statement is backed up by the data provided by the Clean Edge. Refer to Fig 4 for this.

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Figure 4: Recent IPO's on Major Global Markets

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Renewable Energy Trends

Figure 5:Renewable energy trends

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From Figure 5 ,we can clearly interpret that investment in renewable energy has increased by 367% from 2004 to 2010.The investment has gone lightning up from mere $52bn to S243bn.This clearly shows that renewable energy will be the next big thing in the world.

Figure 6: Top 5 Countries(REN 21)

It can be clearly interpreted from figure (6) that China , USA , Germany are among the top 3 countries in the domain of renewable energy. Renewable energy supplies 19 percent of global energy consumption, counting traditional biomass, large hydropower, and new renewable (small hydro, modern biomass, wind, solar, geothermal, and biofuels) (See Figure 7) . Of this 19 percent, traditional biomass, used primarily for cooking and heating, accounts for approximately 13 percent and is growing slowly or even declining in some regions as biomass is used more efficiently or is replaced by more modern energy forms. Hydro power represents 3.2 percent and is growing modestly but from a large base. Other renewable account for 2.6 percent and are growing very rapidly in developed countries and in some developing countries. Renewable energy replaces conventional fuels in four distinct markets: power generation, hot water and space heating, transport fuels, and rural (off-grid) energy services. 12

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Figure 7: Renewable energy share(REN 21)

Renewable energy can be classified into hydro,solar,wind,biomass,geothermal etc.Each one has its own importance depending upon the location, climatic conditions e.t.c. This report in particular will specifically try to bring insight about the solar energy sector.

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SOLAR ENERGY POTENTIAL

The energy from sunlight striking the earth for 40 minutes is equivalent to the global energy consumption for a whole year. To change any countrys energy supply to solar power, huge tracts of land would have to be covered with photovoltaic panels and solar heating troughs. A direct-current (DC) transmission backbone would also have to be erected to send that energy efficiently across the nation.

Figure 8: Solar Irradiation

The technology is ready; however the investment is substantial, but the payoff is greater. Solar plants consume little or no fuel, saving billions of dollars year after year. Since solar technology is almost pollution-free, the plan to deploy alternative energy systems alone would reduce greenhouse gas emissions from power plants and gasoline vehicles which would be displaced by plug-in hybrids refueled by the solar power grid. There by the carbon dioxide emissions would be lower, putting a major brake on global warming.

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Solar Power
There are three Primary types of Solar Power.

Figure 9: Solar Power types

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STATUS OF SOLAR TECHNOLOGIES

Solar Technologies

Figure 10: Solar Technologies

Concentrating Solar Power(CSP)- Plants using CSP generate electricity using heat. Much like a magnifying glass, reflectors focus sunlight onto a fluid-filled vessel. The heat absorbed by the fluid is 16

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used to generate steam that drives a turbine to produce electricity. Power generation after sunset is possible by storing excess heat in large, insulated tanks filled with molten salt. Since CSP plants require high levels of direct solar radiation to operate efficiently, deserts make ideal locations. The U.S. and Spain are leading the world in the development of solar thermal power, with a combined total of more than 5,600 megawatts of new capacity expected to come online by 2012. Solar Photovoltaic- Photovoltaic systems contain cells that convert sunlight into electricity. Inside each cell there are layers of a semi-conducting material. Light falling on the cell creates an electric field across the layers, causing electricity to flow. The intensity of the light determines the amount of electrical power each cell generates. A photovoltaic system does not need bright sunlight in order to operate. It can also generate electricity on cloudy and rainy days from reflected sunlight.

Figure 11: Solar Photovoltaic

PV technologies: an overview
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Crystalline silicon (c-Si) modules represent 85-90% of the global annual market today. C-Si modules are subdivided in two main categories: i) single crystalline (sc-Si) and ii) multicrystalline (mc-Si). Thin films currently account for 10% to 15% of global PV module sales. They are subdivided into three main families: i) amorphous (a-Si) and micromorph silicon (a-Si/cSi), ii)Cadmium-Telluride (CdTe), and iii) Copper-Indium-Diselenide (CIS) and CopperIndium-Gallium-Diselenide (CIGS). Thin films are potentially cheaper than c-Si because of their lower materials costs and larger substrate. Concentrator technologies (CPV) use an optical concentrator system which focuses solar radiation on to a small high- efficiency cell.CPV technology is currently being tested in pilot applications. Crystalline and Thin Film Advantages and Disadvantages: Refer to Fig-12 and Fig-13 for the key differences between Crystalline and Thin Film Technologies.

Figure 12: Comparison of all Technologies(ISET)

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Figure 13: Advantages and disadvantages of cry. Si and a-Si(by Erika Weliczko)

Fig-14 below gives an overview of the cost and performance of different PV technologies. Conversion efficiency is defined as the ratio of the produced electrical power and the amount of incident solar energy per second is one of the main performance indicators of the PV cells and modules. The investment costs of PV systems are still relatively high, although they are decreasing rapidly as a result of technology improvements and economies of volume and scale. Total system cost in PV systems is composed of sum of module costs plus the expenses for the balance of system including mounting structures,inverters,cabling and power management devices.

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Figure 14: Solar Technologies comparison(IEA)

Note: all the values refer in fig 14 refer to 2008

Historic and Future Evolution

For the last 30 years, Crystalline Silicon technology has been the most dominating among the rest. Amorphous silicon has been the technology most used for consumer applications like calculators, solar watches due to its lower manufacturing cost while crystalline technologies have been used mainly in both stand-alone and on-grid systems. Within the c-Si technologies, mono- and multi-crystalline cells are produced in fairly equal proportion. However, multi-crystalline cells are gaining market share. Ribbon c-Si represents less than 5% of the market. While a-Si has been the preferred clear Thin-Film technology used over the past three decades, its market share has decreased significantly compared to more advanced and competitive technologies. For example, CdTe has grown from a 2% market share in 2005 to 13% in 2010.

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Figure 15: Historic and Future evolution of Technology

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Technology Trends
It is believed that R&D will play a vital role in improving existing technologies and developing new technologies.Figure16 gives an overview of different PV Technologies.

Figure 16: Technology Trends

STATUS OF GLOBAL SOLAR PV INDUSTRY

SOLAR INDUSTRY : GLOBAL OVERVIEW 22 Over the last 30 years, there has been an increase in the solar photovoltaics production from mere 2 MW in 1975 to over 10,000 MW in 2009.

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Also, China is emerging as a leader in solar photovoltaics production followed by Japan,Taiwan,Germany and U.S.A.

World annual solar photovoltaics production,1985-2009

Figure 17: World annual soalr PV production(1985-2009)

Questions to be answered
1. 2. 3. 4. What are the markets segments for solar? How do we think about the cost of solar relative to other power sources? What do cost profiles need to be in order to achieve grid parity? Where is the industry today and where it is headed?

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Primary PV Market Segments Today:

Residential Rooftops

Commercial Rooftop

Figure 18: Primary PV market segments

Ground Mounted(Usually Utility Scale)

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Emerging PV Market Segments Today

Building Integrated PV (a) Enabled by flexible form- factor. for wide spread adoption

Rural Electrification (a) Requires cheaper batteries and panels

Figure 19: Emerging PV Market Segments

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SOLAR COST

Cost Components-Crystalline Vs Thin Film

Figure 20: Cost Components of Crystalline and Thin film

Technologies such as Concentrator PV (CPV), organics and dye-sensitized solar cells are beginning to enter the market. They are expected to achieve significant market share in the next few years, capturing around 5% of the market by 2020. According to EPIA, by 2020 silicon wafer-based technologies will account for about 61% of sales, while Thin Films will account for around 33%. CPV and emerging technologies will account for the remaining 6%. .

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Cost of Solar Vs other Energy sources

Figure 21 :Cost of Solar Vs Other Energy Sources (Credit Suisse Boston)

Remember that : This is the Generation Cost and does not include transmission. overhead or emission capture.

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Solar Competitiveness depends on sunlight

Figure 22: Solar Competitiveness

Measuring Efficiency
Capacity Factor=average power /maximum power capability Higher the capacity factor, more efficient the plant. Solar cells have a capacity factor of roughly 18% Compare that to coal plants that can achieve >80%

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How do you calculate Cost/kwh

$/kwh or Levelized cost of electricity is calculated as:

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Figure 23: Levelized Cost of Electricity Calculations

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Levelized Cost Comparisons

Figure 24:Levelized Cost Comparisons

Source: Credit Suisse First Boston

Capital Cost: Raw Material Cost(Steel,Silicon) Capacity Factor:efficiency,utilization rate Fuel cost: Commodity Pricing (Oil,Natural Gas ,WATER,Zero for Solar!!!) O&M:labor,maintenance(location,Durability) Lifetime: Depreciation(Tax Benefits)

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Solar is advantaged @ Peak Times

Figure 25: Solar Advantage

Source: Credit Suisse First Boston Provides Power during Peak (most expensive ) times of the day.

GRID PARITY IN CASE OF SOLAR INDUSTRY

What is Grid Parity?
It is the point at which alternative means of generating electricity is at least as cheap as grid power.

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Grid Parity analysis :

1.Europe

Figure 26: Grid Parity Analysis in Europe(Q-cells)

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First Grid parity segments are residential segments in Italy and the residential and industrial segments in Cyprus, Reasons: Good Solar Conditions High Electricity Prices Clear outcome of the grid parity analysis in Europe Fast reduction in LCOE of PV

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2.USA

Figure 27: Grid Parity Analysis in America(Q-cells)

First Grid parity market segments are in Caribbean, consequence of excellent solar conditions and costly oil fuel for power supply on Islands. An assessment of the outcome of the America is quiet similar to that of Europe. As a consequence of PV capacity factors in Americas, on overall share of PV Electricity in the Americas of 8% to 16% in 2020 can be achieved.

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ASIA-PACIFIC

Figure 28: Grid Parity analysis in Asia-Pacific(Q-Cells)

First Grid Parity Market segments are the residential segments in Cambodia,Fiji,Japan and Philippines and the Industrial Segments in Western China and Philippines. As a consequence of PV Capacity factors in Asia - Pacific, an overall share of PV electricity in the Asia - Pacific of 11 to 22% in 2020 can be achieved.

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GROWTH OF SOLAR INDUSTRY

How Fast Solar Industry likely to Grow?
The solar Industry already grew at a 30-40% CAGR over the last decade. In 2009, photovoltaic (PV) installations grew by 20 percent, compared to 2008, with over 7.3GW of PV installations globally. Revenues in 2009 for the PV industry also increased, reaching $38.5 billion. According to the Department of Energys Solar America Initiative, they hope that with continued research and more companies entering the market, PV solar power will become a competitive source of commercial electricity by 2015.

Figure 29: Forecasted Demand for PV Module(Wikinvest)

PV prices have declined by 4% per annum over the past fifteen years, due to improved conversion efficiencies and declining manufacturing costs.

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Regional Market Growth

Figure 30 Market Growth and PV Market in 2009

In 2009 Europe accounted for 5.60GW, 77% of global demand. German, Italy and the Czech Republic accounted for 4.07 GW as a group. The largest on-grid market by far has been Germany, where demand has been stimulated by very attractive feed-in tariffs. This is followed by Japan, where grid-connected applications are also stimulated by market incentive programs.

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Figure 31: PV Market segmentation by application

The worldwide on-grid segment grew by 20% in 2009, and the off-grid market grew 23% in 2009, faster than on-grid for the first time in 15 years but on a much smaller base

Whos Making

Whos Buying

Figure 32: Who is Making and who is Buying

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33% supply came from China. Germany and Spain are the most important with respect to the demand of Solar PV.

Is Solar Saturated?
Still represents only 0.7% of the total energy generation and offers an abundant source of fuel. Thin films received the most funding in 2008, Solar thermal the second most.

SOLAR COMPANIES
Fig. 33 below will give insight about the market share of various companies in the Solar Industry.

Figure 33: Solar Companies Market Share

Companies who stand to benefit

Company

Key Features

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First Solar

is a larger player within the thin-film PV space. is largely immune to the polysilicon shortage is the largest solar cell and module manufacturer in Asia. uses China as a low-cost production base. experience in designing solar arrays for satellites. partnering with Starwood Energy to offer both its engineering/construction expertise and financing help supplies horizontal diffusion furnace systems used for semiconductor and solar (photovoltaic) cell manufacturing. They are large manufacturers of solar modules.

Suntech Power

Lockheed Martin

Amtech

Sharp,Kyocera and BP

A number of electric utilities have started to adopt utility-scale solar; the top five solar utilities are as follows: Company Edison International(EIX) Pacific Gas and Electric(PCG) NV Energy(NVE) San Diego Gas and Electric(SDOGI) Public Service of Colorado Solar Power (MW) 441.4 229.5 77.9 49.3 49.3

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The following table shows the position of the different solar companies within the value chain. Also the conversion efficiency for the some of the companies is shown below:

Figure 34: Global Companies and Value Chain (Wikinvest)

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Figure 35: Industry Conversion Efficiency(Wikinvest)

SOLAR INDUSTRY - INDIA

Indias Energy Generation Overview India is world's 6th largest energy consumer, accounting for 3.4% of global energy consumption In June 2010, the installed power generation capacity of India stood at 162 GW Total Power Generation Breakdown: Thermal: 104 GW (64%). Hydroelectric: 37 GW (22%). Nuclear: 4.5 GW (4%). Renewables (bio mass, wind, solar, geothermal, etc.): 16.5 GW (10%) Electricity losses in India during transmission and distribution are extremely high and vary between 30 to 45%. Theft of electricity, common in most parts of urban India, amounts to 1.5% of India's GDP (~$1.4 Trillion) The average electricity deficit is >10% and in some states as high as 20%! As Indias economic activity increases so does the energy demand. Expect annual increase of >4%. Today, Indias largest consumer of electricity is the farming industry which depends on the monsoons for water and needs electricity for water pumping.

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Solar Industry: India Key Trends:

About 17% of Villages in India are non-electrified. The demand for power is growing at 6% every year. Peak load demand is expected to reach 176 GW by 2012.

Figure 36: Solar Industry Key Trends)

About 11% of power is sourced from oil and Gas. For 2008, the total oil imports accounted for 7% of GDP.

Refer to Fig-37 below for the region wise power demand supply scenario in India.

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Figure 37: Energy Demand and Supply in india

Following Features of Solar Power make it the most viable source of Renewable energy in India: Solar energy is available in abundance. Available across the country unlike other renewable sources, which have geographical limitations. Available through out the year. Decentralized off grid applications-addressing rural electrification issues. Modularity and Scalability.

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Solar cell and Solar PV Production In India

Figure 38: Solar PV production in India

According to data obtained from MNRE, during 2008-09, 15 companies were actively engaged in the manufacture of solar cells and 20 companies in the manufacture of PV modules. The overall production in the country during 2008-09 is estimated to be over 175 MWp of solar cells and 240 MWp of PV modules. The split of the total production by the application areas is represented in the graph above.

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Foreign Trade of Solar PV in India

Figure 39: Foreign Trade of Solar PV

Germany is the most preferred source for solar PV imports, followed by Taiwan. During 2008-09, about 80% of the total solar PV imports were from Germany and Taiwan. The other countries for Solar PV Imports are Spain,China & Japan. Germany and Spain are also the major export markets for Indian solar PV producers. During 2008-09, Germany and Spain accounted for about 82% of the total exports from India.

Figure 40:Trends in Foreign trade of Soalr PV in India

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India has always been a net exporter of solar PV technology, with about 66% of cumulative domestic PV production till 2009 catering to overseas markets.

Solar PV Applications in India

Product Solar lanterns Solar PV for individual households SPV blinkers Solar home lighting system Solar street lighting system Traffics Signals Solar power plants for villages Rating 2.5-5 Wp 2-15Wp 20 Wp 18/37/74Wp 74 Wp Up to 160 Wp 2-5 Kwp

Globally, grid connectivity accounts for nearly 75% of the installed capacity and off-grid lighting and consumer applications for the balance 25%. Government organizations like railways, telecom and other agencies are the major consumers of PV solar systems in India.

RENEWABLE ENERGY FINANCING

How Financing Renewable Energy Works
Renewable energy (RE) investments, however, have certain characteristics that require an additional level of understanding. These include the influence of policy and regulation on the viability of an investment, including the legal basis and durability of any subsidies, grants, tradable certificates or tax credits. There are two ways a RE company can source capital: either by borrowing it from a bank, as a loan, or through equity capital from selling a stake in the business itself.

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Modes of financing
The table below illustrates the different types of finance, the type of risk taken and an idea of the level of return, or margin, expected.

Figure 41: Modes of Financing

The figure shown above demonstrates the phases of investments from public grants,VC funding and production subsidies required to develop a new RE Technology though to the point it can begin to demonstrate a track record and attract second stage funding. There are two primary equity-based investment possibilities: Venture Capital Private Equity

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Private equity companies consider investments only where the capital requirements are medium or large; as a result, for smaller capital requirements (especially for those that are less than Rs. 25 crores), venture capital is the most optimal option. Private equity companies look for growth opportunities in relatively established companies with steady revenue streams, and usually are more hesitant to invest in completely new technologies and potentially high-risk ventures. Investing in solar PV power plants could fit in their portfolio owing to the fact a long power purchase agreement with a government-backed entity assures them of a stable revenue flow. Venture capital companies look for innovative (and hence more risky) but high return investment opportunities. As a result, few, if any venture capital companies invest in solar PV power plants, where the potential upside is limited. Venture capital companies could be more interested in financing innovative products and/or technologies in the solar PV value chain that have a high "upside" potential.

INVESTMENT IN SOLAR PV : INDIA

Should you invest in Solar PV in India?
Following are the some of the some of the segments which are not focused by the current electricity grid and hence could make excellent markets in the context of the Solar PV industry: 1. Villages that have no grid connectivity. 2. Companies that uses diesel generator sets as a power backup. 3. Mobile telecoms towers in many parts of India that have little access to the utility grid, and other stand alone commercial and industrial ventures.

SWOT Analysis for the Indian Solar PV

Strengths A high growth industry with significant future potential. Sunlight is available in sufficient quantities in many regions. Technology proven, with low operation and maintenance costs and scalable Availability of soft loans and government incentives for growth and expansion . Weakness Solar PV systems have high capital costs. Owing to high capital costs, the business needs external incentives to be economically feasible, thus increasing dependence on governmental policies. 49

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The capital intensive nature of the business might favour larger businesses over smaller ones. The distributed and intermittent nature of solar energy makes it difficult for utilities to rely on solar PV for their base load. Threats Technology innovation is high, so there are risks of obsolescence. Off-peak seasons reduce cash flow. Industry is new, so finding skilled workforce could be a problem. Opportunities

Opportunities exist all along the solar PV business value chain, not just for power plants. Entirely new opportunities could open up as the there is high innovation in technology and the
technology could prove to be a disruptive business, especially with reductions in costs in future.

Analysis of the capital cost Required for Solar PV in India

Solar PV has one of the highest capital costs of all the renewable energy sources. It has relatively low operational costs owing to the low maintenance and repair needs.

Figure 42: Break up of Capex for Solar PV in India

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For a Solar PV power plant, the approximate capital cost per MW is approx. Rs. 16 crores. This include the cost of panels, the balance of systems, the cost of land and other supporting infrastructures.

The following table provides the approximate capital cost for solar PV power 2010.

Figure 43:Capital Cost For Soalr PV in 2010

Investment - Solar PV in India

Until the end of 2009, wind energy was considered the centre of attraction for
investors because it was a proven investment. This segment is now considered comparatively mature and many have started looking at other areas. Investors see the Indias potential in tapping solar energy greater than wind due to the fact that 93% of the days are sunny in a year. Solar investment grew from $18 million in 2007 to $347 million in 2008. While my stay at Madison Street Capital, I got familiar with the functionality of EXIM Bank .And I found out how an Exim Bank can help in Renewable Energy Financing. So I would like to share: What is an EXIM Bank? Setup for the purpose of financing, facilitating, and promoting foreign trade of a country. 51

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US EXIM BANK- AN EASY WAY TO GET RENEWABLE FINANCING Environmental Exports Program(EEP)- This program is one of the best efforts of
US Govt. to promote the financing for renewable industry which is seen as one of the major obstacles for the Renewable Industry. Lets have a look at the policies of the US EXIM bank:

1. FINANCING SOLAR PRODUCTS Short-term environmental export insurance policy It provides enhanced short-term, multi- buyer and single-buyer insurance coverage for environmentally beneficial export sales by U.S. small business exporters. The policy provides the exporter with the ability to offer credit terms to its foreign customers for up to 180 days. The features include: 95% commercial coverage and 95% political coverage with no deductible advanced deposits of $500. The working capital guarantee. - It gives lenders the confidence to extend loans to exporters for their pre-export funding needs. Enhanced medium-term insurance and guarantees, and long-term loans and guarantees are available for environmentally beneficial export transactions. The enhancements include: Local cost coverage equal to 30 percent of the U.S. contract price. Capitalization of interest during construction. Maximum allowable repayment terms -For India Maximum repayment term is up to 15 years.

Other Opportunities in Solar PV in India :

1. PolySilicon Manufacturing

The importance of this stage is due to the fact that 25% of the cost of the crystalline module is contributed just by polysilicon, Typical investments of $500 million to $1 billion. No companies in India are into Polysilicon Manufacturing. 2. 52 Non-Core Solar PV Business Opportunities

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Electrical Components:Inverters,Wires And Transformers. Machinery and Equipment for manufacturing Solar PV Cells - Crystalline and
Thin Films. Manufacturing Chemicals for the Solar Industry- The manufacturing of Photovoltaic modules, thermal receivers and reflectors requires a number of chemicals and materials such as coating ,Laminates .Photovoltaic Materials and Solar

Solar PV Value chain

The solar energy value chain consists of a number of specific and distinct steps from the production of silicon to the end use in projects (such as residential housing and commercial real estate projects) and by end users (e.g. family households). Most production steps are characterized by a small group of often multinational manufacturers, a number of them vertically integrated. Globally there are only a handful of silicon suppliers that supply the total fast growing PV market, where demand significantly outstrips supply. Significant silicon production capacity increases have been planned by current suppliers, and new parties are planning to enter the market. Worldwide, some 50 companies supply wafers suitable for solar cell manufacturing. Solar cell production, a technologically advanced step in the production chain, is still a relatively fragmented market with an estimated 40 or more active suppliers. The module production branch is largely based on assembly allowing for larger number of players, especially from low-cost labor areas. The same holds for solar system production and installation, where installation is a more locally competing segment.

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Figure 44: Solar PV Value Chain

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An Important Fact from Investment Point of View:

Figure 45:Electric Supply Chain

The producers of green electricity who invests in plants receive a feed-in-tariff for the green electricity which is fed into the the grid. The current photovoltaic (PV) solar cell may have an efficiency of just about 17-18 per cent, but what matters is its ability to transform solar energy into usable electrical power from a free, nonpolluting energy source. However, the revenue component is affected for both solar and non-solar power plants due to the loss of power while it is being transferred from power plant to grid..But the advantage in case of Solar Power plant is that there is no cost component attached to it. So, Solar Grid acts like a Smart Grid.

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GOVERNMENT INITIATIVES TO PROMOTE SOLAR PV IN INDIA

Rules and Regulations-India

1. MNRE(Ministry of New and Renewal Energy) MNRE is the nodal agency of the Government of India for all matters relating to non-conventional/renewable energy.

It undertakes policy making, planning, promotion and co-ordination functions relating to all aspects of renewable energy, including fiscal and financial incentives, creation of industrial capacity, promotion of demonstration and commercial programmes, R&D and technology development, intellectual property protection, human resource development and international relations. MNRE also deals with emerging areas such as fuel cells, electrical vehicles, ocean energy and hydrogen energy. In order to provide concessional financial support to the renewable energy sector, the Ministry has set up under its fold a financial institution - Indian Renewable Energy Development Agency Ltd (IREDA).

MNRE activities are divided into different groups, as listed, on the basis of end use applications and activities. These groups are 1. Renewable Energy Policy and Legislation 2. Solar Energy

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3. Power Generation 4. Energy from Urban, Municipal and Industrial Wastes 5. New Technology -geothermal energy, ocean energy, alternate fuel for surface transport including electric vehicles, chemical sources of energy including fuel cells and hydrogen energy. 6. Research & Development 7. Indian Renewable Energy Development Agency Ltd 8. Information and Public Awareness 9. International Relations 10. Integrated Finance 11. Planning, co-ordination and administration MNRE is giving a new thrust to its renewable energy programmes and more aggressively moving into new areas and proceeding in new directions across the entire spectrum of rural energy, solar energy, power generation and new technologies. 2.Power Purchase Agreements (PPA) These are contracts between two parties, one who generates electricity for the purpose of sale (the seller) and one who is looking to purchase electricity (the buyer) Pros Cons Transaction costs. Fairly limited federal sector experience. Very Limited. Quick Fact Renewable developer (or partner) eligible for tax incentives, accelerated depreciation. No agency up-front capital required. Reliance Power Renewable developer provides O&M. (RPower) has signed a power purchase Minimal risk to government. agreement (PPA) with Known long term electricity price for portion of site load. NTPC's wholly-owned Good alternative to purchasing renewable energy certificates (RECs). subsidiary - NTPC Can help with energy security goals.

Vidyut Vypar Nigam (NVVNL) for its upcoming 100 MW solar power project at Jaisalmer in Rajasthan. The project, which is expected to be commissioned within the next 28 months i.e. by May 2013, will be implemented by Rajasthan Sun Technique Energy (RSTEPL), a subsidiary of Reliance Power.

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JAWAHARLAL NEHRU NATIONAL SOLAR MISSION(JNNSM)

JNNSM OVERVIEWThe Indian Governments launch of the Jawaharlal Nehru National Solar Mission(JNNSM) was done with much fanfare with a target of reaching 20 GW of Solar Capacity by 2022 under 3 phases from the 81 MW currently.

Install 20GW of grid connected capacity by 2022 in Three Phases. Install 2 GW of offgrid solar applications by 2022. Solar lighting for 20 million households by 2022.

KEY OBJECTIVE
Establish India as a global leader in solar energy by creating policy for its diffusion across the country as quickly as possible: focus on setting up an environment for solar technology penetration in the country both at centralized and decentralized levels.

Figure 46: JNNSM Overview

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Capacity of Projects:
Total Installed Grid Connected Capacity in Phase 1: 1000 MW Solar PV Technology Projects: 500 MW Batch 1: 150 MW (Selection of Projects in FY 201011) Batch 2: 250 MW (Selection of Projects in FY 201112) Solar Thermal Technology Projects: 500 MW (Selection of Projects in FY 201112)

Key Guidelines for Selection of Projects for Phase I

Each Project to be 5 MW 5% and connect to the Grid at 33kv or above Only one application per Company including its Parent, Affiliate or Ultimate Parentor any Group Company to ensure wider participation. Technical: Only commercially established and operational technologies to minimize the technology risk and to achieve the commissioning of the Projects .Require 90% of rated energy production after 1st10 yrs and 80% after 25 yrs. Bankability requirements are stringent banks require demonstrated technology. Domestic Content: Developers are expected to procure their project components from domestic manufacturers, as far as possible. In the case of Solar PV Projects in 1st batch during FY 201011, it will be mandatory for Projects based on crystalline silicon technology to use the modules manufactured in India. For Solar PV Projects to be selected in 2nd batch during FY 201112, it will be mandatory for all the Projects to use cells and modules manufactured in India.

The structure of National Solar Mission is seen below:

The National Solar Mission aims to provide an enabling environment for solar technology
penetration in India. For financial assistance, the government has declared that in projects availing this scheme, in the debt and equity mixture, the promoters' equity contribution must be at least 20%.

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Figure 47: Structure of National Soalr Mission

Solar PV
Condition Subsidy A GBI is payable to the project developer. Its value is the difference between the tariff determined by the CERC (17.9 for solar PV and Rs 15.4 for solar thermal) and the base rate, which is equal to Rs 5.5 per kWh for the financial year of 2010 to 2011, and escalates @ 3% every year. Capital Subsidy Special Regions

Grid connected projects at least 100 kW and up to 2 MW, connected to HT level [below 33 kV] of distribution network

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For off-grid / rooftop solar PV installations of a maximum capacity of 100 Wp per site, and for mini-grids for remote electrification with a maximum capacity of up to 250 kW:

Subsidy, which is calculated on the basis of a cost benchmarked by MNRE, is notionally equal to 30% of benchmarked cost of solar power systems. For 2010 it is fixed at Rs. 90 per Wp with battery storage, and at around Rs. 70 per Wp without battery storage.

Solar PV plants in micro-grid mode/local distribution network, to meet unmet community need for power in unelectrified rural areas, will be provided a capital subsidy of Rs 150/ Wp

In special category states, viz. NE, Sikkim, Himachal Pradesh, and Uttarakhand, a capital subsidy of up to 90% of installation cost can potentially be availed. Moreover, in difficultto-reach areas such as Lakshadweep,Andaman andNicobar Islands, and districts on Indias borders, the subsidy availed will also be 90%

In addition to the above, the debt portion of investment can be financed by a soft loan at 5%
interest rate, to be availed from the IREDA. .

Solar CSP
Condition Off grid Solar CSP installations of a maximum capacity of 100 Wp per site, and for mini-grids for remote electrification with a maximum capacity of up to 250 kW Subsidy Subsidy is benchmarked by MNRE is notionally equal to 30% of the benchmarked cost of the Solar Power Systems. Capital subsidy in difficultto-reach areas such as Lakshadweep,Andaman andNicobar Islands, and districts on India's borders, the capital subsidy availed will be 60% of the benchmarked cost for solar thermal installations. Special Regions

Subsidies on costs of CSP equipment: Rs. 3000 per sq. meter for Evacuated Tube collectors, 3300 for Flat plate collectors with liquid as the working fluid, 2400 for Flat plate collectors with air as the working fluid, 3600 for Solar collector system for direct heating application, 2100 for Concentrator 61

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with manual tracking, 3600 for non-imaging concentrators, 5400 for Concentrator with single axis tracking, and Rs 6000 per sq. meter for Concentrator with double axis tracking.

In addition to the above, the debt portion of investment can be financed by a soft loan at 5%
interest rate, to be availed from the IREDA. . Notes

The benchmarked costs (of standard solar systems) will be changed every year. GBI = Generation based Incentives.

Funding of the JNNSM will be done by:

1) Renewable Energy Certificates (REC) State Electricity Regulatory Commissions (SERC) to fix a minimum percentage of energy purchase from renewable sources of energy 2) NTPCs Trading Arm NTPC Vidyut Vyapar Nigam Ltd ) is chosen as the nodal agency for entering into a Power Purchase Agreement (PPA) with solar power developers.NTPC will mix expensive solar power with cheaper coal power . 3) Incentives Zero import duty on capital equipment, raw materials and excise duty exemption Low interest rate loans, priority sector lending Coal tax Budgetary Support for MNRE . UNFCCC Funds.

Understanding RECs
A REC is a paper or electronic instrument which represents the property rights to the
environmental, social, and other non-power qualities of renewable energy generation. REC and its associated attributes and benefits, can be sold separately from the underlying physical electricity associated with a alternative renewable energy source. All grid-tied renewable-based electricity generators produce two distinct products: 1. Physical electricity 2. RECs

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Figure 48:Understanding REC's

The concept of RECs is based n separating the environmental or green power attribute of renewable
generation from the underlying electrical energy.

This creates two separates, though related products for sale by the owner of the generation asset(s):
(1) commodity electricity; and (2) Renewable attributes (alternatively known as renewable certificates, green certificates, green tags, and environmental attributes).

As renewable electricity is produced, it creates create one REC for every 1000 kilowatt-hours (or 1
megawatt hour) of electricity placed on the grid.

If the physical electricity and the associated RECs are sold to separate buyers, the electricity is no
longer considered renewable or green. REC mechanism is NOT an incentive scheme. Rather it will enable sale and purchase of renewable component across the State boundaries. REC mechanism will coexist with all current incentive based schemes, since most of these schemes are based on certification of generation.

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Figure 49: RPO Trajectory for all Renewables

REC mechanism is not an incentive scheme. Rather it will enable sale and purchase of renewable component across the State boundaries.

Figure 50: RPO Mechanism

REC mechanism will coexist with all current incentive based schemes, since most of these schemes are based on certification of generation. REC would be issued to RE generators only. Grid Connected RE Technologies with minimum capacity of 250 MW AND Approved BY MNRE would be eligible under this scheme.

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Applicable Prices Forbearance Price Floor Price

Solar 3700 1400

Non-Solar 1723 1228

Net Tariff=Price of Electricity + Price For Renewable Energy certificate REC would be exchanged within the forbearance price and floor price. This forbearance and floor price would be determined by CERC in consultation with Central agency and FOR from time to time.

Need For REC Mechanism

RE sources are not evenly spread across different parts of the country. On the one hand there are
States (like Delhi) where the potential of RE sources is not that significant.

Figure 51: Expected Installations through REC

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On the other hand there are States (like Rajasthan and Tamil Nadu) where there is very high
potential of RE sources. In such states there are avenues for harnessing the RE potential beyond the RPO level fixed by the SERCs. This concept seeks to address the mismatch between availability of RE sources and the requirement of the obligated entities to meet their renewable purchase obligation.

Requirement of Solar Capacity in MW in different states of the country to meet the RPO Obligations and avoid penalty:

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Figure 52:RPO Obligations in different States of the country(MNRE)

Summary
Solar energy is well suited for Indian conditions climate, economic, etc. Since India has among the highest solar insolation in the world Off grid systems will help alleviate some of the T&D losses Best option for large seasonal demands (during summer/drought for farmers) National Solar mission is expected to accelerate solar technology development and deployment in India Provide the necessary incentives to invest in solar technology. Test beds for solar thermal enough data will be collected in the next few years to evaluate the merits of CSP. Already large manufacturing capacities have been installed in anticipation. Panel manufacturing capacity: >1.5 GW. Cell manufacturing capacity: > 1GW. Future expansion plans: >1 GW. Next couple of years will set the trend for entire supply chain development for solar industry (PV and CSP) in India and showcase solar technology at the global level

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INFERENCE
Following are the key inferences: 1. High growth rate India has the opportunity to play a major role in this global energy transformation. With significant technical and production resources, India can be a major supplier of PV cells and modules to meet the growing world demand. With the current pace of growth, Indias solar industry could emerge as the fourth largest generator of solar energy in the world after, Germany, China, and Japan. Given the significantly increasing energy consumption, solar power can play a significant role in the countrys domestic energy supply.

2. Huge and Diverse opportunities With over 50,000 villages in India without electricity, solar power has enormous potential to meet rural electrical needs, improving the lives of millions of Indians and meeting critical agricultural, education and industrial needs. Significant opportunities exist beyond power production, in which companies in all sectors manufacturing, trading and services could play a role. For instance-Indian doesnt have a single company in Polysilicon Manufacturing.

Specific industries that could benefit from these diverse opportunities include electrical, chemical, software, construction/EPC service providers with equipment installation and maintenance capabilities and engineering and design firms.

3. Exploring opportunities More and more Foreign Companies are exploring opportunities in India. For instance-Tata BP Solar is a Joint Venture between Tata Power Company, a pioneer in the power sector in India and BP Solar, one of the largest solar companies in the world.

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4.Return As with computers, the solar industry is maturing, and both capacity increase and cost decrease are now at a relative plateau. In the U.S for example, the cost of generating solar energy through photovoltaic modules has fallen 40 percent in the past two years, from $3.50-$4.00 per watt in mid-2008 to $1.85-$2.25 per watt in the first half of 2010.

5.Govt. support With increase govt. support in the solar industry, the investments in this sector will increase at a much faster rate in the near future. While my stay at Madison Street Capital, I get well versed with the fact that financing remains a major concern in renewable energy, as investments are huge and the small domestic players are unable to reach overseas for funding or strategic alliance. I believe with the professional help ; such SMEs in renewable sector can bring significant change in terms of attaining better and world class technology and low cost funding.

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REFERENCES
www.bloomberg.com www.csfb.com www.cleanedge.com www.epia.org www.energymatters.com.au www.homepower.com www.iea.org www.iset.uni-kassel.de www.mckinsey.com www.themarketbuzz.net/ www.mnre.gov.in www.q-cells.com/ www.solarbuzz.com www.solarindiaonline.com/ www.ren21.net www.wikinvest.com www.wikipedia.org/

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LIST OF FIGURES

Figure 1:Ten Years in Clean Tech:At a Glance ........................................................................................ 7 Figure 2:Clean Tech Venture Initiatives ................................................................................................... 8 Figure 3:Top Venture deals in US ............................................................................................................ 9 Figure 4:Recent IPO's on Major Global Markets .................................................................................... 10 Figure 5:Renewable energy trends ......................................................................................................... 11 Figure 6:Top 5 Countries(REN 21) ........................................................................................................ 12 Figure 7:Renewable energy share(REN 21) ........................................................................................... 13 Figure 8:Solar Irradiation....................................................................................................................... 14 Figure 9:Solar Power types .................................................................................................................... 15 Figure 10:Solar Technologies ................................................................................................................ 16 Figure 11:Solar Photovoltaic ................................................................................................................. 17 Figure 12:Comparison of all Technologies(ISET) .................................................................................. 18 Figure 13:Advantages and disadvantages of cry. Si and a-Si(by Erika Weliczko) ................................... 19 Figure 14:Soalr Technologies comparison(IEA) .................................................................................... 20 Figure 15:Historic and Future evolution of Technology ......................................................................... 21 Figure 16:Technology Trends ................................................................................................................ 22 Figure 17:World annual soalr PV production(1985-2009) ...................................................................... 23 Figure 18:Primary PV market segments ................................................................................................. 24 Figure 19:Emerging PV Market Segments ............................................................................................. 25 Figure 20:Cost Components of Crystalline and Thin film ....................................................................... 26 71

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Figure 21:Cost of Solar Vs Other Energy Sources (Credit Suisse Boston) .............................................. 27 Figure 22:Solar Competitiveness ........................................................................................................... 28 Figure 23:Levelized Cost of Electricity Calculations .............................................................................. 30 Figure 24:Levelized Cost Comparisons .................................................................................................. 31 Figure 25:Soalr Advantage .................................................................................................................... 32 Figure 26:Grid Parity Analysis in Europe(Q-cells) ................................................................................. 33 Figure 27:Grid Parity Analysis in America(Q-cells) ............................................................................... 34 Figure 28:Grid Parity analysis in Asia-Pacific(Q-Cells) ......................................................................... 35 Figure 29:Forecasted Demand for PV Modules(Wikinvest).................................................................... 36 Figure 30:Market Growth and PV Market in 2009 ................................................................................. 37 Figure 31:PV Market segmentation by application ................................................................................. 38 Figure 32:Who is Making and who is Buying ........................................................................................ 38 Figure 33:Soalr Comapnies Market Share .............................................................................................. 39 Figure 34: Global Companies and Value Chain(Wikinvest) ................................................................. 41 Figure 35:Industry Conversion Efficiency(Wikinvest) ........................................................................... 42 Figure 36:Solar Industry Key Trends) .................................................................................................... 43 Figure 37:Energy Demand and Supply in india ..................................................................................... 44 Figure 38:Soalr PV production in India .................................................................................................. 45 Figure 39:Foreign Trade of Solar PV ..................................................................................................... 46 Figure 40:Trends in Foreign trade of Soalr PV in India .......................................................................... 46 Figure 41:Modes of Financing ............................................................................................................... 48 Figure 42:Break up of Capex for Solar PV in India ................................................................................ 50 Figure 43:Capital Cost For Soalr PV in 2010 ......................................................................................... 51 Figure 44:Solar PV Value Chain ............................................................................................................ 54 Figure 45:Electric Supply Chain ............................................................................................................ 55 72

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Figure 46:JNNSM Overview ................................................................................................................. 58 Figure 47:Structure of National Soalr Mission ....................................................................................... 60 Figure 48:Understanding REC's ............................................................................................................. 63 Figure 49:RPO Trajectory for all Renewables ........................................................................................ 64 Figure 50:RPO Mechanism.................................................................................................................... 64 Figure 51:Expected Installations through REC ....................................................................................... 65 Figure 52:RPO Obligations in different States of the country(MNRE) ................................................... 67

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