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28
May

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Aggregating demand for corporate rooftop solar installations: lessons from the collaborative solar PV procurement project

WRI India and Confederation of Indian Industry (CII) through the Green Power Market Development Group (GPMDG) initiative attempted to aggregate energy demand from six corporate buyers in Bengaluru—Coca Cola, Infosys, IBM, Cognizant, Philips and Bangalore International Exhibition Center (BIEC).

The aim was to combine their RE procurement into one bid to achieve economies of scale and reduce transaction costs per project. This larger combined project size made this opportunity more attractive for project developers and financiers. Our hope was to demonstrate a new aggregated procurement model that could be replicated across India to accelerate the deployment of rooftop solar power. GPMDG called this aggregated procurement model as the CollabSolar project.

This working paper outlines the processes, barriers and key lessons learned from the CollabSolar project in Bengaluru (2014), which can help advance additional aggregation strategies going forward.

Corporate consumers are increasingly concerned about the carbon footprint of their businesses. Electricity consumption of commercial and industrial companies is largely sourced from fossil fuel-based generation and accounts for a significant portion of their Green House Gas (GHG) emissions. Hence procurement of renewable energy (RE) has become a central piece of companies’ corporate sustainability strategy, something that is also aided by the declining costs of RE. Among various forms of renewable energy in India, rooftop solar photovoltaic (PV) technology can offer increasingly affordable, clean and reliable electricity at the site of consumption itself.

The scale of rooftop solar deployment can be limited by the amount of roof space at an individual site and various other competing uses the roof has. This may limit the individual project size at each site which could result in increased transaction costs for the vendors because of the time and resources they need to invest in exploiting each of them. However if this demand is aggregated, data collection process streamlined, and buyers coordinated in the timing of a purchase, the transaction costs can be reduced to help these projects move forward. To address these issues, WRI India and Confederation of Indian Industry (CII) through the Green Power Market Development Group (GPMDG) initiative attempted to aggregate energy demand from six corporate buyers in Bengaluru—Coca Cola, Infosys, IBM, Cognizant, Philips and Bangalore International Exhibition Center (BIEC). The aim was to combine their RE procurement into one bid to achieve economies of scale and reduce transaction costs per project. This larger combined project size made this opportunity more attractive for project developers and financiers. Our hope was to demonstrate a new aggregated procurement model that could be replicated across India to accelerate the deployment of rooftop solar power. GPMDG called this aggregated procurement model as the CollabSolar project.

This working paper outlines the processes, barriers and key lessons learned from the CollabSolar project in Bengaluru (2014), which can help advance additional aggregation strategies going forward.

The lessons and experience gained from this pilot are as follows:

  • The Aggregation model works best with companies within a small geographic area such as an industrial or business park level.
  • Aggregating across a group of buyers with a collective minimum renewable energy demand of 8-10 million kWh/year (~5-6 MW in project size) will negate the risk of project failure from any one individual buyer pulling out of the initiative.
  • The creditworthiness of the buyers helps to mitigate the financial risks to project developers and can reduce the cost of project financing. Usually large companies which consume at least 1 million kWh per annum tend to fall under this category and they can act as the anchor buyers.
  • Aggregating renewable energy demand based on the preference of the procurement business model is critical to be able to select the right vendors. For example, commercial buyers in our bundle paid a higher tariff to the grid and hence preferred a Power Purchase Agreement (PPA) with a solar power vendor to save on their bills. Industrial buyers in our group paid a lower tariff to the grid and preferred to invest in the renewable energy plant directly to make use of the capital tax benefit.
  • Buyers need to become more comfortable with providing roof top data in order to get accurate proposals. Buyers we worked with were typically wary of disclosing rooftop data to the solar power vendors because of perceived security concerns. Design of solar power plants is highly location specific and needs to be optimised to maximise the return on investments. Better design leads to lower costs and more value to the buyers. Making buyers more comfortable with signing Non-Disclosure Agreements (NDAs) with the supplier to provide this information will improve the data collection process.
  • Net-metering schemes which allow for excess rooftop solar power to be sold to the utilities will improve the economics of on-site solar. However, at the time of this pilot, Bengaluru did not have such a scheme in place. Thus the systems at individual sites had to be sized to the minimum load as there was no compensation for power sold to the grid. We used electricity demand on a typical weekend as a reference to quantify the minimum demand of a buyer. Sizing systems to the minimum load resulted in a smaller transaction size, as neither the vendor nor the buyers wanted to pay for the excess generation during the weekends.
  • Early engagement with building owners/property management companies is needed. Several of the participants were in a leased space and found that in order to install a rooftop solar system on their premises, a tripartite commercial agreement between the buyer, vendor and the landlords was needed. Some building owners expressed interest in supporting a solar purchase, but others did not.
  • Multi-National Companies (MNCs) who prefer to invest their own capital in a rooftop solar plant need to change their corporate charter to permit their entry into power generation business. While some companies in the collaborative solar project were willing to invest the time engaging relevant stakeholders to make this change to their corporate charters, most of them preferred a PPA as this does not require a change to their corporate charters. Companies need to check on the feasibility of changing their charters before making a final decision between a captive purchase model (using their own capital) and a PPA model (using operating budgets).

This experience will inform the design of the next iteration of demand aggregation projects to be handled by GPMDG across industrial or business parks in Karnataka, Tamil Nadu and other states. This guide can also serve as a reference for others working on demand aggregation models.