Proposed Structure of this Public Private Partnership (PPP) Model
The project will be leveraging a New-Build-Bulk-Fees model. This will involve the grantor, potentially a municipal government or state-owned entity, creating a new entity to coordinate and manage the installation of rooftop solar systems across participating buildings in the region. The new entity will also be managing the emission reduction credit (ERC) project, for which it will receive the ERCs issued to the project for the avoided emissions. To recover the installation costs, the new entity will be collecting fees from the building owners benefiting from the energy efficiency savings through a 10-year period.
Table 1: Model Attributes
Dimension | Attribute | Description |
|---|---|---|
| Business | New | This model assumes that a new state-owned entity will be created to manage the project |
| Existing | ||
| Construction | Build | The model involves the government or state-owned entity engaging a service contractor to install the rooftop solar systems in the participating buildings |
| Refurbish | ||
| Private Funding | Finance | The government or state-owned entity will provide initial financing for the project development in this model |
| Service | Bulk | The government or state-owned entity will collect payments from the participating buildings |
| User | ||
| Revenues | Fees | The revenues in this model will be pre-agreed fees based on the savings to be incurred by the participants |
| Tariffs |
Proposed risk allocation of the Public Private Partnership Model
Key features of PPP structure
- Government or state-owned entity engages private sector entity to design, build and maintain solar PV rooftop project
- The government or state-owned entity provides financing of the project and earns the tariff paid by domestic consumers for electricity consumption
- Any ERC proceeds will also go to the government or state-owned entity as additional revenue stream
Expected ERC end use
- End use can belong to the government or state-owned entity as part of additional revenue stream
Key considerations/risks for proposed project
- Extensive stakeholder engagement required to ensure buy-in from local stakeholders
- Will need receive necessary approvals for development and commissioning for each solar PV plant
- Need to work with grid operators to ensure stable good energy grid capabilities to connect rooftop solar with grid
- Partnering with a service provider for the project’s marketing, sales and pricing is needed to identify potential offset buyers, negotiate contracts, and secure good target price per tonne to enable the financial viability of ERC generation
- Contracting a monitoring, verification and reporting (MRV) service provider with experience in conducting MRV and preparing the necessary documents for generating ERCs in a voluntary carbon market standard will reduce risk of registration and issuance delays or bottlenecks, and strengthen credibility of project’s carbon integrity quality
Figure 1: Financing and Activity Flows for the Model
Case study: Grouped Rooftop Solar Project, India
Project description
The project entails the installation of Solar Photovoltaic (PV) Panels on rooftops across multiple states in India. The purpose of this project is to set up solar power plants primarily for self- consumption, and any excess electricity generated can be supplied to the grid. To achieve this, a net metering arrangement will be established with the state electricity board, allowing for the consumption of equivalent energy from the grid when necessary.
Targeted results
The annual average estimate of GHG emission reductions is 17,764 tonnes over a crediting period of 7 years.
Figure 2: Structure of Case Study PPP
The installation of Solar Photovoltaic (PV) Panels on rooftops in various Indian states is the focus of the project. Tata Power Renewable Energy is the project proponent for the various solar power plants grouped in this project. Through a net metering arrangement with the state electricity board, customers will consume equivalent energy from the grid, and they will only be charged for the net power they consume over a particular period. Excess electricity generated from the solar PV panels will be sold to the grid under the net metering agreement. Tata Power will also benefit from the payments received from consumers as well as any ERCs generated from this project.
Summary of the model financials
Assuming a similar project parameter as the case study, the project’s Net Present Value (NPV) without ERC in- and outflows – only considering non-ERC inflows through other revenue streams or cost savings enabled by the project – is negative at $ 0.7 million (M)1. With ERC cashflows, the project will improve to have a positive NPV of $ 0.6M, demonstrating the effectiveness of ERCs to enable the financial viability of such a project. Moreover, NPV of project may improve beyond project period as income from electricity sales recurs.
Table 2: Summary of sources of inflows and outflows and key assumptions
Value component | Assumptions | Sources |
|---|---|---|
| ERC revenues or inflows |
| Average price of renewable energy project in Asia, Verified Carbon Standard (VCS) and Gold Standard (GS) |
| Non-ERC revenues or inflows |
| Solar Grouped Project case study benchmark, World Bank – Cost of Doing Business study, International Renewable Energy Agency (IRENA) |
| Project investment and implementation cost |
| Solar Grouped Project case study benchmark |
| ERC generation |
| Verra Fee Schedule |
Table 3: Net cashflows summary (in USD)
Components | Sum of initial outlays | Sum of in- or outflows from crediting period | Total cashflow |
|---|---|---|---|
| ERC Component | |||
| Revenues/Inflows | 0 | 3,264,135 | 3,264,135 |
| Costs/Outflows | 0 | -57,409 | -57,409 |
| Net value | 0 | 3,206,726 | 3,206,726 |
| Primary/Non-ERC Component | |||
| Revenues/Inflows | 0 | 6,923,150 | 6,923,150 |
| Costs/Outflows | -5,163,708 | -1,807,298 | -6,971,006 |
| Net value | -5,163,708 | 5,115,853 | -47,855 |
| Net Present Values | |||
| NPV | $651,345 | ||
| NPV (ERC Component) | $1,378,329 | ||
| NPV (Non-ERC Component) | -$726,984 | ||
Footnote 1: All prices are expressed in United States Dollars (USD)