Policy is set of rules formed by a government body which act as guidelines to various other government bodies, private/commercial institutes and public. It informs them about the intention and direction in which government wants to work in a particular field. A solar policy is drafted by Ministry of New and Renewable Energy (MNRE) in consulting with the central government and is applicable on the central level. Similarly, a state solar policy is drafted by State Nodal Agencies (SNA) (For ex: Gujarat Energy Development Agency (GEDA)) in consultation with the state government and is applicable on the state level. Solar policy details various types of business models under which a solar plant can be set up and also incentives available to various categories of customers. It can also act as a guideline to various agency involved in setting up a plant.A solar policy (considering policy of various states) in general has the following details:

a. Sale of power through RPO and REC mechanism: The government in order to push the renewables and increase its mix in the grid has mandated the state utility (both government and private) to buy a certain amount of their energy requirement from renewable energy sources. This is known as Renewable energy Purchase Obligation (RPO). The financial settlement of such energy is done at the end of each billing cycle at a fixed price under the Power Purchase Agreement (PPA) (which is signed between the utility and generator). However in some cases (like Gujarat) the energy settlement may be done at the Average Power Purchase Cost (APPC) of the utility. The RPO mechanism works well in states which have favorable conditions for solar power plant. For hilly states (such as Himachal Pradesh) the utility may settle its RPO through a Renewable Energy Certificate (REC). The REC is equivalent to buying 1000 units of solar power plant at a mutually agreed priced(between the minimum price of 1000 INR/certificate to a maximum of 2500 INR/certificate as determined by Central Electricity Regulatory Commission (CERC)).

b. Sale of power to third party (Open Access):Third party sale or Open Access (OA) is a mechanism by which the consumer (having the connected load of more than 1 MW) can source their power from any other generator/utility. To the similar lines the generator can sell its power to any eligible consumer. The settlement of such energy may be done at a fixed price as mentioned under the Power Purchase Agreement (PPA). Almost all the states have enabled OA in their policy.

c. Net metering andCaptive consumption (both on grid and off grid): Covered in detail in our previous blog “Business model: How to go the solar way?”

Business models: For any business to run without any hitches, it is necessary that the right methodology (or model) of investment is selected. With reference to policy, it is important that the government makes all the possible (and the right) business model available to the investors/ consumers such that it would maximize their profits while utilizing green energy. We had already covered a huge variety of business models in our previous blog “Business model: How to go the solar way?” however the policy specific models are mentioned below:

a. Exemption in transmission (and wheeling) charges and loss: For both captive consumption (off site) and OA the end consumer may require power at High Tension (HT) or Low Tension (LT) level. Such necessity requires the generator to use the grid for feeding its power at appropriate level using either or both HT (maintained by transmission utility) and LT line (maintained by distribution utility) which would attract hefty charges to be paid to the concerned utility.The generator/consumer also needs to bear the applicable losses of the line (both technical and commercial). In case of a solar energy consumer/generator such charges and losses are usually exempted for the plants lifetime or for a specific amount of time as determined by the state regulator.

b. Exemption in cross subsidy and additional surcharge:A consumer opting to source its energy from a sourceother than its local utility (say from a solar plant) has to pay certain charges to offset the loss of business to utility. This is because the utility has considered power demand of such customer while signing a PPA. Such charges while applicable to normal consumer may be exempted for solar energy consumer or may be determined by the respective state regulatory commission.

c. Exemption in demand cut: Demand cut may be defined as the reduction of demand when a customer moves (partially) out of the local utility’s power supply scheme and opts for other generator. In such case the customer’s load demand is reduced in normal cases. However a total or partial exemption of demand cut may be provided for solar energy consumers.

Incentives: This is the crux of the policy which supports an emerging technology to sustain the market while also taking care that the investors get fair amount of returns.All this helps boost the market for such technology making it viable and reach grid parity.This incentives (for solar energy plants) are generally in form of exemption of certain charges (and duties) to be payable to utility for pushing their power to grid. They are as follows:

Figure 1: Yearly CAGR of solar power plants (Data source: CleanTechnica)

Month	Energy exported (in kWh)	Energy imported (in kWh)	Energy difference (in kWh)	Energy in bank (in kWh)
January	110	100	+10	10
February	120	90	+30	40
March	125	110	+15	55
April	120	110	+10	65
May	120	120	0	65
June	90	100	-10	55
July	80	120	-40	15
August	90	100	-10	5
September	100	110	-10	-5
October	95	100	-5	-10
November	100	90	+10	0
December	100	90	+10	10
Energy balance in the bank at the end of the year			10 Units

The energy generated and energy imported for each month is calculated. At the end of the year, the energy balance for the plant is calculated. The settlement of the account is done at 75% or 100% of the APPC depending on the state. Also in some states, as an additional incentive the 2% charges (on the total amount) for banking of energy are waived off.

Banking facilities: Many states, along with net metering also offer the solar customers banking of energy. Here, the customer is allowed to store their excess generation of one month in a virtual bank. And in case of excess drawl (in some other month) the energy is debited from the bank. An example is tabulated below to explain energy banking: