MNRE releases draft guidelines for 3,000 MW solar under NSM

India’s new government is revamping the National Solar Mission (NSM). The planned allocation of 1,500 MW under batch II of phase II has been cancelled. Instead, the Ministry of New and Renewable Energy (MNRE) has now issued draft guidelines for a more ambitious 3,000 MW for tranche-I. The guidelines clarify the allotment for part-I of this tranche, for 1,000 MW, located at a solar park in Kurnool district in Andhra Pradesh. We expect the allocation process will begin in December (“December tranche”). The guideline document for this can be accessed here.

  • Out of 1,000 MW, 250 MW is reserved for domestic content requirement (DCR)
  • The individual project size is set as 50 MW; a company can apply for a maximum of five projects
  • The objective is to make life as easy as possible for developers. However, the draft guidelines leave crucial questions unanswered

The solar park for the “December tranche” of 1,000 MW will be developed by a joint venture (JV) of public senctor companies (SECI, NEDCAP and APGENCO). The power will be purchased by NTPC Vidyut Vyapar Nigam (NVVN). Out of 1,000 MW, 250 MW has been reserved for projects under DCR.

The selection process for the “December tranche” will be based on reverse tariff bidding. The capacity of all projects will be 50 MW. A single group company (including all subsidiaries, promoters and affiliates) can have a maximum of five projects (250 MW) – three in ‘open’ category and two in ‘DCR’ category. Unlike, previous allocations under NSM, the “December tranche” will not distinguish between developers claiming accelerated depreciation (AD) and developers not claiming AD. While the AD mechanism brings down the cost of power, it puts renewable IPPs (without a different. taxable business to leverage AD) at a disadvantage. (If the AD route is to be followed in future, it would be a good idea to delink the AD from the asset owning company and make it a tradable good to make solar more inclusive).

To fast track the installation phase, the government wants to help project developers by taking up the cumbersome process of land acquisition and provision of transmission infrastructure. The JV developing the solar park is responsible for developing and maintaining the local infrastructure. The state transmission utility will provide the power evacuation (transmission) infrastructure. Developers will only have to enter into an “implementation support agreement” with the JV company.

 While the document demarcates some responsibilities, it still leaves room for confusion. For example, the guideline specifies that, “while it will be the endeavor of the State Agencies /Central Agencies to facilitate support in their respective area of working [read: providing land and transmission infrastructure], but nevertheless, the developer shall be overall responsible to complete all the activities related to Project Development at its own risk and cost”. This is confusing and self-contradictory. In the past, we have seen that for solar parks in Gujarat and Rajasthan, developers have had to face delays due to a delayed delivery of evacuation infrastructure and allotment of lands. Such a clause increases the contingency risks of developers and exposes them to activities out of the project’s scope that they have not accounted while bidding. It would be much better, if the allocation process would begin only after all the developmental work is completed and the evacuation infrastructure has been created at the solar park. Alternatively, the guidelines must delink the risks of land and transmission infrastructure availability from the developers.

 Overall, the draft guidelines highlight the government’s new, more ambitious target of 15,000 MW under batch II of phase II in three tranches:

        i.            Tranche-I (including the 1,000 MW “December tranche”): 3,000 MW through bundling mechanism, with 1,500 MW of unallocated coal power from 2014-17

      ii.            Tranche-II: 5,000 MW possibly via an interest rate subsidy from 2015-18

    iii.            Tranche-III: 7,000 MW possibly via solar parks (land and transmission infrastructure) from 2016-19

 Figure 1: Target capacity under batch II phase II of NSM

tranch as on 16.10,2014

Previously, the central government aimed at 3.6 GW by 2017. This new target is significantly higher than the previous target of the NSM and is in line with the aim of making India a 5-6 GW solar market per year.

Mudit Jain is a Consultant at BRIDGE TO INDIA

12 comments

  • My suggestion would be to let all the three or more models (herein formed under Tranche) start simultaneously (bundling, interest subsidy and solar park). Within each model, let there be milestones and correction points. This will give enough time for each model to be tried, implemented, corrected before they go full swing. Strategic decisions which have long term effects, policies from import to manufacturing support, approval processes and putting up transparencies, training, export of products+Services (EPC) and quality – all need to start immediately and firmly for long term investors to take decisions. I till believe, we have some lost time, but still can be the King of Solar energy in the World.

  • The issue is why they do not make it clear about the responsibility, they want to push the inefficiency of JV also on the Developers. I agree it is risker for the developer and has to build the risks in the costing. Best would be JV has to take the responsibility of providing the land and transmission line on time if not have to compensate for the cost overrun. Otherwise these will remain as large numbers as statements from leaders

  • Dear Mudit,

    in qualification criteria is there possiblity to govt will allow partnership firm for participating the tender process. The partnership firm like us having 200 MW wind power projects & 52MW solar project in operational & 120 MW in pipeline will not qualify in bidding process.

    Can you just tell us how prtnerdhip firm like us will participate in this bidding process

    we are folllowing bridge to india from last few months and the contents ,updates given by you are really appreciable.we re waiting for your valuble suggetion feedback in this regard.

    kindly contact me on 9820336559 /sdurgavale@gmail.com

    Sagar Durgavale
    Asst manager- Power projects

  • How can a company bid for the ppa when you don’t know what the rate is? It seems up side down and does not make sense to us. We are currently working on private ppas and find companies who will sign contracts to buyour RECs…
    how can. The Indian government expect private companies in India to borrow money at 10-12% interest and make money with a 5 Rs PPA? Hard to understand how they think they will reach 1000 GW by 2020?
    your feeedback would be appreciated.

    • Well, several companies are bidding and making profits through reverse bidding process. However, this definitely this puts pressure on a small company.

      You can get in touch with us for the opportunities in the market. My email id is mudit.jain@bridgetoindia.com

  • I hope the developmental risks are clearly allocated in the bid documents. Also, if the parks are being developed by the government, why does a developer need a letter/clearance from the transmission licensee?

    Compared to the Phase-I Batch-I wherein 750 MW was to be sold across the country, now we have a situation where 1000 MW is to be sold to the five southern states. Considering this increase in quantum and a much smaller set of potential buyers, ‘pre-allocation’ of capacity in a manner similar to the Thermal UMPPs is a much needed step.

  • What would be interesting to understand is the repercussions of such an ambitious target on debt financing. With the Reserve Bank of India unlikely to reduce interest rates in the near future, we will still be looking at 13%+ cost of debt for these projects. Secondly, given the high NPAs on most banks (especially the public sector), the risk appetite of banks will be poor. We’ve seen this in Phase 1 and even Phase 2 of the NSM and various state policies.
    Now that the central government is pushing the solar agenda, the policy bottleneck is likely to ease out. We may soon be in a position where debt financing can start becoming the major bottleneck for speedy and inexpensive execution of solar power projects in India.
    Key questions are:
    – How can the entire project debt financing process be streamlined?
    – Can the center/RBI get banks to strategically reduce interest rates? Or can the government provide some kind of security, especially, if part of the development (land and evacuation) is done by a PSU?
    – How can we get banks to do non-recourse financing (This will be the greatest lever!).
    Another observation here is that, given the increasing minimum sizes of projects and the heavy securities (bid bonds, etc.), and the fact that non-recourse financing isn’t an option – smaller players are being shunted out of the market. This is good and bad. Good because – bids get realistic and quality improves by attracting only serious players. Bad because – smaller serious players are disqualified at the start and this kills a vibrant solar market.

  • Building solar parks where the land acquisition and power evacuation is taken care of by the government organizations building the solar park is absolutely the way to go! Both these are big pain areas for developers, and, if eliminated, would give a big boost to the Indian solar sector.

    – Prashant.

  • 1. A guaranteed evacuation of generated solar power with in 10 days of ‘ ready for power generation’ will ensure the IPPs to enter with confidence.
    2. Solar power generation is capital intensive. Funding agencies must be identified, empaneled indicating the range of cost of funds will go a long way for success.
    3. Captive generation with free transmission to points of use are to be permitted.
    4. The minimum capacity of 50MW is on high side and limits the entry of MSM units particularly for captive uses.
    4.Special incentives are to be given for start ups.
    5. Making units eligible for RECs will encourage many IPPs

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