Weekly Update: Revised guidelines for batch-I of phase-II of the NSM released; Many key concerns have been addressed

The Ministry of New and Renewable Energy (MNRE) has released its revised draft guidelines for a capacity of 750 MW of solar PV under batch one of phase two of the National Solar Mission (NSM) (refer to this document for the latest draft).

SECI wants to sell solar power to state distribution companies
States that are already meeting their RPO targets may not be interested in purchasing power from SECI, whereas for other states that don’t have a dedicated state policy, this will be one of the cheapest options
Out of a total capacity of 750 MW, a capacity of 375 MW will have a DCR

The Solar Energy Corporation of India (SECI) will carry out the allocation process, provide viability gap funding (VGF) and sign the power purchase agreements (PPA). SECI wants to sell the solar power to state distribution companies. It has now decided to first obtain confirmation from them on their willingness to do so, prior to issuing a Request for Selection (RfS) for the developers. This process is currently under way. The RfS document is expected to be available from 15th October to 21st November 2013.

This process addresses a key concern for developers and helps them better choose locations for their projects. The concern was also raised in an earlier blog of ours, commenting on the first draft of the guidelines (refer).

Most developers look to high irradiation locations in the west and south of India. However, considering that states like Rajasthan, Tamil Nadu, and Karnataka are already meeting their RPO targets, their state utilities may not be interested in purchasing power from SECI. On the other hand, states like Maharashtra, Bihar, and Haryana that do not have a dedicated state policy in place and fall short of meeting their solar RPO targets might want to buy solar power from phase two of the NSM. It will be one of the cheapest options for them.

The much-awaited ambiguity surrounding the Domestic Content Requirement (DCR) has also been cleared. Out of the total capacity of 750 MW, a capacity of 375 MW will have a DCR. At the time of bidding, the developers can either opt for ‘DCR’ or ‘Open’ or both categories; however, separate bids have to be made for DCR and non-DCR projects. It is expected that the tariffs for projects with DCR will be slightly higher. Indian cell manufacturers such as IndoSolar, Webel and Jupiter are expected to benefit the most. International suppliers such as ReneSola, which have contract manufacturing in India, are also likely to benefit.

The VGF mechanism is largely the same as defined in the previous draft, which was released earlier in the year (refer). The difference concerns the disbursement of the incentive. The VGF will now be released 50% on successful commissioning of full capacity and the remaining 50% over a period of five years from the date of commissioning of the project, provided that the project meets the requirements for generation (i.e the Capacity Utilisation Factor, CUF). This performance-related approach is new. In the earlier draft, 25% of the incentive was to be handed out after the delivery of 50% of the project equipment, another 50% on the successful commissioning of the full capacity and the remaining 25% was to be given after one year of successful commissioning.

This change will address the issues raised by BRIDGE TO INDIA in the October 2012 edition of the India Solar Compass (refer) and a blog that we had written after the announcement of the draft guidelines (refer).

The last date for the submission of interest (along with the relevant guarantees) is 29th November 2013. The minimum project capacity has been fixed at 10 MW and the maximum at 50 MW. A single company can, however, submit an application for a maximum of three projects at different locations, with a maximum aggregate capacity of 100 MW. The developers are expected to attain financial closure within 210 days from the date of signing of the PPA and the project has to be commissioned within 13 months. A waiting list of up to 100 MW will be maintained by SECI up until the deadline for financial closure, at which point SECI may allocate new projects, if any of the previously allocated projects fail to achieve financial closure. Developers will have to provide Bank guarantees (BG) and Earnest Money Deposit (EMD) even for the waiting list.

The document also stipulates penalties for delays in completion of the projects. In case of a delay of more than one month, SECI shall en-cash 20% of the total Performance Bank Guarantee (BG) on a per-day-basis and proportionate to the capacity not commissioned in lots of 10 MW each. In case of a delay of more than one month and up to three months, SECI will en-cash the remaining BG in the same manner. Finally, in case commissioning is delayed by more than three months, the pre-fixed levelized tariff of INR 5.45/kWh shall be reduced at the rate of INR 0.50/kWh per day of delay for the delay in such remaining capacity, which is not commissioned. Effectively, any project that is delayed beyond three months will become unviable.

On the bankability front, the draft also calls for the NVVN to step in, in case there is any delay on SECI’s part with respect to payments. To avoid a default from SECI, the developers might be required to sign short-term PPAs with NVVN, which in turn, will sign short-term Power Sales Agreements (PSAs) with interested state utilities. Even though this increases the complexity, we believe that this provision safeguards the interests of the developers in case a given state distribution company does not honor its commitment towards SECI and SECI in turn is unable to honor its commitment to the developer. The document states that as and when SECI is fit to carry out its functions, the short-term contracts will be terminated and long-term contracts with SECI will become effective. All the PPAs and PSAs (short-term with NVVN and long-term with SECI) will have the enabling provision for such a changeover so that the transition from NVVN to SECI is smooth and neither the solar power developers nor the buying entity is affected in this process.

All in all, the revised guidelines have addressed many concerns that were voiced after the release of the previous draft of these guidelines. The PPAs for these allocations are expected to be signed around 27th February 2014. This means that with a 13-month timeframe, these projects are to be commissioned around March 2015.

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