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The market this quarter: Getting ready for phase two of the National Solar Mission

The market this quarter: Getting ready for phase two of the National Solar Mission

BRIDGE TO INDIA provides a precise, analytical and in-depth update on the Indian solar market every quarter as a part of its INDIA SOLAR COMPASS. This is an excerpt from the October 2012 edition of the INDIA SOLAR COMPASS.

The Ministry of New and Renewable Energy (MNRE) has delayed the publishing of guidelines for phase two of the National Solar Mission (NSM). The guidelines were scheduled to be published by October 2012, but as per our interactions with government officials, they will not be available before the end of 2012.

  • Two of the main topics of debate that may be delaying the launch of phase two are the method of incentivizing solar projects and protecting the domestic manufacturing industry.
  • The Solar Energy Corporation of India (SECI) will take over from the NVVN as the nodal agency with which project developers will sign Power Purchase Agreements
  • The MNRE is considering two options to incentivize projects under the NSM: Generation Based Incentive (GBI) and Viability Gap Funding (VGF).

The allocation of projects for batch one of phase two should take place before April 2013. The industry is waiting eagerly for new project opportunities under the NSM, as there are currently no policy-based projects available anywhere in India. Two of the main topics of debate that may be delaying the launch of phase two are the method of incentivizing solar projects and protecting the domestic manufacturing industry.

The MNRE has to explore options other than feed in tariffs (FiT) to incentivize solar, because the Ministry of Power (MoP) does not have adequate unallocated power[1] from conventional sources that can be made available for bundling with solar power produced by projects under the NSM.

For phase one of the NSM, the NTPC Vidyut Vyapar Nigam (NVVN) was the government’s nodal agency with which project developers signed Power Purchase Agreements (PPAs). Linked to the MoP, the NVVN bundled the power bought from solar plants with power from conventional sources that had not been allocated to states by the MoP in the ratio of 1:4. The bundled power was then sold at a unitary rate. However, the MoP will not play any role in phase two of the NSM as the Solar Energy Corporation of India (SECI) will take over from the NVVN as the nodal agency.

In addition, the MoP cannot continue to assign this unallocated power to NSM projects, when many states are overdrawing power from the grid due to inadequate supply. For example, in July, the power-deficit states of Uttar Pradesh, Haryana and Punjab had overdrawn power from the national grid, which resulted in widespread grid instability and vast blackouts affecting the entire northern, eastern and the north-eastern grids. The MoP could be looking to allot the unallocated power to the states with high power deficits to curb overdrawal from the grid. Making provisions for the bundling of power as a part of the NSM is currently not a priority for the MoP.

In phase one of the NSM, the bundled power served to bring down the difference between the average cost and the sale price of solar power. Without the availability of enough unallocated power to negate the higher prices of solar considerably, the government will find it difficult to sell solar power at a higher price. Therefore, it will be difficult and financially unviable for the MNRE to provide FiTs to solar power projects. In light of this, they are considering two options to incentivize projects under the NSM: Generation Based Incentive (GBI) and Viability Gap Funding (VGF).

As per our conversations with MNRE officials, the GBI is a less likely option. As an alternative, the MNRE is keenly considering introducing VGF to incentivize solar in phase two of the NSM. VGF, unlike the GBI is a onetime or short-term capital assistance. As a result, it is not a strain on the government’s finances in the long term.

Click here to download the free October 2012 INDIA SOLAR COMPASS to read our complete analysis. This report also contains detailed analyses on state specific policy allocations, projects and financing in the Indian solar market this quarter.


[1] Unallocated power is the reserve set aside by the central government for various uses, such as allocating a part of it to a state with a power deficit

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