What a good solar policy for grid connected plants should include
Dr. Tobias Engelmeier is Founder and Managing Director at BRIDGE TO INDIA.
The Indian solar market is picking up speed. A number of new policies have been announced: the (draft) National Solar Mission – Phase II and the Tamil Nadu Solar Policy as well as new initiatives by Andhra Pradesh, Chhattisgarh, Rajasthan and announcements by Uttar Pradesh and Punjab. The policies are quite different from each other. There is no consensus yet on “how to get solar power right” in India. These are some of the key issues that would-in my view-make a solar policy strong:
- Payment security (strength of PPA, bankability)
- Measures to ensure quality in project execution (qualitative pre-selection of bidders)
- Government support in land, permits, evacuation and information
Payment security: The most important element to a good solar policy is that it allows for bankable power purchase agreements (PPAs). Payments have to be guaranteed for at least the repayment period of the loan (typically 8-12 years), if not for the entire duration of the PPA (20-25 years). It is not enough to simply assume that a public sector PPA signatory such as a state distribution company(DISCOM) or a nodal agency like NVVN will be bankable. In fact, many state DISCOMs are not. One year rolling letters of credit are also not sufficient. Elements that enhance bankability are: strong payment guarantee schemes (as in Phase 1 of the NSM) for public sector PPAs, viable alternative off-take options, PPAs with highly robust private entities, strict enforcement timelines and processes for solar or renewable purchase obligations (RPOs), and (in general) a high degree of transparency and quality of information.
Ensuring quality bids: Now that Indian market participants have a track record, participation in project allocation processes should have a component of quality. Participants should have a letter of intent (LoI) from a financing bank (or a commitment to fund a project fully on equity), should have already identified the land and (if applicable) the off-taker. There could be a list of pre-defined EPC contractors and modules based on the use of standards of quality (can be tested by a testing agency). Majority ownership of Special Purpose Vehicles (SPVs) can only change post construction of the project. Timelines should be rigorously enforced but be realistic to begin with.
The government should provide support in the following way: It should help to specify and pool suitable land to be made available for project development, it should specify evacuation points and loads, ensure a simple and smooth permissions process and provide clear and solid data on irradiation, power prices, grid quality and power customers. The Tamil Nadu policy is a good example with respect to evacuation. The Andhra Pradesh policy aims to provide support on identifying private sector power off-takers. This is useful, but could perhaps be better managed by the project developers themselves.
The goal should be to encourage professional project developers to develop projects financed on a non-recourse basis by streamlining as much as possible of the “local” elements of project development (land, grid connection) and allowing developers to focus on technology choice, revenue streams and financing.