Policy provides for subsidy in the form of viability gap funding
The Centre has cleared the decks for setting up 750 MW grid-connected solar PV power projects under second phase of the Jawaharlal Nehru National Solar Mission (JNNSM). The projects will be supported by the National Clean Energy Fund through viability gap funding or VGF—capital subsidy to bridge the gap between the project cost dictated by the prevailing electricity rate and the price quoted by a developer. The Union Ministry of New and Renewable Energy (MNRE) released the draft policy guidelines for the 750 MW grid solar PV power projects last week.
The projects in the first batch of second phase would be awarded to developers through a process of reverse competitive bidding on the VGF required. The developer will be provided a VGF of 30 per cent of the project cost up to a maximum of Rs 2.5 Cr/MW. Under the reverse bidding system, the developer who quotes the lowest capital cost, thereby requiring the lowest amount of VGF, will win the bid and get to set up the specified amount of power producing capacity. Fifty per cent of the subsidy would be awarded on successful commissioning of the full capacity and the remaining 50 per cent would be paid gradually over the subsequent five years of operation of the plant.
“Phase-I (of JNNSM) was largely based on the option of bundling scheme (selling electricity in bundles, which comprises one unit of solar power bundled with four units of regular coal-thermal power; the state electricity boards or discoms buy this bundled power) and on generation based incentives (GBI) option to some extent. For the first batch in Phase II of JNNSM, the option of 'viability gap fund' scheme has been selected to enable scaling up of size of projects, thereby leading to economies of scale of projects under JNNSM,” state the guidelines. The VGF disbursement system is meant to ensure that the project is running for at least first five years after commissioning. Systems are in place for times the plant fails to generate any power and its assets are sold or the project is dismantled during this period. Funds for VGF would be allocated from the Clean Energy Fund—an estimate of Rs 1,875 crores (2.5 x 750 MW) has been drawn.
The tariff has been fixed for 25 years—Rs 5.45 per kWh without and Rs 4.95 per kWh with accelerated depreciation (tax benefit)—and will be sold by Solar Energy Corporation of India (SECI) to state utilities or distribution companies at Rs 5.50 per kWh.
The 750 MW worth projects in batch I have been divided into two categories—375 MW each for 'domestic content requirement' (DCR) and ‘open’ category. (DCR mandates both solar cells and modules used in a power plant must be made in India.) There would be separate bidding for both the categories. One major point of contention is that there are no separate incentives for developers to participate in DCR category of 375 MW since both open and DCR category are entitled to the same amount of VGF. Raghunath Mahapatra, vice-president of Welspun Energy, a solar power plant developer, says: “Government appears to have taken a discovery stand on DCR (exploring how DCR can be implemented) with capacity allocation of 50 per cent with DCR and 50 per cent without. As we progress towards the realisation of solar vision in terms of capacity and energy generation, the comparative impact of DCR will become clear.”
K N Subramaniam, chief executive officer of Moser Baer Solar Limited, disagrees. “DCR in JNNSM phase II covering all technologies will act as a catalyst to kick-start domestic manufacturing of cells and modules for solar PV industry, which for over two years with huge capital investments has been lying idle.”
The financial viability of Rs 5.45 per kWh along with the 30 per cent capital subsidy after the commissioning of the plant can only be assessed in the coming years. “On its own Rs 5.45/unit does not appear to justify the minimum return on equity. However, possibility of reduction in input costs and VGF provided might be able to justify it. Outcomes of the tender process which is contingent of the discount on VGF will provide indication on the same,” says Mahapatra.
What the draft guidelines say