Thursday, October 17, 2013: With the release of the Phase 2 guidelines from Ministry of New and Renewable Energy (MNRE) to monitor the upcoming project bids for funding through the National Solar Mission, the solar sector in India is heating up. After two long years, solar bids will be invited for a total of 750 megawatts (MW) of grid-connected photovoltaic (PV) solar plants. While the new guidelines put to rest some concerns, there are still some impending challenges.
Anjali Jaiswal, Senior Attorney, San Francisco, co-authored an article with Meredith Connolly, NRDC Energy Law and Policy Fellow for theenergycollective.com on the topic. The article says that the slump in solar sales, MNRE’s renewed effort to encourage solar growth in the country through these guidelines is more important than ever. With the current peak energy deficit hovering around 9 per cent, it is clear that the status quo dependence solely on coal and nuclear is not sufficient nor sustainable. With prices being driven down, solar now costs less than the diesel back-up generators used so frequently in India during blackouts. As is true internationally, increasing India’s mix of energy sources to include homegrown clean resources like solar and wind reduces the strain on the infrastructure and increases energy security in a sustainable way.
They feel despite the early progress of the mission, Phase 2 is the necessary scaling up phase for India’s solar market if it is going to meet its ambitious targets. “ NRDC and our partner, the Council on Energy, Environment and Water (CEEW), conducted extensive analysis and developed recommendations to improve the Mission and grow India’s solar ecosystem following the first phase. We laid out these recommendations in two reports, focusing on grid-connected photovoltaic (PV) in Laying the Foundation for a Bright Future (April 2012), and concentrated solar thermal technologies in Concentrated Solar Power: Heating Up India’s Solar Thermal Market (October 2012),” they wrote.
The authors have laid out key guidelines that will form the Mission’s Phase 2:
Size: Projects must be between 10 and 50 MW in size, with a maximum 100 MW allowed per company or bidder.
Timing: Bids are accepted through the end of November 2013. The power purchase agreements will be signed around February 2014. With thirteen month commissioning timeline, this batch of projects should be up and running by March 2015.
Viability Gap Funding (VGF): VGF is a subsidy in the form of partial payment from the government to make the project financially viable. The VGF bids are limited to 30 per cent of total project costs or a maximum of Rs 2.5 crores. The funding will be distributed in three tranches: 50 per cent upon successful commissioning of project, and then 10 per cent per year for 5 years following the date of commissioning.
Tariff: The tariff is set at Rs. 5.45 per kWh for 25 years or Rs. 4.95 per kWh (with an accelerated depreciation benefit). Although this tariff is lower than has been offered in the past, developers may still prefer this structure since the VGF is front-loaded to reduce the impact on the project’s viability.
Allocation: Bid allocation is still conducted through reverse bidding, a method that proved popular in Phase 1 due to the transparency it provided and how it drove down prices. This bidding is different however, as the developer will bid for lowest amount of VGF needed rather than the lowest tariff amount, which is set.
Domestic Content Requirement (DCR): A hot-button topic, the requirement that an applicable solar plant must use solar cells and modules manufactured in India, has been bifurcated. Solar developers may choose whether to apply for a project conforming with the DCR, with 50% of projects (375 MW) being awarded to those that are DCR-compliant. While this approach may not resolve WTO concerns raised by other countries, including the U.S., its technology-neutral wording will at least resolve the “thin film loophole” exposed during Phase 1.
At present, the NRDC and CEEW have been organising roundtables with experts and industry players across the solar market to identify and discuss the financial instruments available to address the barriers encountered by stakeholders within India’s solar market.