02 April 2019 | BRIDGE TO INDIA
In early March 2019, MNRE finally launched the much-awaited 12,000 MW PSU scheme to promote domestic manufacturing. The scheme envisages majority government-owned entities to set up projects using domestically procured cells and modules for consumption of power in-house or sale to other government entities excluding DISCOMs. MNRE is offering an incentive in the form of viability gap funding (VGF) of up to INR 7 million (USD 100,000)/ MW. However, the projects would be awarded through competitive auctions to bidders quoting lowest VGF. Operational period for the scheme is four years until the end of FY 2022-23.
- The scheme has been designed specifically to stay clear of WTO restrictions;
- The tough open access policy environment is expected to be a major deterrent;
- Persistent failure on the ‘Make in India’ front is creating uncertainty for the entire industry and detracting from other objectives;
The curious design of the scheme is specifically to stay clear of WTO restrictions. It is not open to private developers even if they want to sell power to public sector consumers. Projects can be located anywhere in the country and connected to national or state transmission grid. Expected commissioning timeline is 18 months from the date of project award.
The VGF support is designed to counter resistance from public sector consumers as domestically produced cells and modules are about 10-15% more expensive than imported modules (no safeguard duty applicable after July 2020). That means capital cost for these projects could be higher by up to INR 3 million/ MW over cost of projects using imported modules. The proposed VGF amount is therefore more than adequate. VGF would be disbursed in 2 tranches – 50% on appointment of EPC contractor (within 6 months of the project award) and 50% on project completion.
So far, so good. There are two major challenges, however. First, the projects would need to rely on (most likely, inter-state) open access mechanism for sale/ consumption of power, which is increasingly fraught with policy challenges. Other than Delhi Metro buying solar power from projects in Rewa in Madhya Pradesh, we have not seen much evidence of public sector consumers buying open access solar power. This problem can be solved partially by developing the projects on a captive basis rather than for third party sale. But not many public sector entities have necessary operational and financial experience to do so. Second, with total operational cell manufacturing capacity in India at only about 1,200 MW per annum, the bidders would struggle to procure qualifying module supplies.
SECI has already launched a 2,000 MW tender under the scheme with proposed bid submission date of 3 May, 2019. We expect multiple extensions and amendments. While the government should be lauded for persisting with support for domestic manufacturing, the policy ideas have not been thought through. The resulting uncertainty is unfortunately hanging like a dark cloud over the industry.