MNRE releases draft guidelines for 3,000 MW solar under NSM

16 October 2014 |

India’s new government is revamping the National Solar Mission (NSM). The planned allocation of 1,500 MW under batch II of phase II has been cancelled. Instead, the Ministry of New and Renewable Energy (MNRE) has now issued draft guidelines for a more ambitious 3,000 MW for tranche-I. The guidelines clarify the allotment for part-I of this tranche, for 1,000 MW, located at a solar park in Kurnool district in Andhra Pradesh. We expect the allocation process will begin in December (“December tranche”). The guideline document for this can be accessed here.

  • Out of 1,000 MW, 250 MW is reserved for domestic content requirement (DCR)
  • The individual project size is set as 50 MW; a company can apply for a maximum of five projects
  • The objective is to make life as easy as possible for developers. However, the draft guidelines leave crucial questions unanswered

The solar park for the “December tranche” of 1,000 MW will be developed by a joint venture (JV) of public senctor companies (SECI, NEDCAP and APGENCO). The power will be purchased by NTPC Vidyut Vyapar Nigam (NVVN). Out of 1,000 MW, 250 MW has been reserved for projects under DCR.

The selection process for the “December tranche” will be based on reverse tariff bidding. The capacity of all projects will be 50 MW. A single group company (including all subsidiaries, promoters and affiliates) can have a maximum of five projects (250 MW) – three in ‘open’ category and two in ‘DCR’ category. Unlike, previous allocations under NSM, the “December tranche” will not distinguish between developers claiming accelerated depreciation (AD) and developers not claiming AD. While the AD mechanism brings down the cost of power, it puts renewable IPPs (without a different. taxable business to leverage AD) at a disadvantage. (If the AD route is to be followed in future, it would be a good idea to delink the AD from the asset owning company and make it a tradable good to make solar more inclusive).

To fast track the installation phase, the government wants to help project developers by taking up the cumbersome process of land acquisition and provision of transmission infrastructure. The JV developing the solar park is responsible for developing and maintaining the local infrastructure. The state transmission utility will provide the power evacuation (transmission) infrastructure. Developers will only have to enter into an “implementation support agreement” with the JV company.

 While the document demarcates some responsibilities, it still leaves room for confusion. For example, the guideline specifies that, “while it will be the endeavor of the State Agencies /Central Agencies to facilitate support in their respective area of working [read: providing land and transmission infrastructure], but nevertheless, the developer shall be overall responsible to complete all the activities related to Project Development at its own risk and cost”. This is confusing and self-contradictory. In the past, we have seen that for solar parks in Gujarat and Rajasthan, developers have had to face delays due to a delayed delivery of evacuation infrastructure and allotment of lands. Such a clause increases the contingency risks of developers and exposes them to activities out of the project’s scope that they have not accounted while bidding. It would be much better, if the allocation process would begin only after all the developmental work is completed and the evacuation infrastructure has been created at the solar park. Alternatively, the guidelines must delink the risks of land and transmission infrastructure availability from the developers.

 Overall, the draft guidelines highlight the government’s new, more ambitious target of 15,000 MW under batch II of phase II in three tranches:

        i.            Tranche-I (including the 1,000 MW “December tranche”): 3,000 MW through bundling mechanism, with 1,500 MW of unallocated coal power from 2014-17

      ii.            Tranche-II: 5,000 MW possibly via an interest rate subsidy from 2015-18

    iii.            Tranche-III: 7,000 MW possibly via solar parks (land and transmission infrastructure) from 2016-19

 Figure 1: Target capacity under batch II phase II of NSM

Previously, the central government aimed at 3.6 GW by 2017. This new target is significantly higher than the previous target of the NSM and is in line with the aim of making India a 5-6 GW solar market per year.

Mudit Jain is a Consultant at BRIDGE TO INDIA

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