According to reports, the Union ministry of new and renewable energy has come out with draft guidelines for setting up solar projects with a combined capacity of 750 mw with viability gap funding under batch I, phase II of the national solar mission.
The draft indicates that the maximum capacity a developer can set up is 100 mw. A tariff for power purchase at Rs 5.45 per kwh fixed for 25 years has been suggested. A fixed tariff of Rs 4.95 per kwh will be awarded to projects availing accelerated depreciation.
Other suggestions include gap funding up to 30 per cent of the project cost, or Rs 2.5 crore per mw, whichever is less. Also, developers’ equity contribution should be at least Rs 1.5 crore per mw. The balance amount can be raised as loan from any source.
A project should have a minimum capacity of 10 mw if based on solar photovoltaic concept where the maximum capacity will be 50 mw.
However, the total capacity of solar PV projects to be allocated to a group, its mother company, affiliate or any of its companies will be 100 mw. A group of any part of it may submit applications for a maximum of three projects at different locations – but these projects together cannot have a capacity over 100 mw.
The allocation, signing of power purchase agreements and handing out of gap funding will all be handled by the Solar Energy Corporation of India (SECI).
Reacting, renewable energy consultancy firm Bridge to India, said: “A key concern with regard gap funding is its impact on the long- term performance of projects and the scope for developers to execute low- quality projects for short- term gains. The ministry of new and renewable energy has provided some safeguards to prevent this.
It said, “As per the draft guidelines, it has been decided that a handout of the gap funding will take place in three instalments. The first instalment of 25 per cent will be handed out after the delivery of at least 50 per cent of equipment, 50 per cent on the successful commissioning of a project and the remaining 25 per cent thereafter.”
The draft says that if a plant fails to generate power continuously for one year during the course of the PPA or the project is dismantled or its assets sold, SECI will have the right to claim assets equal to the value of the gap funding granted. “However, no real safeguards have been provided to ensure the quality of production,” said Bridge to India.
In the current scenario, developers will impart greater focus on reducing capex rather than on optimising plant performance. For example, a developer could buy the cheapest equipment and reduce plant capex to Rs 6 crore per mw with an equity investment of Rs 1.8 crore per mw. On this, the developer could avail tax benefits, based on accelerated depreciation, up to Rs 1.58 crore per mw, and, as an example, is able to avail of Rs 2 crore per mw as gap funding.
In such a scenario, the developer would have received back almost 60 per cent of the project investment and almost 200 per cent of the equity investment within one year. This will leave very little incentive for him to stay invested in a project with a PPA price of just Rs 4.95/kwh.
This not only has the potential to derail the policy motives but will also put lenders in doubt about the developer’s intentions.
Another key concern is the location of projects. No clarity has yet been provided on which states will be willing to buy solar power at those prices, the consultancy said.
The ministry has asked for suggestions and comments on the draft by April 30 before it finalises the guidelines.