Centre prepares to launch solar mission phase 2

The Union ministry of new and renewable energy will support large solar parks with capacity of over 250 MW, on 600 ha or more (photo by Jonas Hamberg)

Off-grid and roof top solar power will get a major boost in the second phase of the Jawaharlal Nehru National Solar Mission (JNNSM). This phase will also explore new financing mechanisms, including the controversial viability gap funding, according to the second phase draft document made public by the Ministry of New and Renewable Energy (MNRE) on December 4. The draft, which is vague on critical issues like implementation of domestic content requirement, invites feedback from public by December 15. The second phase begins from 2013 and ends in 2017.

JNNSM was launched in 2010 with a target of 20GW to be installed by 2022. The first phase with a target total of 1,200MW (off-grid and on-grid) is getting over in March 2013. The second phase has a target of installing 9,000 MW of grid-connected solar power and 800 MW of off-grid application. In the first phase, the off-grid solar energy target was only 200 MW. The Centre aims to finance 3,600 MW of grid-connected solar capacity while leaving 5,400 MW to be fulfilled through state programmes.

To promote off-grid power, the phase 2 of the Mission will target areas where grid has not reached or the areas where grid has reached but the electricity is not available, through a new Energy Access programme while scrapping the old Remote Village Electrification Scheme (RVEP). During this phase, MNRE envisaged that around 20,000 villages shall be covered by way of deployment of off-grid electricity generation projects. There is also a target of deploying around one million off-grid lighting systems.

New financing mechanisms

As for project financing, phase-II will not be entirely dependent on bundling scheme because of the high capacity addition target. While bundling concept has already been explored in phase I of the Solar Mission, MNRE has introduced two new mechanisms, Viability Gap Funding (VFG) and Generation Based Incentive (GBI).

In bundling, solar power is bundled with unallocated conventional thermal power. For example, one MW of unallocated (capacity not tied up in long-term contracts) coal thermal capacity from NTPC with one MW of solar power. The relatively cheaper thermal capacity subsidises the relatively more expensive solar capacity so that the cost for state power utilities doesn't increase too far above normal purchasing cost of power. In the 2nd phase, the draft hopes to be able to provide 800 MW of solar capacity through bundling.

VGF will fund the majoirty of the 2nd phase capacity, but it has its share of disadvantages. VGF essentially is a capital subsidy that has so far mainly been used in infrastructure projects. The capital subsidy is decided through reverse bidding where the project that asks for the least VGF is awarded the contract to set up a certain capacity of solar power. VGF doesn't incentivise generation and the draft warns that the disadvantage of VGF is that long-term performance cannot be guaranteed and unsatisfactory performance cannot be penalised.

Bidding for a capital incentive may lead developers to go for low-quality equipment to cut costs. VGF is proposed to be funded through the National Clean Energy Fund which sources its funds from a cess of Rs 50 on each tonne of coal in India.

GBI is an add on to whatever the project can sell its electricity for to a power utility. For example, if a solar project needs Rs 7/KWh in income to be viable but the power utility only wants to pay Rs 4/KWh for the power, then the Centre could bridge this gap with an incentive of Rs 3/KWh. With GBI, generation is incentivised and a plant that underperforms will face financial difficulties.

Will domestic industry fare better?

Though protection and encouragement of domestic solar industry is one of the main principles of the solar mission, the draft is vague on how domestic content requirement will be ensured. In phase one, if a project developer was using crystalline silicon photovoltaic technology, he was bound to procure it from Indian industry but imports were allowed in case of thinfilm technology.

This left the room open for manufacturers to opt for the latter which is cheaper and came attached with international funding. As a result, around 60 per cent of the projects were built using thin-film technology and Indian industry bled. The draft is not clear on how the industry can be protected and lists five options that could be chosen, including price preference for domestically manufactured modules and cells, and doing some batches with 100 per cent domestic content requirement. It does not touch upon the long-discussed demand of linking domestic content with R&D and performance benchmarks for manufacturers.