Centre prepares to launch solar mission phase 2

Draft document proposes 9,000 MW of grid-connected solar power and 800 MW of off-grid application; lacks clarity on critical issues

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.

Highlights

Introduction of new financing mechanism like viability gap funding and generation based incentives
More focus of off-grid and roof top solar applications
Target deployment of 1,000 MW of rooftop projects both at off-grid and grid connected levels
Development of solar cities aiming at minimum 10% reduction in projected demand of conventional energy at the end of five years, through a combination of enhancing supply from renewable energy sources in the city and energy efficiency measures
Target for deployment of 25,000 solar pumps by the end of FY 2017 has been envisaged
Promotion of solar telecom towers with a target of around 25,000 solar integrated telecom towers
Promotion of solar water heaters with a target of at least 15-20 cities where solar water heaters would become the main source of heating water, replacing electric geysers
Target of at least 100 institutions for deployment of solar cookers and around 25,000 installations for solar cooking applications in schools for mid day meals. An overall target of deployment of 50,000 solar cookers would be set in Phase II of JNNSM
MNRE will support large solar parks (over 250 MW and 600 hectare) with up to 16 crore for civil infrastructure, technical assistance etc. and over and above this will pay for 40% of transmission infrastructure cost. The cost of the transmission infrastructure would come out of the National Clean Energy Fund (NCEF)

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.

Financing the 2nd phase of the solar mission
	2013-14	2014-15	Total per financing mechanism:
Generation Based Incentive for Rooftop and Small Solar	100 MW PV	100 MW PV	200 MW
Bundling	800 MW PV		800 MW
Viability Gap Funding	750 MW PV	770 MW PV and 1080 MW Solar Thermal (CSP)	2,600 MW
Total per year:	1,650 MW	1,950 MW	3,600 MW