New guidelines for national solar mission power projects

Reverse bidding retained, small changes like use of domestic content raises technology concerns

By Ankur Paliwal
Published: Saturday 01 October 2011

The Union government does not want to change what is tried and tested, especially when it comes to populating the country with eco-friendly solar power producing stations. In 2010, the Union Ministry of New and Renewable energy (MNRE) selected 37 power producers to produce 620 MW (150 MW photo voltaic and 470 MW solar thermal) power. On August 24, it issued a fresh set of guidelines to select another batch of power producers to produce 350 MW power. The new guidelines mirror the core strategy of the first set, albeit with minor changes.

A project developer will now be required to give different kinds of bank guarantees to NTPC Vidyut Vitaran Nigam, the electricity transmission company which will buy the power from solar farms set
These include earnest money deposit of Rs 20 lakh along with Request For Submission; a bid bond that will depend on the offered discount in the reverse bidding (see table), and performance bank guarantee of Rs 30 lakh at the time of signing of power purchase agreement (PPA)
There have been instances when promoters of the projects in the first batch have sold off their majority shares to another entity after signing PPAs with NVVN
There are chances that after getting subsidised land for projects, the developer may get the land use changed to set up a more profitable industry,
Under the prime minister's mission on climate change, one of the crucial missions was to increase the share of renewable energy in the power basket of the country. In this, solar power had an important role to play. By 2022, the government was to infuse 20 gigawatt (GW) of grid-connected electricity into the energy mix of the country. A new mission called the Jawaharlal Nehru National Solar Mission (JNNSM) was announced in early 2010 to conceptualise and implement this task. In the first phase of this mission comprising two batches, 1,000 MW is to be added by 2013. The total capacity of the first and the second batch adds up to 970 MW; the remaining 30 MW capacity addition will be from migration projects. These are those projects which were contracted by the MNRE before the start of the solar mission, but are now included in the first phase to generate the total 1,000 MW.

The new guidelines released by MNRE are for the second batch. The first batch has already achieved financial closure and projects are said to be under construction. However, none of the projects have started producing electricity. The deadline for them to be ready to produce electricity is January 2012. 
In 2010, MNRE brought in an internationally common format, though new to India, where prospective power producers were asked to give discounts on the solar power tariffs set by Central Electricity Regulatory Commission

, the apex body that adjudicates on inter-state electricity trading issues. The power producers who committed to provide power at the cheapest rates were selected. This was called reverse bidding. This method of selecting power producers have been retained in the second batch too.

Bharat Bhargava, director at MNRE and in-charge of solar power projects says that reverse bidding has been a success for the first set of allotments. “Despite giving discounts up to 25 to 32 percent on the CERC declared tariffs in the first batch, 28 out of total 30 PV (photo voltaic) power developers achieved financial closures,” he says. One was disqualified for providing wrong information; the other could not arrange the requisite finances. One of the reasons ascribed by Bhargava for the success of the bidding process is falling of prices of solar panels and cells globally. The price of solar panels has been steadily declining—from $1.7 in 2009 to about $1 at the beginning of 2011.

The downside

But experts are concerned that adventurous down-bidding may lead to unfulfilled commitments. “Though the method has been proved successful in the first batch, the adventurous bidding has inherent concerns. If the developers bid too low, there is a possibility of some projects falling through,” says Vijay Lakhanpal, CEO, Forum for Advancement of Solar Thermal (FAST).

To alleviate this concern, bank guarantee-based safeguards have been incorporated into the scheme to ensure solar power promoters stick to their commitments.

Developers have to submit Rs 1 lakh at the time of making the Request for Proposal which is non-refundable. Besides, a project developer has to give different kinds of bank guarantees to NVVN (NTPC Vidyut Vitaran Nigam), the electricity transmission company which will buy the power from solar farms set up under JNNSM. These include earnest money deposit of Rs 20 lakh along with Request For Submission; a bid bond that will depend on the offered discount in the reverse bidding (see table), and performance bank guarantee of Rs 30 lakh at the time of signing of power purchase agreement (PPA).

Serial number
Discount offered on CERC approved tariff Amount of bid bond applicable for every paise of discount on CERC approved tariff (per MW)
1 Upto 10% Rs 10,000
2 More than 10% and upto 15%  Rs 20,000
3 More than 15% and upto 20%  Rs 30,000
4 More than 20% and upto 25%   Rs 40,000
5 More than 25%  Rs 50,000

The first batch did see a bit of quick money making. There have been instances when promoters of these projects, sold off their majority shares to another entity after signing agreements with NVVN. This happened because the promoter was required to retain only 26 per cent equity in the project. So, if these sold-off projects are bought by say one or two big solar market players then there will be less innovation. That is why in the second batch equity has been increased to 51 per cent which needs to be kept for at least a year after the plant is commissioned. If after a year the developer feels that it is not profitable the project can be sold off. “There are enough buyers for solar plants in the market,” says Lakhanpal. But he warns that there could be another danger in selling the power plant to another company—it may set up some other project at the site.

Deepak Mehendiratta elaborates Lakhanpal's fears. Mehendiratta employed with M3 Solar, a UK based consultancy, says that he has come across clients who have in the past applied for projects because of cheap land. States like Rajasthan provide land at cheap rates for setting up solar power plants. “After getting the subsidised land, the developer might just pay the bid bond and other bank guarantees and not commission the project. As soon as the required time is over, it may use connections with local politician to change land use and set up a more profitable industry,” says Mehendiratta.
Enough safeguards: renewable energy ministry

Solar companies selected in the first round of bidding also included cloth merchants, animation companies, water pump manufacturers. Lakhanpal says that if a diamond merchant applies for a solar plant, MNRE cannot just deny him the opportunity.

Bhargava, counters by saying that the safeguards are adequate. “Only a developer whose company's net worth is equal to or greater than the value calculated at the rate of Rs 3 crore per MW of the project capacity up to 20 MW can enter the project. For every MW capacity beyond 20 MW, additional net worth of Rs 2 crore would need to be demonstrated, reads the guidelines. And to meet technical criteria, a developer needs to show that he has the required indigenous facility or tie-ups with other organisations to provide technological support,” Bhargava says.

Technical details along with proof of financial closures and possession of minimum of 2 hectare of land per MW should be furnished within 7 months from the date of signing of PPA. NVVN will encash the performance bank guarantee and shall cancel the project in case of delays.

Then there are other penalties for not producing the required electricity. The developer has to pay NVVN if they do not produce as much as they have contracted for.

Technology choice concerns

There is a likelihood that thin-films will be the technology of choice for the second batch ending in 2013. Use of expensive but efficient crystalline silicon panels could be as little as 20 per cent. Reason: the second batch pushes for using indigenous equipment. Unlike the first batch where the government had mandated the use of indigenously produced modules for crystalline panels but import of the cells which make up the module was accepted, in the second batch both cells and modules have to be made in India. But no such rule exists for panels made from thin-films. The efficiency of thin-film PV module is only 4 per cent to 12 per cent in comparison to crystalline silicon PV with 13 to 19 per cent efficiency. It is the cost factor which matters for a project developer. “Our primary concern is cost,” says a project developer who does not want to be named.

There is also a fear in the market that rapid introduction of domestic content can lead to monopoly. Currently two companies, Moserbaer and Tata BP control the maximum share of the solar panels manufacturing business. “If thin film technology is also made domestic then it would lead to monopoly as only a few players like Moserbaer manufactures thin-film PV,” said Lakhanpal.

Project developers are happy as the total capacity of solar power projects allocated to one company has been increased from 5MW in the first batch to 50 MW. Besides, a company can have three projects at different locations. Different locations means the projects can be at one place but have to be metered separately. The picture would only be clear at the end of the first phase. “We are trying to ensure that all the solar projects commissioned in the first phase are functional by the end of it. The strategies might change as we progress,” says Bhargava.

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