Solar mission: 1,500 MW worth projects to be allocated under bundling scheme

Bundling, wherein solar and thermal power were sold as a bundle, was credited with the reduction of tariff rates for solar power in Phase I of the mission

By Aruna Kumarankandath
Published: Friday 25 July 2014

Photograph by Jonas Hamberg

The Union Ministry of New and Renewable Energy (MNRE) has last week released the draft guidelines for the second batch of projects under  phase II of the Jawaharlal Nehru National Solar Mission (JNNSM).

Solar photovoltaic (PV) projects with a capacity of 1,500 mega-watt (MW) would be allocated in a phased manner, divided equally over 2014-15 and 2015-16. Projects for 500 MW out of the 1,500 MW have been set aside for domestic content requirement (DCR) category. DCR mandates sourcing of equipment from domestic market.
Goodbye to viability gap funding?

After experimenting with capital subsidy in the form of viability gap funding (VGF) for the projects in the Batch 1 projects allocated earlier this year, this batch is going back to the “bundling scheme” used in Phase I of JNNSM wherein solar power is bundled with coal-based power at the time of selling to distribution agencies. MNRE defines bundling mechanism as “bundle of relatively expensive solar power with power from the unallocated quota of the Government of India (Ministry of Power), generated at NTPC coal-based stations, which is relatively cheaper and sell it to the Distribution Utility at weighted average price.”

Bundling was credited with the reduction of tariff rates for solar power in Phase I of the mission. The World Bank in its report, Paving the Way for a Transformational Future: Lessons from Jawaharlal Nehru National Solar Mission Phase I, states that “bundling of solar power with cheaper conventional power reduces the tariff impact of solar power on the distribution utilities”.

Cost of Bundled Power under JNNSM for Solar PV
JNNSM Phase I CERC Benchmark Tariff Discounted Tariff Range Weighted Average Tariff Bundled Power Tariff Range
Batch 1 17.91 10.95 - 12.76 12.12 4.34 - 4.67
Batch 2 15.39 7.49 - 9.44 8.77 3.73 - 4.05
All tariff rates are in Rs/kilowatt-hour (Rs/kWh)
Source: NTPC Vidyut Vyapar Nigam Ltd

In Phase I, 1 MW of coal and solar capacities were bundled, leading to selling four units (kWh) of conventional power with one unit of solar power as a bundle. However, the ratio of bundling is not specifically mentioned in the draft guidelines. It says that the Batch II scheme would be implemented on similar lines as carried out in Phase I of the solar mission. A K Varshney, director with MNRE, clarified “The same format of bundling 1 MW of coal power with 1 MW of solar power would be followed in this batch.”

N K Sharma, CEO of NTPC Vidyut Vyapar Nigam (NVVN), said the current cost of bundled power is somewhere around Rs 4.50 per unit. This is because although the cost of solar power has come down, the cost of power from coal fired power plants has gone up.  However, the guidelines are silent on the same issue. Batch I of Phase II promised the sale of power at Rs 5.50 per unit with VGF. MNRE has approved NVVN to act as nodal agency to select the developers of grid-connected solar PV projects of 1,500 MW through tariff-based reverse bidding process. The benchmark cost of solar PV power given by the Central Electricity Regulatory Commission (CERC) for the year 2014-15 is Rs 7.72 per unit and 6.95 per unit without and with availing accelerated depreciation (tax benefit).

Bonds for better delivery of projects

One new scheme introduced in the guidelines is the bid bonds where the bidder has to furnish bonds of amount ranging from Rs 10,000 to Rs 50,000 for 10 to 25 per cent of discount offered on CERC benchmark tariffs. This provision has been added to discourage adventurous bids made by developers in previous biddings just to grab the project and eventually failing to deliver power at the rates quoted.

The guidelines say that the selection of projects would be “technology agnostic”—they can use crystalline silicon or thin film or concentrated photovoltaic (CPV), with or without trackers. The minimum bid can be of 10 MW and maximum of 50 MW. One single company, including its parent, affiliate or ultimate parent or any group company, is allowed to bid for 100 MW per tranche.  However, it does not clarify how the DCR category of 500 MW would be divided in the two tranches of 750 MW between the two years.

Varshney asserted, “the initial proposal is dividing 250 MW DCR in both the tranches, but the final guidelines will reveal how DCR is handled in Batch II.”

MNRE held consultations with the solar developers and financiers last week. After cabinet approval, they expect the final offer to be out in September 2014.

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