The guidelines released by the Union Ministry of New and Renewable Energy (MNRE) to set up 750 MW of solar photovoltaic projects in the country may just defeat the purpose of the Jawaharlal Nehru National Solar Mission (JNNSM). This 750 MW solar energy capacity would be installed under batch one of phase two of JNNSM. The guidelines were released on April 18 and comments from public were invited till April 30. Viability gap funding (VGF), which has been introduced as a financing mechanism to fund the solar projects, is the main bone of contention. Renewable energy policy analysts fear that VGF may lead to setting up of inefficient solar projects.
Divided in three phases, JNNSM aims to install 20,000 of grid-connected solar power by 2022. Phase one of JNNSM ended in March this year; phase two will last till 2017.
Viability gap funding is a capital subsidy that bridges the gap between the project cost dictated by the prevailing electricity rate and the price quoted by a developer. As per the guidelines, VGF would be given on reverse bidding basis. So, whoever asks for the lowest VGF will get the project. The tariff to be paid to the developer has been fixed at Rs 5.45 per unit for a project period of 25 years. Now, suppose the cost of a project comes to Rs 5.5 crore per MW and developer (X) quotes Rs 7 crore per MW for the project based on use of cheap, substandard products, while another (Y), ready to use high-quality equipment, projects a cost of Rs 8 crore per MW. As per VGF, the developer who asks for lesser subsidy (gap) gets the project. In this case, X will get the project since he is asking for Rs 1.5 crore as against 2.5 crore by Y.
