Bidding system revealed for phase II of India’s solar mission

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The second phase of India’s national solar policy will offer a new form of reverse bidding to install 750MW of solar capacity, the government has revealed in a draft policy.

This new form of reverse bidding requires the developer to quote the amount of money needed to construct the project to qualify for so-called viability gap funding (VGF) rather than quoting the electricity tariff to be paid by the electricity company as had previously been the norm.

The Ministry of New and Renewable Energy (MNRE) has established the Solar Energy Corporation of India (SECI) to administrate the provision of VGF. The VGF will be offered to project developers who demand the lowest amount of funding by SECI in order to make the project “viable”.

The government aims to install a total of 750MW under phase II. Only a maximum of 100MW will be allocated to each bidder and a minimum capacity of 10MW. Under VGF, developers will sign a power purchase agreement for 25 years to sell electricity at either Rs. 5.45 per kWh or Rs. 4.95 per kWh for developers who have a good balance sheet and therefore pay lower taxes so will not require as much financial support as developers on the lower tariff.

Hari Manoharan from Indian consulting firm RESolve said that although this may make the project “risky” for SECI, plants will be required to fulfil certain criteria.

The VGF would cover at least 30% of the cost of the project. SECI would pay 25% of this amount as soon as at least half of the equipment required for the project has been delivered. Fifty percent would be offered after full commissioning and the remaining 25% after one year of successful operation.

The draft policy also allocates a certain percentage of projects using domestically manufactured materials although full details are yet to be released, perhaps due to the government’s uncertainty of whether to include thin film in its domestic content requirement (DCR). Currently, the DCR only applies to crystalline silicon based modules with thin film being exempt. However, this has resulted in companies importing thin-film technologies to the detriment of its domestic module manufacturers.

There has been speculation that out of the 750MW capacity, DCR could be allocated to only 250MW of projects. 

Raj Prabhu from global communications and consulting firm Mercom believes the VGF is not ideal for generating capacity in India: “If the policy goes in this direction [VGF], solar in India will soon start to resemble other infrastructure/conventional energy projects that haven’t been so successful thus far.”

Manoharan is not in agreement: “I think conventional projects have been unsuccessful for reasons other than VGF, i.e. primarily due to lack of secured, long-term fuel supply more than anything else rather than as a result of a PPP.”

However, Madhavan Nampoothiri, founder and director of RESolve, said there are more important questions the government needs to answer before implementing VGF: “The main challenge with VGF is that since all the money is released within one year of operation of the plant, how will MNRE make sure that the plant’s quality is good and can operate at the optimum levels for 25 years?”

The consultation for VGF will close on 30 April with implementation expected in May/June 2013.

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