Schemes to achieve solar power generation targets during phase II of JNNSM

The Ministry of New and Renewable Energy (MNRE) has proposed several strategies to promote the implementation of solar power projects under phase II of the Solar Mission

By EB Bureau

Tuesday, January 07, 2014: Phase II (2012-17) of the Jawaharlal Nehru National Solar Mission (JNNSM) focuses on installations for 10 GW of utility scale solar power, 1GW off-grid solar power projects, and the generation of 10 GW of grid-connected solar power, as it targets adding 20 GW of grid-connected and 2 GW of off-grid capacity by 2022, to be completed in three phases.

There are several strategies that have been proposed by the MNRE to meet these goals. The main schemes are—the bundling scheme; generation-based incentives; and viability gap funding.

Bundling scheme

The concept of bundling was introduced in phase I to facilitate grid-connected solar power generation. Solar power, which was still relatively expensive when this scheme was conceived, was bundled with conventional power from the unallocated quota generated at the National Thermal Power Corporation’s (NTPC) coal-based stations and was sold out to the distribution utility. The bundling concept was introduced to keep the cost of bundled power at approximately Rs 5/kWh. This proved to be a successful implementation strategy during Phase I, and the same is expected in phase II of JNNSM. The only disadvantage of this mechanism is the limited availability of conventional power from the unallocated central pool.

Applicability in phase II: The exact quantum of unallocated power that would be made available for bundling with solar power during phase II would be ascertained by the Ministry of Power (MoP), which has the mandate to allocate the unallocated power to high power-deficit states. However, it is unlikely that after the allocation of 1000 MW during phase I, sufficient unallocated power would be available to support the entire capacity targeted under phase II of the JNNSM.

At the same time, the 1:1 ratio of solar to thermal capacity (in MW) may not be required now as the solar tariff has fallen substantially during the last two years. As per estimates, bundling of conventional solar power with thermal power could be in the ratio of 2:1 to arrive at a tariff of about Rs 5.5 to Rs 6 per unit for the bundled power. But even with this reduced dependence on thermal power, the bundling scheme could have limited scope, since conventional power from the unallocated central pool is in very short supply.

Generation-based incentives

The generation-based incentive (GBI) was another mechanism introduced for developers of solar power. This was introduced to ensure the deployment of grid-connected solar power on a MW scale throughout the country, and to give a thrust to rooftop PV and other small solar power plants connected to distribution networks at voltage levels below 33 kV. The GBI was calculated as the difference between the tariff determined by the Central Electricity Regulatory Commission (CERC) or State Electricity Regulatory Commission (SERC), and the base rate of Rs 5.50 per kWh (for the FY 2010-11) escalated by 3 per cent every year. These projects will be selected based on a two-tier approach—first, pre-registration by states and thereafter, selection through a Web-enabled process on a first-come-first served basis.

Applicability in phase II of JNNSM: Unlike in phase I, the GBI in phase II is expected to be very low. Going by the calculations above, the preferential tariff for solar PV technology approved by CERC and various SERCs is in the range of Rs 9-11/kWh. As per the CERC draft tariff order for determining a levelled tariff for solar technology in 2013-14, the tariff for solar PV has further come down to Rs 8.75 per unit. Considering the current base rate of Rs 6/unit, MNRE will provide a GBI of Rs 2-3 per unit, which is considerably lower than the GBI provided during phase I. Despite the lower GBI, solar power developers can still avail the benefits for whatever they are worth.

Also, there are certain preconditions to avail GBI. As mentioned in the policy draft, only those states that were not covered under the Batch I scheme would be eligible for GBI. Projects for which GBI will be available will be connected to the 33kV grid and below. Also, the size of projects will be in the range of 500 kWp to 2.5 MWp, and capacity can increase in multiples of 500 kW only.

Viability gap funding

While both bundling and GBI have limited scopes in phase II of the JNNSM, the viability gap funding (VGF) scheme will be an attractive alternative to support solar projects. This scheme provides financial support in the form of grants, one-time or deferred, to infrastructure projects undertaken through public-private partnerships. Under this option, bidders would bid for VGF requirements in Rs/MW terms and the bidder with the minimum VGF requirement will be selected.

Through VGF, the government plans to make socially viable projects commercially viable. The government will provide VGF of up to 20 per cent of the total project cost. The government or statutory entity that owns the project may, if it decides so, provide additional grants out of its budget up to the 20 per cent of the total project cost.

If VGF is provided as an upfront capital assistance, there could be a possibility that project developers would bid aggressively, ignoring the long-term plant performance. This would be detrimental for the success of JNNSM. Therefore, disbursement of VGF would be done in multiple stages from the selection of the project. VGF payment will be subject to compliance to strict project performance parameters, which will be specified before awarding a project.

VGF will be provided in three stages:

25 per cent at the time of delivery of at least 50 per cent of the major equipment at the site. This will be based on the total procurement cost.

50 per cent on the successful commissioning of the full capacity of the plant.

Balance 25 per cent after one year of operations, as the project must meet requirements of generation as per guidelines.  

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