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Reviewing JNNSM guidelines for selection of grid connected solar thermal projects

Guidelines for selecting new grid connected solar power projects were finally released earlier this week with much fanfare. From a solar thermal persective, they have failed to address many concerns and pre-requisites to ensure a successful rollout.

Guidelines for selecting new grid connected solar power projects were finally released earlier this week with much fanfare. From a solar thermal persective, they have failed to address many concerns and pre-requisites to ensure a successful rollout.

Guidelines for selecting new grid connected solar power projects were finally released earlier this week with much fanfare. From a solar thermal persective, they have failed to address many concerns and pre-requisites to ensure a successful rollout.

 

 

Addressing the main concern regarding the payment security to solar power developers, the Ministers Dr, Farooq Abdullah and Mr. Sushil Kumar Shinde assured the audience that an adequate mechanism would be put in place to alleviate the concerns. It was therefore surprising and typical of govt. double-speak, the line “the govt. of India is committed to supporting the NVVN in the requisite manner so as to ensure that it can fulfill the expectations of investors by providing appropriate security to solar power developers” was deleted manually in the printed handout. Subsequent uploaded document on MNRE web site also did not contain this line.It is important that policies are modified to ensure the success of the mission objectives in “pioneering a graduated shift from economic activity based on fossil fuel to one based on non-fossil fuels and from reliance on non-renewable depleting sources to renewable sources of energy” as stated by the PM while launching NAPCC on June 30, 2008.

Project Deadlines

The guidelines allow 28 months from the date of Power Purchase Agreement (PPA) for commissioning the project whereas experience from other markets such as USA and Spain have indicated this to be around 36 months from the date of financial closure.  Given that post-PPA execution, atleast 6 months will be required for financial closure of solar thermal power projects. This timeline is likely to be much longer for the firsy few projects since the model PPA by govt. nominated agency (NVVN) has not been considered bankable by investors, bankers and financial institutions.

Penalties for Delays

Stringent penalties for delays (ranging from 20% to as high as 100% of the performance guarantee) have been proposed without due consideration to the practical requirements for a successful project. This lapse is being perceived as significant and detrimental to the development of solar thermal power projects by leading international experts.

Delays due to lack of Solar Resource Data

Penalties for delays are despite the lack of availability of solar resource data, the main source or ‘raw material’ for the generation of power. Typically solar resource data is required to be computed from 12 year solar cycle period and projected over 25 years to estimate the electricity generation potential of the site and determine the economic feasibility of the project. Delays may be expected in procuring requisite data accurately to assess project feasibility and secure guarantees of performance from technology providers.

Delays in Clearances

Further delays may be anticipated on account of land acquisition (a typically sized 50 MW project requires 2 km by 2 km area), power evacuation arrangements by the state grids (most potential locations are in desert areas and nearest sub-station may be 25 km away) and allocation of water (600 million liters per annum for 50 MW project with estimated 25% capacity utilization). This is in addition to environmental and other mandatory clearances which may take longer than assumed. The timelines for these clearances and allocations would be outside the control of the project developers and will be hard to estimate for the first few projects.

PPA issues

Issues such as PPA bankability (NVVN, PPA signatory, has a low capital base and a balance sheet that does not enthuse bankers), payment guarantees for 25 years, price guarantee with a fast-tracked legally implementable remedial framework for delays; penalties for higher (and lower) than CERC specified generation (23% CUF) from a non-firm source and lack of deemed generation clauses have added to the project risk factor.

Hybrid solar projects

All operating solar thermal power projects world over utilize 8 – 25% fossil fuel for plant parasitics. Although CERC tariff mechanism provides for 10% auxiliary consumption there is no clarification how or where this auxiliary requirement would come from.

Allocation of projects: need for long term policy

While the Govt. is right in seeking a bid guarantee to gate the selection process to financially sound companies, the solar project developers need comprehensive and reliable feasibility assessment for getting requisite guarantees from their technology provider prior to providing the bid guarantees.

Analysis of project feasibility prior to project implementation is expensive (US $ 200,000 - $ 500,000). Most developers were expecting to invest in project feasibility after project approvals. In the absence of reliable feasibility, foreign technology partners are unable to provide project parameter guarantees (project cost, technical performance, electricity output and economic feasibility).

Some developers have suggested that all short-listed applicants that do not qualify under Phase I due to quantity restrictions, may be provided priority in the selection process during Phase II of the Mission. 

Such a clarification would encourage more companies to apply during the selection process.

Indigenization

One of the key mission objectives is to achieve grid parity through indigenization. Foreign technology companies interested in investing in local manufacturing are unable to do so due to insufficient local demand. An off-take of 500 MW, as envisaged in the guidelines, during the 3-year period is insufficient and discourages investments in domestic manufacturing. A longer term position would encourage development of domestic manufacturing in meeting the mission objectives.

Grid connectivity

Grid transmission network and sub-station capacity to handle immediate generation from solar thermal power projects are considered inadequate. Transmission projects must be fast-tracked to these regions and grid connectivity augmented to usher the benefit from grid connected solar projects

Why are foreign companies not enthused

Most countries implementing solar power projects have higher feed in tariff support, lower rates of interest, allowance for 25% usage of fossil fuel and loan guarantees mitigating the risk factors. The guidelines announced have negated the inherent advantages of cheaper materials and manpower availability in India and created artificial barriers for the entry of international solar thermal power and technology companies.

Image Courtesy
David Nikon
Carrera lee
Swanksalot
Buck Lewis

Author: Upendra Bhatt
Document Tag: Technology Policy Tracker