Detailed report on India’s National Solar Mission Phase II Batch I

The Government of India / Solar Energy Society of India has finalized and issued the guidelines for the solar projects under National Solar Mission Phase II Batch I and issued the RfS for the same.

 

Indian Power Sphere have analyzed the key aspects of the guidelines as well as RfS and hereby attached the brief analysis of the document.

 

In the preliminary workings the following aspects have been touched upon:

  • Introduction of National Solar Mission
  • Current status of the projects under National Solar Mission
  • Brief of the NSM Phase II Batch I
  • Salient features of the provisions under NSM Phase II Batch I
  • Key technical and commercial considerations
  • Tentative financials of the projects
  • Sensitivity analysis covering key variables
  • Various strategies to optimize the financials

 

What is NSM?

The Jawaharlal Nehru National Solar Mission (JNNSM or NSM) is a mission launched by Government of India on the 11th January, 2010 to promote development of solar energy projects in India.  by the Prime Minister.

The NSM has set the ambitious target of deploying 20,000 MW of grid connected solar power by 2022 is aimed at reducing the cost of solar power generation in the country through (i) long term policy; (ii) large scale deployment goals; (iii) aggressive R&D; and (iv) domestic production of critical raw materials, components and products, as a result to achieve grid tariff parity by 2022.

NSM will create an enabling policy framework to achieve this objective and make India a global leader in solar energy.

NSM was supposed be executed in three phases.

  • Phase 1:  1,000 MW (by 2013)
  • Phase 2:  cumulative 4,000 MW (by 2017)
  • Phase 3:  cumulative 20,000 MW (by 2022)

In the Phase 1 of the Mission, 950 MW solar power projects were selected in two batches (batch-I during 2010-11 and batch-II during 2011-12) through a process of reverse bidding. NTPC Vidyut Vyapar Nigam Limited (NVVN) was appointed as the nodal authority for purchase of power from developers and further sale to distribution utilities/ Discoms after bundling with power from unallocated quota of power from coal based stations of NTPC on equal capacity basis. A total capacity of 420 MW has been commissioned under these batches by the end of Phase-1. In addition, a capacity of 50.5 MW under migration scheme, 88.8 MW under IREDA-GBI scheme and 21.5 MW under old Demonstration scheme has been commissioned, taking the total capacity commissioned to 680.80 MW.

For Phase 2 of NSM, on account of unavailability of conventional power for bundling, the Government has fixed the solar tariff at Rs. 5.45 per unit (Rs. 4.75 per unit if accelerated depreciation is availed) and shall assist the developers by providing Viability Gap Funding to make the solar projects viable at this tariff.

Detailed guidelines for bidding under NSM Phase 2 Batch I is issued by the Government of India on 28th October 2013.

 

Salient Features

Approach

  • To incentivize setting up of a large number of Solar Power Projects and minimizing the impact of tariff on the distribution companies,  Viability Gap Funding (VGF) Scheme has been selected.
  • Implementation will be by the Solar Energy Corporation of India (SECI).

 

Total Capacity

  • Total capacity: 750 MW
  • Minimum capacity: 10 MW and in multiples there of
  • Maximum Project capacity: 50 MW
  • The total capacity to be allocated to a Company including its Parent, Affiliate or Ultimate Parent-or any Group Company shall be limited to 100 MW.
  • Maximum of five projects at different locations with aggregate capacity not exceeding 100 MW.
  • A waiting list of up to 100 MW may be maintained up to date of Financial Closure.

 

Financial Qualification Criteria

  • Minimum Net Worth requirement at the rate of Rs. 2 crore per MW of the project capacity up to 20 MW and Rs. 3 crore per MW for the capacity above 20 MW.

 Connectivity with the Grid

  • Inter-connection with the transmission network of STU/CTU or any other transmission utility at voltage level of 33 KV or above.
  • The responsibility of getting connectivity, development & maintenance  of transmission system and  metering will lie with the Project Developer.

 Clearances & Approvals

  • All the clearances & approvals required for the project shall be obtained by the Project Developer.

 Domestic Content Requirement

  • A capacity of 375 MW to be bided with Domestic Content Requirement (DCR).
  • The solar cells and modules used in the solar PV power plants must both be made in India.

 

 Tariff

  • Separate tariffs for the projects availing/not availing accelerated depreciation benefits are fixed.
  • The tariffs are firm for the 25 years of project period.
  • With Accelerated Depreciation Benefit: Rs. 5.45 per Unit
  • Without Accelerated Depreciation Benefit: Rs. 4.75 per Unit.

 

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Viability Gap Funding

  • The developer will be provided a viability gap fund based on his bid.
  • The upper limit for VGF is 30% of the project cost or Rs.2.5 Cr./MW, whichever is lower.
  • The developer has to put his own equity of at least Rs.1.5 Cr./MW.
  • The remaining amount can be raised as loan from any source by the developer.
  • The VGF will be released in six tranches as follows:

– 50% : Upon commissioning

– 10% : End of 1st Year

– 10%: End of 2nd Year

– 10% : End of 3rd Year

– 10% : End of 4th Year

– 10% :  End of 5th Year

  • If the project fails to generate any power continuously for any 1 year within 25 years or its major assets (components) are sold or the project is dismantled during this tenure, VGF to be refunded back on pro-rata basis or else a claim on assets equal to the value of VGF released, on pro-rata basis. 

 

Fees, Charges & Bank Guarantees

  • Non-refundable processing fee of Rs. 1 Lakh for each Project upto 20 MW capacity and of Rs.2 Lakh for each project above 20 MW capacity.
  • Earnest Money Deposit (EMD) of Rs. 10 Lakh/MW in the form of Bank Guarantee.
  • Performance Bank Guarantee of Rs. 20 Lakh/MW at the time of signing of PPA.
  • In addition to the Performance Bank Guarantee of Rs. 20 Lakh/MW to be provided
  • At the time of signing of PPA, the Bank Guarantee towards EMD will also be converted into Performance Bank Guarantee.

 

Electricity Generation

  • The developers have to declare the CUF upon commissioning which shall in no case be less than 17% over a year.
  • CUF shall be maintained within -15% and +10% of the declared value till the end of 10 years from COD subject to the CUF remaining over minimum of 15% and within – 20% and +10% thereafter till the end of the PPA duration of 25 years.
  • The lower limit be relaxable to the extent of grid non-availability for evacuation.
  • Penalty in case of shortfall in CUF from the minimum level; equal to the compensation payable (including RECs) by the Discoms towards non-meeting of RPOs.
  • Excess generation from the maximum level of CUF shall be purchased by SECI at Rs. 3 per Unit.

 

Selection Process & Implementation Agreement

  • Request for Selection (RfS) shall be issued inviting bids quoting the VGF requirement for setting up the Solar PV Power projects at locations of choice.
  • Bid submission & evaluation to be done separately for the categories of with and without DCR.
  • Selection of projects for allotment will start from L1 (in terms of lowest VGF requirement) and go up to the level where the specified maximum MW capacity to be allocated under the chosen Category is reached.
  • Letter of Intent (LoI) shall be issued to successful bidders and sign Power Purchase Agreements (PPAs) valid for a period of 25 years.
  • The solar power purchased by SECI shall be sold to State Utilities/ Discoms/ other Bulk Consumers under Power Sale Agreements (PSA) at a fixed tariff of Rs.5.50/kWh (Rs.4.75/kWh in case of projects availing benefit of accelerated depreciation) for 25 years (including Trading Margin of SECI @ 5 paisa/kWh).

 

Payment Security Mechanism

  • SECI shall set up a payment security mechanism in order to ensure timely payment to the developers.
  • The money received from encashment of BGs, interest earned on this fund, incentives for early payment, the extra money coming from 10% lower tariff to developers claiming AD and the grants from Government/ NCEF will be used to build a fund for providing Payment Security Mechanism.
  • This fund will have a corpus to cover 3 months payment. 

 

Implementation Schedule of NSM

 

SN

Event

Date

1

RfS Document

Zero Date

2

Issuance of RfS Document

7 days from Zero Date

3

Submission & opening of Bids

60 days from Zero Date

4

Evaluation of Techno-Commercial Bids & Short listing of Bidders

60 days from Submission of Bids (SN 3)

5

Opening of Financial Bids

7 days from Short listing of  Bidders (SN 4)

6

Issuance of LoIs

15 days from opening of Financials Bids (SN 5)

7

PPA Signing

30 days from Issuance of LoIs (SN 6)

8

Financing Arrangments

210 days from PPA signing (SN 7)

9

Commissioning of Projects

13 months from PPA signing SN 7)

 

Key Technical & Commercial Considerations

 

Site Selection

  • As there is no concept of Solar Park under NSM Phase II Batch I and also no support will be given by the Government for the land acquisition, the Project Developer has to identify and select the site suitable for the Project.
  • Parameters such as land availability and costs, solar resource availability, proximity to the grid, water etc have to be considered while evaluating the sites.

 

Land Acquisition

  • As acquisition of land is the biggest hurdle for the development of projects in India, the same is of utmost importance for the Developer.
  • Suitable land should be identified and finalized (in terms of in-principle agreement or agreement to sale etc) before the submission of bids.

 

Clearances & Approvals

  • Obtaining all the necessary clearances & approvals are the responsibility of the developer.
  • Hence, the timelines and risks associated with this are required to be considered.

 

DCR Requirement for 375 MW Projects

  • Developer has to take into consideration the domestic modules while bidding under the DCR Category;
  • Availability of modules, quality, CUF estimation, degradation & warranty aspects etch are required to be considered.

 

Grid Connectivity

  • In the absence of the Solar Park concept, the cost of developing and maintaining the evacuation systems as well as generation losses on account of down time of the grid have to be taken into consideration.

 

VGF Disbursement

  • As the VGF to be disbursed over the period of 6 years from project start date; the same should take into account in the financials models of the Project.
  • Further, various political and economical risks associated with the disbursement of VGF shall also be considered while arriving at the biding amount.
  • Delay in disbursement of VGF by the Government will hamper the financials of the Projects.

 

Off-take Risks

  • Absence of firm mechanism to ensure a match between states willing to buy power at the pre-determined prices and developers’ preference of location for the projects
  • Lack of clarity on how the SECI will ensure the off-take of the power to states across the country that might be willing to buy the power.

 

Payment Security Mechanism

  • Lack of clarity in terms of how the payment security will be provided by SECI to the developers.
  • The current mechanism of collecting corpus of fund sufficient for 3 months payment is not adequate considering the lower tariff and high amount of upfront equity funding from the developer.

· Further, without the proper payment security mechanism, the banks/FIs will also be hesitant to provide funds at D:E ratio of 70:30.

 

Tentative Financials

Financials

Considering a standard project size of 10 MW (11 MWp), the financials of the Project will look like below based on the assumptions depicted herewith.

 

¨ Project IRR: 14.7%

¨ Equity IRR: 15.0%

 

¨ Project NPV: Rs. 8 Crs

¨ Equity NPV: Rs. 5 Crs

 

¨ Project Payback: 6.6 Years

¨ Equity Payback: 11.4 Years

 

Assumptions

– CAPEX: Rs. 6.6 Crs/MW

– VGF Percentage: 25% of the Project Cost

– PLF: 19%

– Interest Rate: 13%

– D/E Ratio : 70/30

– Tariff : Rs. 5.45 per Unit (W/o Depreciation Benefits)

– OPEX: Rs. 6 Lacs/MW with 5% annual escalation

 

Senstivity Analysis

Sensitivity of the change in key variables such as CAPEX, VGF Percentage,  Interest Rate, PLF and OPEX using the radar chart analysis is depicted in the report. 

 

Key Strategies for Bidding

  • As the individual project size is 10 MW and in multiples thereof, developers shall try to reduce the beta of the bid amount by lower VGF in lowest bids and higher for the highest bids.
  • Hoping the VGF disbursement as per the defined schedule the Developer shall avail cheaper short term financing such as buyer’s credit or bridge loans.
  • As the maximum CUF limit is adequately high, developers may try to maximize the DC filed thereby getting higher generation with relatively lower increase in CAPEX.

 

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