Effective immediately, the Ministry of Power has issued final guidelines for the tariff-based competitive bidding process for solar projects. The guidelines apply to large‑scale projects with a capacity of 5 MW or more.
The goal of these guidelines is to address some of the challenges being faced by large-scale project developers in India and to replicate the success of the REWA auction and will include payment guarantees, longer construction timelines for large projects, and deemed generation benefits. The guidelines also include a provision for an intermediary procurer and some clarity on the change in law clause.
“These new auction guidelines are definitely an improvement over previous rules and are designed based on bidding guidelines set at the REWA auction, which were successful in bringing down tariffs. However, if antidumping tariffs are imposed these new guidelines may not matter much in the short-term,” said Raj Prabhu CEO of Mercom Capital Group.
Some of the important new provisions include:
Intermediary Procurer – In the guidelines, the Ministry of Power included a new provision that enables the intermediary procurer to enter into a power purchase agreement (PPA) with the solar power generator and sign a power sale agreement (PSA) with the end procurer. This is a good move — it aims to bring in a more bankable government agency that can alleviate the risks of signing PPAs with struggling DISCOMs. The move could lead to slightly lowered interest rates and improve the chances of closing project financing. A recent example of this was seen in the Indian renewable sector when PTC India acted as an intermediary between wind power generators and end procurers for 1,050 MW of wind.
Change in law clause – Another important clarification in the guidelines is the change in law clause, which has become a big deal after the recently announced GST rates (rates are still up in the air). The guidelines stipulate that when a change in law results in an adverse financial loss to a solar power generator or procurer then, the solar power generator will be entitled to compensation from the other party.
Currently new project development has stalled due to lack of clarity regarding GST. The inclusion of this clause in the guidelines is expected to provide some certainty to stakeholders (developers, procurers, and investors) involved in solar project development.
Generation Compensation – This is another sticking point in the industry that is addressed in this document in three parts.
a) According to the guidelines, if a project is operational on the scheduled commissioning date but the power evacuation or transmission infrastructure is not ready due to no fault of the developer, a generation compensation will be provided.
b) Generation Compensation in Offtake Constraints Due to Grid Unavailability – If there are instances where bottlenecks make transmission unavailable after the project is operational, then generation compensation will be provided based on the number of hours that the grid is unavailable.
c) Offtake Constraints Caused by Procurer Backdown – If the power procurer flouts the ‘must-run’ status given to solar, then the power producer will receive a minimum generation compensation equivalent to 50 percent of the average generation per hour multiplied by the number of backdown hours, which is then multiplied by the tariff rate. Though this is better than nothing, it is not likely to stop the backdown of solar as it would still be cheaper to flout the must-run status than it would be to pay the full tariff.
Other highlights included in the competitive bidding guidelines:
- The procurer will need to provide payment security to the generator through a revolving letter of credit that amounts to an average monthly project bill plus a payment security fund that amounts to the equivalent of three months of payments for the project. Apart from this, there is also a provision that enables the procurer to provide a state government guarantee, in a legally enforceable form, that ensures there is adequate security for the solar power generator, both in terms of the payment of energy charges and termination compensation, if any.
- For a project site specified by the procurer, the procurer is required to ensure that the land is 100 percent of the land is acquired within three months of signing a power purchase agreement (PPA).
- For a project site specified by the procurer in a solar park, in order to ensure the timely commencement of electricity, the procurer must be certain that project preparation steps, such as land availability and temporary transmission, have been completed by the solar park developer.
- For a project site selected by the solar power generator, the land must be identified at the time of bid submission and 100 percent of the land should be acquired within seven months of the PPA signing.
- Bids will be designed in packages with a minimum size of 50 MW. Smaller bid packages will be allowed for special category states and union territories.
- In cases where the tariff is used as the bidding parameter, power has to be either procured at a fixed tariff calculated in ₹/kWh for 25 years or more or at an escalating tariff calculated in ₹/kWh with pre-defined annual escalations fixed in ₹/kWh. The duration for fixed escalation will be provided.
- When viability gap funding (VGF) is used as the bidding parameter, a predetermined tariff will be offered to the solar power generator along with financial assistance. For VGF-based bidding, the procurer must specify the pre-determined tariff payable to the selected solar power generator for the duration of the PPA and the maximum amount of VGF. Bidders who do not want to use VGF will be allowed to offer a discounted tariff that is lower than the pre‑determined tariff offered by the procurer.
- The PPA period cannot not be less than 25 years from the date of scheduled project commissioning. This is also important as some DISCOMS are trying to sign shorter term PPAs.
- A project will only be considered for partial commissioning after the project has reached a minimum of 50 percent completion. In the event of an early commissioning, the procurer will have to purchase the power generated at 75 percent of the PPA tariff until the specified commissioning date arrives.
- All solar projects should be commissioned within 13 months of the date of PPA signing. There will be an exception for projects with a capacity of 250 MW or greater that are being developed outside of a solar park — these can be commissioned within 15 months of the date the PPA was signed.
- Solar power generators will be free to re-power their projects (replace old modules and equipment with newer, more efficient equipment) from time to time during the duration of the PPA. However, the procurer will be obliged to buy power only within the range of the CUF specified in the PPA.
- The solar power generator must achieve financial closure within seven months of the date of PPA signing.
Mercom previously reported that the MNRE had released draft guidelines for the tariff-based competitive bidding process for solar projects to address problem areas that are making large-scale project development challenging.