By the end of the second quarter 2011, the whole of India’s solar sector was waiting anxiously for the looming deadline of July 9th – the date that project developers were to have secured funding for JNNSM Phase 1 (Batch 1) projects. This date has gained even more significance after the Secretary of Ministry of New and Renewable Energy (MNRE) publicly stated that projects that did not receive funding by this date would not get an extension, with outright project cancellations to follow. Companies were given six months from the PPA signing date to secure their financing.
Here is a detailed timeline for solar projects for Batch 1, Phase 1 under JNNSM.
According to the MNRE, approximately half the projects are yet to achieve financial closure by the July 9thdeadline. According to a senior MNRE official, 17 PV projects and two CSP projects are said to have provided financial closure details; this is out of 30 PV projects (150MW) and seven CSP projects (470MW) that were approved in this batch.
India scrapped the feed-in-tariff (FIT) policy they announced originally and replaced it with a reverse bidding mechanism where the projects were awarded to the lowest bidder regardless of their previous experience in developing solar projects. This has caused some aggressive bidding on the part of project developers. The Union Minister for New and Renewable Energy, Farooq Abdullah, was quoted as saying he was “really shaken” when he saw the tariff go down from 18 rupees (USD $0.40) to 12 rupees (USD $0.27) in the bidding process.
The situation has been quite disconcerting since the chosen policy basically states: “Aggressive bidding welcome. No experience required.” In Mercom’s initial analysis of the JNNSM program (PV Magazine September 2010), we clearly outlined these risks and now these contentious issues are turning out to be the main culprits contributing to the difficulties in achieving financing.
Due to the uncertainty in the outcomes of Phase 1, Batch 1 projects, MNRE has now postponed the announcement of bidding for the balance of Phase 1, Batch 2 until the end of 2011.
JNNSM – Phase I Status
Migration – Power Purchase Agreements (PPAs) for Migration projects were signed on October 15, 2010, for 84MW (54MW-PV, 30MW-CSP).
Batch 1 – PPAs for Batch 1 projects were signed on January 10, 2011, for 620MW (150MW-PV, 470MW-CSP).
Batch 2 – Batch 2 projects are expected to be announced at the end of 2011 for 300MW (PV). NTPC Vidyut Vyapar Nigam Ltd., the sole off-taker of grid-connected solar power under JNNSM, (NVVN) originally confirmed that, like Batch 1, there would be another auction process with a starting bid.
MNRE has also recently invited suggestions for the selection process for the balance of capacity (300MW) of PV projects. But even before suggestions were made, the Director of MNRE was quoted in the media suggesting that they want to raise the size of projects from the current 5MW to a maximum of 20-25MW per developer, which implies that MNRE may have already made up their minds to increase projects sizes.
In a move to expedite solar projects and avoid delays, the Ministry of Environment and Forests recently announced that PV and CSP projects are not required to obtain environmental clearance. This is positive for developers in the short term, however, it would be prudent for developers to voluntarily conduct environmental studies to avoid future problems similar to those experienced by project developers in numerous instances in the United States.
In a positive development for the industry, the government approved gross budgeting support of Rs. 456 crore (USD $102 million) which will act as a backstop in the event of defaults in payments by the state utilities. Most state utilities in India operate under a loss and depend on central government subsidies to survive.
JNNSM’s decision to use reverse bidding instead of the FIT has created confusion among state solar programs. Since most state policies and tariffs expired on March 31, 2011, many states are in the process of developing new policies. Some will be adopting the same reverse bidding program as JNNSM. Notable states with FITs are Gujarat, Karnataka, Madhya Pradesh and possibly Maharashtra.
In other developments, the Central Electricity Regulatory Commission has proposed a reduction in solar REC prices for the year 2012-2013, proposing a floor price of Rs. 9880 (USD $222) per MWh and a forbearance price of Rs. 13,960 (USD $308), which represents a reduction of approximately 18 percent from the 2010-2011 prices.
It now comes down to how many projects get funded in this batch. If a large number of projects do not get funded, it will be a clear indication from the markets that the policy in its current form is not “bankable” and an immediate course correction will be required to renew confidence in the financial community.
Raj Prabhu is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both MercomIndia.com and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. More articles from Raj Prabhu.