Lender Can Substitute Promoter in Case of Solar Generator Default_ Amended Guidelines

The Ministry of Power has amended the competitive bidding guidelines for the procurement of power from grid-connected solar photovoltaic (PV) projects. This is the third time these guidelines have been amended. The guidelines were previously amended in January 2019 and before that in June 2018.

Though there is little evidence that solar developers are defaulting on payments the Ministry has included some radical changes to the guidelines where the promoter can be substituted in case of a default.

The larger problem in the industry is procurers not paying developers on time, which is causing financial hardship to solar power generators. There is no indication if there are exceptions when procurers don’t pay and cause hardship to generators.

Here are some of the key amendments:



If the solar PV project site is specified by the procurer, the performance bank guarantee (PBG) should not be more than 4% of the project cost. In the case of solar PV project site specified by the solar power generator, PBG will be 5% of the project cost.

PBG can be encashed to recover any damages of the solar power generator in terms of the power purchase agreement (PPA). Damages recovered by the intermediary procurer upon the default of the solar power generator will be credited to the ‘Payment Security Fund’ to be maintained by the intermediary procurer.

In case, the successful bidder is a single company, it will ensure that its shareholding in the special purpose vehicle (SPV) or the project company executing the PPA must not fall below 51% before the completion of three years from the commercial operation date (COD) except with the prior approval of the procurer.

If the successful bidder is a consortium, then the combined shareholding of the consortium members in the SPV/project company executing the PPA, cannot fall below 51% before the end of three years from the COD, except with the prior approval of the procurer. In such a case, the successful bidder will ensure that its promoters do not cede control of the bidding company/ consortium until three years from the COD, except with the prior approval of the procurer. In this case, it will also be essential that the successful bidder provides information about its promoters and their shareholding to the procurer before signing of the PPA.

Any change in the shareholding after the expiry of three years from the COD can be undertaken in communication with the procurer.

If a solar power generator is in default to its lender, the lender will be entitled to undertake substitution of the promoter in concurrence with the procurers.

The Ministry of Power had initially issued the updated guidelines for competitive bidding of solar PV projects in August 2017.