MNRE’s New Solar Bidding Guidelines Say No Power Backdown Without Formal Instructions

To expedite and streamline the process of developing solar projects, the Ministry of New and Renewable Energy (MNRE) has issued amendments to its guidelines for the competitive bidding process. The latest amendments issued by the government seem to be an attempt to provide relief to solar energy developers in the country by tackling issues such as payment security mechanism, curtailment of power, land acquisition, timely tariff adoption among others.

Highlights from the amendments :

Tariff Calculation

Elaborating on the role and process to be followed, the amendment notes that the intermediary procurer of solar power would sell power at the weighted average cost of tariffs discovered and finalized for the different bids. However, if the project does not get commissioned, then the capacity of such a project will be deducted, and a new weighted average tariff will be calculated. The tariff will be calculated by using a weighted average tariff of bids for January 1 to June 30 and July 1 to December 31 of any year.



Land

The solar power developer will be expected to submit documents and lease agreements to establish 100% possession of the required land for the project for the complete term of the power purchase agreement (PPA) at the time of commissioning. Earlier, the guidelines only mentioned that the documents, lease agreements to establish the right to use 100% of the land should be submitted within 12 months of the execution of the PPA.

Commenting on the guidelines, a senior executive from a large renewable IPP told Mercom, “These amendments are welcomed by the industry. Previously, we had to submit the proof of land acquisition at the time of financial closure (around seven months after PPA singing); however, now we get an extra 10 or 11 months to do the same. It is well known that land acquisition is a major challenge for solar energy projects; this is expected to provide some degree of relief.”

In June 2019, Mercom reported that land acquisition is still the biggest concern for developers.

Payment Security Fund

The previous guidelines only mentioned that the intermediary procurer of power would provide the solar power generator a payment security fund that will support the payment of at least three months’ billing of all the projects tied up with such funds.  Now, this has been amended to add to the existing point that the intermediary procurer can collect ₹500,000 ($7,000)/MW from the solar power developers, and the amount would go to the payment security fund.

A tripartite agreement will be signed between the Reserve Bank of India (RBI), the central government, and the state government, which will qualify as the state government’s guarantee covering the security for the payment of energy charges. Adding to this existing guideline, the amendment further states that an additional risk premium of ₹0.10 ($0.0014)/kWh will be paid by the end procurer to the intermediary procurer and will be credited to the payment security fund maintained by the intermediary procurer to meet these exigencies.

Change in Law

It has also been clarified that the “Change in Law” clause would include modifications brought out through any change in law, rules, regulations, or orders. However, on this specific clause an official from a renewable energy IPP, suggested that “This clause should be amended to include the provision for granting extension to the developer due to a Change in Law event, because a Change in Law event, like changes in land acquisition guidelines of a particular state, could impact the execution timelines of the project, leading to delays in fulfillment of conditions and eventually project commissioning.”

Force Majeure

Referring to force majeure, the earlier guideline had a simple note saying that the PPA will have provisions concerning force majeure definitions, exclusions, applicability, and available relief on account of force majeure, as per the industry standards. In the amended guidelines, force majeure has been elaborately defined and categorized under natural and non-natural force majeure events and also exclusions. Further details of how the notification of force majeure is to be presented and termination of PPA due to force majeure events are mentioned.

The latest amendments provide that in case of a force majeure event, the affected party will be excused from performing their obligations as part of the PPA, provided that the period does not exceed 180 days from the date of issuance of the force majeure notice.

Curtailment

In the case of backdown of power for reasons other than grid security, the earlier guidelines considered 50% of average generation per hour during the month for calculation of minimum generation compensation for the solar developer. The guidelines have now been amended to consider 100% of the average generation per hour during the month for this calculation. Further, it has also been specified that no backdown or curtailment can be ordered without giving formal or written instructions, and the details of backdown, including justifications for such curtailment, would be made public by the concerned Load Despatch Centre (SLDC).

Another executive from one of India’s largest solar energy companies told Mercom that “With strict guidelines in place for compensation in case of backing down, SLDCs and DISCOMs should be forced to think twice before ordering back down of solar power. This may not resolve the issue fully but will provide some comfort to developers.”

If the solar developer defaults, the amended guidelines specify that the developer has to pay to the procurer, damages, equivalent to six months, or balance PPA period whichever is less, of charges for its contracted capacity. These details were not mentioned in the previous guidelines.

The earlier guidelines noted that if the procurer defaults, the solar developer can ask the procurer to take over the project by paying termination compensation of the total debt due and 150% of adjusted equity, this has now been reduced to 110% of adjusted equity.

Tariff Adoption

Addressing the issue of tariff adoption, the amended guidelines have provided relief to the developers saying, in case the distribution licensee approaches the appropriate Commission for the adoption of tariff and the Commission does not decide on the tariff within sixty days of submission, the tariffs will be deemed to have been adopted by the Appropriate Commission. Also, if the tariff adoption is delayed by over 60 days, the time provided for financial closure and scheduled commissioning date will be extended.

The inability of SERCs to adopt tariffs promptly is a pain point for developers who have won projects under central government tenders. Recently, Mercom reported that in a respite for renewable developers in the state, the Andhra Pradesh Electricity Regulatory Authority (APERC) approved the tariff for three solar park projects – 750 MW (Phase – II) Solar Park at NP Kunta, 750 MW Kadapa Ultra Mega Solar Park, and 250 MW Solar Power from Kadapa Solar Park under NSM Phase-II, Batch-II, Tranche-I.

The executive from a renewable IPP also expressed to Mercom that, “Tariff adoption has been a great concern for developers. Some of the SERCs were taking more than a year to provide approvals for the adoption of the tariff. Due to the non-adoption of a tariff, the lending institutions were reluctant to provide loans to the developers. Also, there was no linkage of financial closure and scheduled commissioning date with the adoption of tariff. The amendment has addressed this issue partially. The timeline for the adoption of a tariff by the appropriate commission has been decided to be 60 days. In case of a failure to do so by the appropriate commission, the tariffs will be deemed to be have been adopted by the appropriate commission. The timeline for filing of the petition by intermediary procurer/state DISCOM also needs to be defined.”

Project Commissioning Delays

The amended guidelines also have detailed penalties for the delay in project commissioning.  In case of a delay in commissioning of up to six months from the scheduled date, the performance bank guarantees will be encashed on a per-day basis and proportionate to the capacity not commissioned. For a delay in commissioning beyond six months from scheduled date or in the event of default, the contracted capacity will stand reduced to the project capacity commissioned up to the scheduled commissioning plus six months. The PPA for the balance capacity not commissioned will stand terminated.

In case the site is specified by the procurer, any delay in handing over the land to the solar power developer per the given timelines, will entail a corresponding extension in the financial closure and scheduled commissioning date. The maximum extension is limited to one year from the expiry of the date of handing over of balance 10% of the land.

Towards the beginning of 2019, the Ministry of Power had amended the competitive bidding guidelines for the procurement of power from solar projects, incorporating changes to further the pace of solar installations in the country. The government had reduced the commissioning timeframes for solar projects in this amendment. The earlier amendment was carried out in June 2018.

Through these amendments introduced from time to time, the government is trying to expedite the entire process of solar project development, right from tendering and auctioning to commissioning.

“These amendments look good on paper, but without strict enforcement, it won’t mean much. It is also taking too long to address concerns on the ground which is resulting in lost momentum in the market. Government agencies need to be a lot more responsive and have their ear to the ground at all times to maintain growth in the sector,” said Raj Prabhu, CEO of Mercom Capital Group.

Image credit: LONGi Solar