Solar power project development slowed down drastically since March when India imposed a lockdown to control the COVID-19 pandemic. Solar installations declined more than 80% in Q2. Only 205 MW was installed in the country with completion of most projects moved to Q4 and 2021.
There is a growing concern among project developers that power transmission projects, which are also delayed, may further delay the commissioning of solar projects. It is likely to lead to hefty fines for developers.
Solar project developers have urged the government to levy penalties on transmission projects that miss their completion deadlines, an industry association’s spokesperson told Mercom.
“Hefty penalties are levied on delayed solar power projects for reasons attributable to the developers or even beyond their control. If solar developers are required to pay heavy penalties for missing project deadlines, why wouldn’t transmission utilities pay similar penalties for delay in their projects,” said Praveen Golash, spokesperson at Solar Power Developers Association (SPDA).
“We have urged the government to consider levying similar penalties for transmission projects,” he said.
A month’s delay in completing a 100 MW project can cost a developer ₹1.28 million ($17,413) in penalties. For others, it could result in a ₹0.005 reduction of power tariffs discovered through reverse auctions for each day’s delay beyond three months. The reduced tariff continues for the entire term of the power purchase agreement (PPA).
These tariffs could be reduced to zero if delayed by two years and could also lead to the termination of PPAs.
The Coronavirus crisis has disrupted momentum in all segments of the renewable industry. Transmissions projects are delayed, and several substations are not ready yet. Those in the tendering stages are facing delays.
The Central Electricity Regulatory Authority (CERC) has recently clarified that if there is a delay in the commercial operation of the projects, developers need to pay yearly transmission charges if the network is operational.
On the other hand, if projects have achieved commercial operation but transmission networks aren’t ready, the latter will make an alternate arrangement for wheeling the power at its own cost. Until an arrangement is in place, the transmission company will pay interstate transmission charges to the developers.
Addressing this in a Mercom webinar, Dilip Nigam, Advisor at MNRE had said that since the transmission charges do not make up for the losses faced by the developer adequately, the ministry is proposing the developers are paid for the deemed generation.
The power ministry has waived interstate transmission system (ISTS) charges for power projects commissioned before June 30, 2023. Deadlines for these were revised from December 31, 2022, set previously. However, industry executives expect projects to get delayed beyond this date due to the pandemic.
“Payment of transmission charges to the generator may not adequately compensate its losses,” an industry executive said. “Transmission charges have either been waived or are much less than the loss in revenue. It has prompted the solar power project developers to propose a compensation system based on deemed generation.”
According to another developer, “All the transmission projects are running late. Every project developer is considering bidding from Rajasthan, especially the Fatehgarh area. However, none of the substations there are have come up on time. The ones that are in the tendering stage are facing delays,”
Golash added, “Solar power project developers fear it will result in lost opportunity – for not being able to wheel the power to the grid and earn revenue. However, the government has extended project deadlines for both solar and transmission projects. It may come as some respite to them.”
An extended deadline provides solar power project developers an option to stagger their orders for modules, thereby deferring their expenses to the near future.
“If transmission projects are delayed, we can slow down solar power project construction. However, there is never any clarity on revised commissioning dates,” said a senior industry executive. “New dates for commercial operations are announced when the power project developer is at an advanced stage of implementation. It leaves little room for staggering investments or deferring orders.”
“Interest payment during the project period, however, will be extended and may lead to cost overruns,” according to Golash from SPDA.
According to Mercom India Research, over the last 18 months, solar power developers have taken up construction of almost 12 GW of projects. In contrast, some 3.2 GW of ISTS projects were completed, out of 15.2 GW under construction.
Of the 12 GW of solar projects, project developers are yet to sign PPAs and power sale agreements (PSA) for about 5 GW. Their power transmission applications will be accepted after PPAs and PSAs are signed.
According to a senior industry executive, a year’s delay in commissioning transmission infrastructure results in a generation loss of 2.2 million units for each megawatt of installed solar generation capacity. A 100 MW solar power generating station scheduled to sell electricity ₹2.5 ($0.034)/kWh would lose the opportunity to earn ₹550 million ($7.47 million) in a year. Monthly losses are estimated at around ₹46 million ($620,000).
A solar power executive estimates monthly revenue losses to range between ₹ 45 million ($610,000) to ₹ 60 million ($810,000) in the absence of transmission networks for a 100 MW unit.
CERC has directed Solar Energy Corporation of India (SECI) to sign PPAs for ISTS projects in line with
Power Grid Corporation of India’s (PGCIL) infrastructure development plans. The aim is to match transmission and generation project completions.
“We need to push the planning and execution of transmission infrastructure aggressively. The act of postponing every auction or bid date is troubling investors ready with funds from November. It is almost a year, and the number of bids has been significantly less. This has a direct impact on the capacity addition two years down the line as this period has been bad in terms of closing auctions,” said a senior industry executive.
Debjoy is a Senior Assistant Editor at Mercom. Debjoy brings more than two decades of experience in frontline journalism, spending most of his career working for dailies like Business Standard and The Economic Times. He has reported on a vast array of sectors, including power and renewables. A graduate in business economics, Debjoy is an amateur 3D digital artist and a photographer. More articles from Debjoy Sengupta.