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Solar developers in Gujarat likely to face penalty and lower tariffs on missing deadline

According to reports, not all the companies, which are busy setting up their solar power projects in Gujarat, would be able to make hay when the sun shines. Many of them may not be able to avail Rs 15 per unit procurement tariff fixed by Gujarat government as the tariff is applicable to those units that get commissioned before December 2011.

This could be gauged from the fact that Gujarat has so far seen commissioning of only 11 Mw of solar power capacity by three entities, while 87 national and international companies have entered into power purchase agreement (PPAs) with the state government for supply of 961.5 Mw.

As part of solar power generation policy announced in 2009, Gujarat Electricity Regulatory Commission (GERC) had fixed a tariff of Rs 15 per unit for procurement of power from solar photovoltaic power projects and Rs 11 per unit for solar thermal power plants.

These tariffs were for initial 12 years and were applicable to the new solar power projects to be commissioned in the state by December 31, 2011.

According to Gujarat Energy Development Authority (GEDA), as many as 87 companies have signed PPAs with Gujarat Urja Vikas Nigam Ltd (GUVNL), a state-run electricity company, for a supply of 961.5 Mw.

“Of the total PPAs signed so far, majority of companies had expressed their intention of commissioning their projects before December 31, 2011 to avail Rs 15 per unit tariff. However, only three plants having cumulative generation capacity of 11 Mw have been commissioned as on date. With four months left for the deadline to end, another 200 Mw capacity is likely to be commissioned before December 2011”, said a source in the state government.

Solar power plants so far commissioned in the state include those of Lanco (5 Mw) and Azure Power (5 Mw)

“If a company has committed to start its project before December 2011 and if it fails to honour the deadline, such companies may have to face penalty because they have entered into power purchase agreements,” said officials of Gujarat Electricity Regulatory Commission (GERC), the state regulator.

Earlier, the state energy secretary, D J Pandian had also expressed his doubts about commissioning of the entire capacity by the set deadline.

However, Pandian had also made it clear that the state would be able to see commissioning of about a third of the capacities i.e. around 300 Mw of solar power generation by the end of December.

Now as only four months left for the deadline to come to an end, the companies making every effort to get projects commissioned before December. But it is believed that many of the companies, which have signed the PPAs have so far not received financial closure for their projects.

“It is very difficult to predict how much of solar power capacity will come up by December 2011 as many companies are at various stages of completion. But considering the current pace of execution, we can hope for about 200 Mw of capacities to get operational by December 2011,” said K S Popli, director, Indian Renewable Energy Development Agency Limited (IREDA).

Industry insiders maintained that the availability of finances for projects has been a major road-block for the companies to faster implement the projects.

“Two out of three companies have not been able to achieve financial closure for their projects. Post December, it would be even more difficult for them to raise funds as the tariff would be less than Rs 15 per unit, making it less profitable for the companies,” said a Mumbai-based solar power consultant.

While a large number of projects still struggling to get their project started, the industry is looking for some extension in the deadline by the government.

According to industry insiders, failing to meet the deadline of commissioning, the companies would be liable to be face penalty. “In case of non-completion of projects by December, the companies may terminate the PPAs and face monetary penalty,” informed an industry expert.

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