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Govt proposes new norms for funding solar projects under Phase II

According to reports, the Ministry of New and Renewable Energy has come out with proposed norms for viability gap funding (VGF) for large-sized solar power projects that would come up in Phase II of the National Solar Mission.

VGF will be made available for certain specified capacity solar projects — say, 750 MW or 1,000 MW — according to the draft policy document on National Solar Mission, Phase II, released today.

The tariff at which such projects will sell solar power to electricity distribution companies will be “pre-fixed, at say, Rs 5-6 per unit”, the document says.

Knowing what the tariff will be, the project developers will work backwards and determine the capital cost they need to set up the project. Then they will approach the government for viability gap funding. To discourage developers from bidding too aggressively and “ignoring the long-term plant performance”, the MNRE has proposed staggered the payout of VGF funds — 25 per cent at the time of delivery of at least half of the major equipment at the site, 50 per cent on completion of the plant and the rest after one year of operations, meeting the requirements of generation “as per guidelines”.

The tariff would be determined in accordance with the guidelines of the Central Electricity Regulatory Commission. (In its recent normative cost determination, the Commission has taken the benchmark capital cost for solar PV projects at Rs 8 crore per MW and the benchmark tariff at Rs 7.87 per kWhr.)

“Bidders can bid for a maximum VGF of 40 per cent of benchmark rate or benchmark capital cost,” the draft document says.

In Phase II, which will run between 2012-13 and 2016-17, the MNRE expects to facilitate the creation of 10,000 MW of utility-scale solar power capacity.

The Ministry will run Phase II in batches, each of which will have a different mode of funding.

‘Bundling’, that is, combining costlier solar power with unallocated conventional power, and ‘generation-based incentives’ would also be used in different batches.

Since these schemes “have very limited scope in Phase II, VGF could be an attractive alternative for supporting solar projects,” the document says.

The document also intends to encourage domestic manufacture. A ‘domestic content requirement’ in terms of percentage of value, price preference for local made modules and “some batches with 100 per cent domestic content requirement” are among the options thrown open for discussion.

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