The Ministry of New and Renewable Energy (MNRE) has come out with new guidelines for buying power from grid-linked solar power projects through competitive bidding.
What are the highlights?
The guidelines are issued for long term procurement of electricity by the procurers from grid-connected Solar PV power projects of 5 MW and above.
They are issued under the provisions of Section 63 of the Electricity Act, 2003
PPAs - Power Purchase Agreement is a contract between the one who generates electricity and one which is looking to purchase it.
Earlier instances of cancellation of contracts and distortion of agreements created concerns among the investors.
The new guidelines have prescribed minimum PPA tenure to be 25 years to ensure lower tariffs.
Also, unilateral termination or amendment of PPA is not allowed under the guidelines, ensuring a balance.
Ease of doing business - The issues related to land, connectivity and clearances, and the extension in the case of delay have been streamlined for ensuring project preparedness.
There is a provision for termination compensation to increase bankability of the projects by securing investment by the generator.
This also secures the lenders against any arbitrary termination of a PPA.
Additionally there are provisions to facilitate the procurers to take over stressed projects.
Under this, procurers are allowed to acquire project assets for 90 per cent of the due debt in case of a loan default by the solar power generators.
For facilitating expeditious completion of projects, early commissioning and part-commissioning have been allowed.
The penalties have been rationalised to reduce the overall cost to the generator while at the same time ensuring compliance with the rules.
Risk sharing - It provides for the government to compensate solar power producers for grid unavailability, back down, and transmission constraints, if any.
Importantly, solar power producers are now secured against the financial losses due to errant distribution entities.
The event of default and the consequences thereof are clearly defined to ensure optimal risk sharing.
Payment Security Mechanism addresses the risks of delayed payment or non-payment.
This is done through instruments like Letter of Credit (LC), Payment Security Fund, State Guarantee, etc to secure the generator's revenue.
What is the significance?
Solar power is getting to be a critical element in India's renewable power expansion programme.
In this backdrop, the guidelines are significant in reducing the off-takers' risks, encouraging investments, enhancing bankability of projects and improving profitability for investors.
Also, the institutionalisation of tariff-based competitive bids by the government has ensured reduced risk and enhanced transparency.
It will also help protect consumer interests through affordable solar power.
