MNRE had earlier released the draft guidelines for the allocation of projects using the VGF mechanism under the first batch of JNNSM Phase 2. Most of the clauses remain the same (refer our earlier post here). The major changes are on the VGF disbursal guidelines and clarity on the domestic content requirements. The details of the revised draft guidelines are given below
- Tariff – Rs. 5.45 per kWh for 25 years or Rs. 4.95 per kWh (with AD benefit) remains the same
- Upper limit of VGF – remains at 30% (up to a maximum of Rs. 2.5 crores per MW) whichever is lower
- Equity contribution – remains the same at least Rs. 1.5 crores per MW
- Timeline for VGF disbursal – this has been revised from the previous draft. The VGF would be released in three tranches as given below:
- 50 % on successful commissioning of the full capacity
- Balance 50 % progressively over next 5 years subject to plant meeting generation requirements (CUF within specified range) as under:
- Upon Commissioning (COD) – 50%;
- End of 1st Year from COD – 10%;
- End of 2nd Year from COD – 10%;
- End of 3rd Year from COD – 10%;
- End of 4th Year from COD – 10%;
- End of 5th Year from COD – 10%;
- Failure to generate power – If the project fails to generate any power continuously for 1 year within 25 years or its assets are sold or the project is dismantled during this tenure, SECI will have a right to claim on assets equal to the value of VGF released, on pro-rata basis. The value which can be claimed by SECI stands at 100% of the VGF during the first five years of operation and then drops by about 10% every subsequent year for the first 12 years of operation. The claim then decreases per year and ends at about 1% at the end of plant life (25 years).
- Interestingly, the project can be transfered to another party after one year of operations i.e. the developer has a lock-in period of one year before he can transfer the asset to another party.
- Domestic Content Requirements (DCR) – of the 750 MW available for allocation, 375 MW has been allocated to bidding with DCR. Under DCR, the solar power plant would have to use solar cells and modules manufactured in India.
- Traditional reverse bidding guidelines will remain for project allocation purposes.
As can be seen, there have been no major changes but some things such as the domestic content requirement guidelines have been clarified including how much capacity would be exactly available under the domestic content requirement guidelines.
The revised guidelines can be accessed here.
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Thanks for the update.
Just one question – In failure to generate power – you say – 25 years or its “assets are sold” – while in second point you say “asset can be sold to another party after one year”. This sounds conflicting?!
Thanks Vikram. My interpretation would be that in the first case of ” assets are sold” would mean liquidation of the non-performing plant and selling off its components(modules, inverters,etc). The second case of ” asset can be sold to another party after one year” would mean that the ownership(equity) of the operational plant can be transferred to another party.I hope MNRE comes up with a clarification on the same.
How practical is this VGF scheme is a big question………….???
It does not play a major role in cash inflow calculation, since 50% VGF shall be released on commissioning of full capacity, and remaining shall be released as 10% at every year end, from 1st year to 6th year………so PV of the amount realised at 6th year end is very low, (discounted from bank rate in India).
Further, it is not certain to get 30% subsidy, if companies quote lesser to get projects, it may reach to as low as 10% only. So considering PV value of money realised at more than one year interval, does not affect cash inflow in larger extent.
Further, tariff shall be fixed for 25 years @ Rs. 5.45 (without AD), again in concept of inflation in India, what shall be value of Rs. 5.45 per unit, after 25 years………. Most of the longer tenure infrastructure projects, power projects are inbuilt with Escalation clause to safeguard / hedge from inflation and decreasing value of rupee.
CA Yogesh Birla
Director
Birla Wealth & Project Management Co.
(Solar Project Div.)
I believe the 30% subsidy is given on a project to project basis and not on an L1 basis. Hence the developers would be free to quote whatever they are comfortable with and the subsidy would be based on their quote (should they qualify). Again, as far as I can understand there is no specific L1 mechanism.
VGF Scheme:
One big risk factor is generation guarantee in Solar Project CUF, If fluctuation is more than +/- 10%, penalty / diffrencial value to be paid to power purchasing authority for lesser generation of power units.
No where in the policy, Solar Power developer is protected for Grid-outage problem ???? Since power transmission network is maintained by Govt. utilities.
CA Yogesh Birla
Director
Birla Wealth & Project Management Co.
(Solar Project Div.)
Dear Mr. Yogesh,
You have highlighted a vital point about the CUF. The grid-outage scenario needs to be properly resolved.
Madhavan
Hi Madhavan and Hari
Thanks very much for this valuable update. On the DCR requirements do you know if the 50 percent requirement is technology neutral? In other words does it specify 50 percent of whateer type of cells or modules used whether crystalline or thin film?
Thanks!
Mahesh
@Mahesh, I believe the requirement is technology neutral. There has been no specific mention of c-Si or TF requirements under the DCR guidelines section.
Actually the concern raised has been answered in the draft released by SECI. It states that the selection of projects would be technology agnostic and it is upto the developer to decide what technology to use and the same regarding the option of tracking mechanism.
This must have been included keeping in mind the DCR, a loop hole that was used as an excuse by power developers to import panels during the previous phase.
Is there restriction or minimum CUF requirement?
@ Manojkiran
As per the document, a bidder shall have to declare a minimum CUF of 19% per annum. Further, the developer shall have to maintain generation within ± 10% of the declared CUF value for initial 10 years and within -20% & +10% thereafter till the end of the PPA duration of 25 years.
Hi Madhawan ,
Would modules made in India by tolling model (with everything supplied from abroad) also qualify as DCR?
Dt. 14-10-2013
Postponement of issue of RFS document for 750 mw grid-connected Solar PV projects by SECI.
Again uncertainty…………..
CA Yogesh Birla
Director
Birla Wealth & Project Management Co.
(Solar Project Div.)