MNRE releases draft guidelines for 750 MW under VGF (JNNSM Phase 2, Batch 1)

With the unallocated electricity quota under the phase 1 of JNNSM no longer available and the fact that NTPC/NVVN is no longer the procurer of solar electricity under the JNNSM, MNRE has established the Solar Energy Corporation of India (SECI) for handling the power procurement from the second batch of the JNNSM.
In this scenario however, SECI (MNRE)’s role would be limited to providing an upfront subsidy known as Viability Gap Funding (VGF) which is basically a part payment made by SECI to the project developer in order to make the project viable. In this scenario, the developer opting for the lowest amount of funding to bridge the gap would be chosen first and so on. This is a new form of reverse bidding wherein the developer would no longer quote the electricity tariff but the quantum of money required to make the project “viable”. In view of this, MNRE has released the draft guidelines for the first phase of second batch under JNNSM for setting up of 750 MW of solar capacity. Some of the information presented in the draft document is highlighted below.

  • Total Capacity – 750 MW
    • Min capacity – 10 MW
    • Max capacity – 50 MW
    • All projects to be allocated in multiples of 10 MW
    • Max allocation per bidder or company – 100 MW
  • It is interesting to note that projects which are currently under construction or projects which have not been commissioned yet would be eligible for VGF through the bidding process suggesting a form of “migration” of existing projects.
  • Tariff – the tariff would be fixed at Rs. 5.45 per kWh for 25 years or Rs. 4.95 per kWh (with AD benefit)
  • Upper limit of VGF – 30% of project cost or Rs. 2.5 crores per MW whichever is lower (this is inline with the CERC estimate of Rs. 8 crores per MW; 30% of which translates to about Rs. 2.5 crores)
  • Equity contribution – at least Rs. 1.5 crores per MW
  • Timeline for VGF disbursal
    • 25% at time of delivery of atleast 50% of major equipment (modules, inverters, mounting structures, switchgear and trasnformer) on site
    • 50% after full commissioning
    • 25% after one year of successful operation
  • Net worth requirements – Rs. 2 crores per MW upto 20 MW, additional Rs. 1 crore per MW above 20 MW
  • Domestic content requirement – it has only been stated that a percentage of the solar capacity would be reserved for projects with domestic content while the rest of the projects would be free to procure components from any country. The actual capacity allocated has not been specified. DCR would mean that the both the solar cells and modules would have to be manufactured in India.
  • Financial closure – within 180 days of signing PPA (this translates to about 6 months, down from 7 months in the previous batch)
  • Part commissioning – part commissioning is allowed in multiples of 10 MW. PPA would be enforced from date of part commissioning for a period of 25 years.
  • Payment security – SECI would set up a payment security corpus from the encashment of bank guarantees, interest earned on this fund, incentives for early payment, the extra money coming from 10% lower tariff to developers claiming AD and grants from Government/NCEF. This fund would cover three months of payment to the project developer.
  • The timeline for the entire process is provided below

This announcement should provide some insight on the VGF process for project developers. In all likelihood this VGF mechanism could prove to be beneficial to the developers since all the payments are front loaded, thus the lower tariff could have little impact on the viability of the project. In addition to this, developers would now have to tackle the bidding process which is no longer a tariff driven process but a capital subsidy driven process i.e. a developer who requires a lower subsidy would be given preference with a fixed tariff over 25 years.
The more interesting fact is that the DCR is not going to be enforced in full force. The strategy for tackling DCR is to split the capacity i.e. give a separate allocation to the projects using local components (a percentage of the total capacity of 750 MW). Furthermore DCR does not state it is applicable to c-Si only suggesting that technology selection be it TF or c-Si would be covered by DCR. Some reports suggest that the capacity allocation for projects favoring domestic components would be about 250 MW.

The draft document can be accessed here.

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1 thought on “MNRE releases draft guidelines for 750 MW under VGF (JNNSM Phase 2, Batch 1)”

  1. Good information

    If the any of the state electiricity boards want to set up a solar plant/farm directly , lets they want to set up a 20 MW plant, can they use this mechanism for funding.

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