New solar bidding guidelines will boost investors' morale: Icra

Guidelines provide for compensation to solar power generators in case of offtake constraints, including delay from the side of the govt

Rating agency ICRA says the recent guidelines for solar energy bids, introduced by the ministry of new and renewable energy, is a positive development for the sector.

These address, it says, some key concerns. Such as on offtaker credit profile, grid curtailment and termination payments. Also, the procurer may choose to provide a state government guarantee in a legally enforceable form, for payment of energy charges and termination compensation.

The guidelines provide for compensation to solar power generators in case of offtake constraints, including delay from the side of the government or procurer. Tamil Nadu and Rajasthan are among the states which have resorted to grid curtailment for renewable energy. Unlike conventional power, there is a single-part rate structure in renewable ebergy projects; hence, cash flows and debt serviceability is directly linked to actualgeneration and offtake by procurers.

Sabyasachi Majumdar, senior vice-president at ICRA, said barring the Rewa Solar Park bid, where there was a guarantee by the Madhya Pradesh government to cover for payment delays, no other tender has mentioned payment security in their bidding guidelines. So, this measure, if implemented in the power purchase agreements (PPAs) signed directly by state distribution companies, is a favourable development for solar power developers "and improves the bankability of the PPA document", he said.

The report adds that the provisions for termination liability, along with substitution rights as approved in the bidding guidelines, are expected to provide more protection to developers and lenders.

"It is noteworthy that these regulations shall apply only for new projects. The mentioned concerns would continue to prevail for existing projects," said Majumdar.