Cabinet clears viability gap funding for 5,000 Mw solar power projects

Base tariff to be market dependent; Rs 30,000 cr investment expected

In the wake of falling solar tariffs and increasing capacity addition, the Union Cabinet approved setting up 5,000 megawatt (Mw) of grid-connected solar photovoltaic power projects on a build, own and operate basis.

For bidding for the projects, the government would set a reference price, over and above which the companies would bid for viability gap funding (VGF) from the government. VGF means a grant to support infrastructure projects that are economically justified but fall short of financial viability.

The reference rate would be as per market dynamics, said Piyush Goyal, minister of state for coal, power and renewable energy. For the first year, the tariff is RS 4.93 per unit.

Business Standard reported last week that as price of solar power is inching closer to cost of buying conventional power, the government is planning to benchmark the solar tariff.

Out of 5,000 Mw, some capacity in each tranche, will be developed with mandatory condition of solar PV cells and Modules made in India. The VGF amount would Rs 1.25 crore for domestic content based projects and Rs 1 crore for open category.

The estimated requirement of funds to provide VGF for 5,000 Mw capacity solar projects is estimated to be Rs. 5,050 Crore (Rs 1crore per Mw). This includes handling charges to Solar Energy Corporation of India (SECI) at 1% of the total grant disposed and Rs 500 crore for payment security mechanism for all three VGF schemes of 750 Mw, 2000 Mw and 5000 Mw.

The Scheme will be implemented by SECI as per MNRE Guidelines. SECI shall prepare necessary bidding documents for inviting the proposals for setting up of projects on a competitive bidding through e-bidding. SECI will enter into Power Purchase Agreement (PPA) with the selected developers and the Power Sale Agreement (PSA) with the buying entities.

Requisite funds for provision of the VGF support will be made available to MNRE from the National Clean Energy Fund (NCEF), operated by Ministry of Finance. The government in its statement said due to competitive bidding, there may be savings in the VGF amount of Rs 5,050 crore.

The Central Electricity Regulatory Commission would clear the benchmarking of tariff. Under this regime, solar power project developers would bid for viability gap funding requirement in Rs/Mw and the bidder with minimum VGF requirement would be selected.

A similar move was taken in 2012 during the second phase of Jawaharlal Nehru National Solar Mission (JNNSM) with benchmark Rs 5.5 per unit.