IREDA Replaces SECI as the Implementing Agency for VGF-Based Solar Projects

The tariff rate has been reduced to ₹2.80/kWh from ₹3.5/kWh


The Ministry of New and Renewable Energy (MNRE) has issued amendments regarding the setting up of 12 GW of solar projects with Viability Gap funding Support (VGF) by Central Public Sector Undertakings (CPSU) for self-use or use by government entities.

Earlier, the MNRE had issued a notification regarding the modalities and role of DISCOMs to ensure the smooth implementation of the second phase of the CPSU program.

The program aims to provide the necessary policy framework for the selection and implementation of 12 GW or more of grid-connected solar PV projects with VGF by government producers such as public sector undertakings. The total project cost of the 12 GW solar projects under this program is estimated to be ₹480 billion (~$6.33 billion).

As per the latest amendments, the power produced by the government entities can be used for self-use or use by government entities either directly or through distribution companies (DISCOMs) at the mutually agreed rate of ₹2.80 (~$0.037)/kWh. This rate would include all the charges, namely, wheeling and transmission charges, point of connection charges and losses, and cross-subsidy charges, among others. Earlier, as per the existing clauses, the rate was fixed at ₹3.5 (~$0.046)/kWh.

The VGF is provided with an objective to cover the difference between the domestically produced solar cells and modules and imported solar cells and modules. The maximum permissible VGF has been kept at ₹7 million (~$92,288)/MW, and the actual VGF will be decided through bidding.

The Indian Renewable Energy Development Agency Limited (IREDA) will be entrusted with the task of carrying out the bidding process. Previously, the Solar Energy Corporation of India (SECI) was the implementing agency for this program.

As per the amended clause, the VGF will be released in two tranches:

  • 50% on the award of the contract to the EPC contractor
  • Balance 50% on the successful completion of the project

As per the amendment, IREDA will handle the program on behalf of the MNRE, including conducting the bidding through the VGF route. IREDA will be given a fee of 1% of the VGF disbursed for conducting bidding, handling funds, and monitoring the projects. Earlier, SECI used to handle the program on behalf of the MNRE.

The amendments also add that solar power projects up to 500 MW should be commissioned within 24 months from the date of the letter of award (LoA).

For projects more than 500 MW, the capacity of 500 MW should be commissioned within 24 months from the date of the LoA, and the balance capacity has to be commissioned within the next six months. As per the earlier guidelines, the solar power projects should be commissioned within 18 months from the date of the issuance of the LoA.

According to the new clause, the IREDA will be permitted to award solar power project capacities under the CPSU program Phase II of up to 50 MW to any willing government entity at the lowest rate discovered in the bidding process within four months of such bidding. The limit of 50 MW is for project capacities allotted to one government entity for the duration between the two bids under the CPSU program.

In July last year, the MNRE has issued a memorandum modifying specific provisions of its solar park program for the CPSU units. The modification allows the CPSU or special purpose vehicle (SPV) formed by the CPSU or government organizations that have land engaged from various state governments or the central government can approach the ministry directly to set up a solar park. Earlier, it was mandatory that the CPSU must be the owner of the land.

In March 2019, the President of India accorded approval to implement phase-II of the CPSU program to set up 12,000 MW of grid-connected solar photovoltaic power projects for self-use or use by government entities.

The last tender announced by SECI under this program was in August 2019, to develop 1,500 MW of solar PV projects under Tranche-II.