MNRE Addresses Land, Power Evacuation Issues in its Modification of Solar Park Program

Payment Security Mechanism to be set up by SECI to ensure continuous payment to the power developers

March 12, 2019


The Ministry of New and Renewable Energy (MNRE) has issued a memorandum proposing modifications to the guidelines issued for its “Development of Solar Parks and Ultra Mega Solar Park Program, to address land evacuation issues.”

Solar parks in India were designed to reduce bottlenecks and bring down large-scale project development costs by the government allocating land and providing transmission infrastructure, a challenge when developing projects privately.

Developers have been facing several issues in solar parks for some time now.

According to Mercom Q4 and Annual India Solar Market Update, solar parks have continued to face issues in providing clearly demarcated, ready land for project development, causing undue delays and pressure on developers who end up having a shorter timeline to complete the project and the fear having to pay penalties due to no fault of their own. Government agencies have continued to tender and auction without making certain land, and transmission infrastructure are ready, and it is up to the developers to do the necessary due diligence and understand the risk profile before participating in the auctions.”

The MNRE has introduced a new mode (Mode-7) for the development of renewable energy (RE) parks that include wind, solar and hybrid energy through the Solar Energy Corporation of India (SECI).

The MNRE has also introduced new strategies under this mode, through which it intends to address the issues of land and power evacuation infrastructure for these projects. Once approved, these will be the fourth set of modifications in solar park guidelines issued by the MNRE in the last two years and hopefully will rectify some of the challenges of developing projects in the solar parks.

Following are the strategies for the development of solar and RE park projects under Mode-7:

  • To identify appropriate land banks for these projects, SECI will work with state governments. Private and government land will be made available to be used by the RE park developers. Developers will pay state government a facilitation charge of ₹0.02 ($0.029) per unit of power generated from the projects for facilitating the identification of land and making its right of use available to SECI. Funds from the central financial assistance (CFA) will not be used for making payments for these facilitation charges.
  • SECI will also act as the solar park developer to develop the power evacuation infrastructure. State or central transmission utilities (STU or CTU) are expected to construct the external evacuation infrastructure for these RE park projects. The internal park infrastructure (internal evacuation, roads, fencing, leveling), will be developed by select bidders of the project.
  • The funds available for the 16,650 MW spare capacity under the solar park program will be utilized for the development of external power evacuation infrastructure by the External Transmission Development Agency (ETDA). Instead of 60:40 ratio between the development of internal infrastructure of solar park and external transmission system, the new ratio would be 0:100 since CFA provided under the program may not be enough to set up the transmission system. The following additional mechanisms have been proposed:

Payment Security Mechanism

To make the development of RE projects in parks more attractive, a Payment Security Mechanism (PSM) will be set up by SECI to ensure continuous payment to the power developers and mitigate any payment risk due to default in payment by the distribution companies in any month. This will be in the form of a common dedicated Payment Security Fund (PSF) for all projects in the RE parks developed under the program. This PSF would be built up over time by SECI, by levying a charge of ₹0.02 (~$0.00029)/kWh on RE project developers setting up projects under the program.

Facilitation charges and share of the cost of transmission system plus PSF charges of ₹0.02/kWh each to be paid by RE project developers would be included by SECI while calling bids for tenders.

Also, the modification proposes a change in the method of disbursement of CFA to SECI. Under the solar park program, the CFA was released to SECI upon achievement of five different milestones by the solar park developers and three different milestones by the CTU/STUs. Now a lump sum estimated amount of CFA would be released to SECI in two installments for all solar park projects.

According to a large project developer “In many solar parks, the infrastructure is far from being complete due to which the developers are unable to complete projects on time. In many cases, developers also had to wait for an evacuation facility to connect projects to the grid. The project development delay also increases IDC (interest during construction) charges as developers need to set aside working capital for six months to tide over this delay period.”

According to another developer “Facilities are different from park to park. Pavagada is good, and they have the transmission infrastructure in place. In Anantapur, there has been an 84 days delay, and they are not yet able to hand over the land to developers. You can expect serious project delays in this park.”

Our research has found that park costs are high, squeezing the margins even more in a highly competitive auction market. Most of the developers have told Mercom that incomplete solar park infrastructure, exorbitant upfront fees, and not so transparent yearly charges are all adding to project costs.

In January, The Gujarat Urja Vikas Nigam Limited (GUVNL) scrapped the recently conducted auction for 700 MW of grid-connected solar photovoltaic projects in the state. According to Mercom’s source, the reason provided for the cancellation was that the tariffs quoted were too high.

In February 2019, Mercom reported that the government released around ₹35 billion ($505 million) in CFA for renewable energy projects across India in 2018-19 (until February 5, 2019). Approximately ₹23 billion ($327 million) was released to the Ministry of New and Renewable Energy (MNRE). Gujarat – ₹2.8 billion ($39 million), Andhra Pradesh – ₹1.3 billion ($18 million) and Telangana – ₹989 million ($14 million) were the top three CFA recipients of the year.

“The proposed modifications are much needed. However, charging additional fees to facilitate land and payment security will not make many developers happy. Project developers already pay steep solar park fees for these services,” said Raj Prabhu, CEO of Mercom Capital Group.