JNNSM Phase II-Batch I Bids Reveal Non-DCR Projects Highly Preferred over DCR Projects

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Solar Energy Corporation of India (SECI) after extension of bid submission date from 28th December 2013 to 20th January 2014 has opened bids for the allocation under batch I of phase II of the National Solar Mission (NSM). It was observed that a capacity totaling to 2,170MW was bidded by various companies. This total capacity comprises of 68 bids submitted by 58 developers and covering 122 projects. The bids opened revealed some notable facts that the Domestic Content Requirement (DCR) bids were twice oversubscribed than actual allotment while the Non-Domestic Content Requirement (Non-DCR) accounted for almost four times over subscription than the actual allotment. It is however understood that both will have an equal distribution in the end.
It was aimed through the mission in this phase, that a capacity amounting to 375MW will enforce Domestic content requirement (DCR) and favouring this a total of 36 projects with a capacity equivalent to 700 MW was bidded under DCR  and the rest 86 projects with a capacity equivalent to 1,470 MW opted for the open bids.  The results of the financial bid are to be announced by 20th February 2014.
Some of the prominent bids by capacity have been from developers such as Azure Power (200 MW), ACME (200 MW), Welspun (160 MW), IL&FS (150 MW), SunEdison (150 MW), ReNew Power (100 MW) and Essel Infra Projects (100 MW). Each developer can only be allocated a maximum capacity of 100 MW. Some of the prominent companies that have opted for the DCR part of the bids are TATA Power, Waaree, Moser Baer, SolaireDirect, SunEdison, ACME, Azure, IL&FS and Welspun. State owned power companies from Gujarat, Karnataka, Odisha and West Bengal have also bid for projects. SECI is expected to announce the second round of bidding for 1,000 MW under phase two by May 2014.
It is a known fact that the Mission's phase-I was predominantly  focused on Bundling and Generation Based Incentive (GBI) mechanism and the second phase unlikely focuses on Viability Gap Funding (VGF) mechanism. 
Details of Implementation of 750 MW Grid-connected solar PV power projects with Viability Gap Funding under Batch-1 Phase-II of JNNSM.
 The main objectives of the VGF Scheme and these Guidelines are:
  1. To enable scaling up of size of projects thereby leading to economies of scale of projects under JNNSM
  2. To facilitate speedier implementation of the solar power projects to be selected to meet the Phase-II target of JNNSM
  3. To enhance confidence in the Project Developers
  4. To promote manufacturing in the Solar PV sector in India
  5. To create good business model and systems for various State Governments and DISCOMs to take forward and
  6. To facilitate fulfillment of RPO requirement of the obligated entities.
The mechanism of operation of Viability Gap Funding is enumerated below:
  1. The tariff to be paid to the developer is fixed at Rs.5.45 per kWh. This tariff will remain firm for 25 years project period. In case benefit of accelerated depreciation is availed for a project, the tariff will get reduced to Rs.4.75 per kWh.
  2. The developer will be provided a viability gap fund based on his bid. The upper limit for VGF is 30% of the project cost or Rs.2.5 Cr/MW, whichever is lower. The developer will be required to indicate his preliminary estimate of project cost as per format in Annexure-A. The project cost will be as per developer’s own estimation & declaration at the time of bidding, which will be finally confirmed by his own declaration at the time of financial closure and will be considered for provision of VGF as per the above specified upper limit.
  3. The developer has to put his own equity of at least Rs.1.5 Cr/MW.
  4. The remaining amount can be raised as loan from any source by the developer.
  5. The VGF when paid by the SECI may be used to return part of the loan or developer contribution (in excess of Rs.1.5 Cr./MW) or a combination thereof as the case may be, in case investments have already been made. SECI will issue a letter confirming sanction/ grant of VGF so that bidder is able to achieve financial closure for full amount if required at the time of signing of Power Purchase Agreement (PPA).
  6. The VGF will be released in six tranches as follows:
    1. 50% on successful commissioning of the full capacity of the project (COD);
    2. Balance 50% progressively over next 5 years subject to the project meeting generation requirements (CUF within specified range as per Clause 2.13.1) as under:
      1. End of 1st Year from COD – 10%
      2. End of 2nd Year from COD – 10%
      3. End of 3rd Year from COD – 10%
      4. End of 4th Year from COD – 10%
      5. End of 5th Year from COD – 10%
  7. If the project fails to generate any power continuously for any 1 year within 25 years or its major assets (components) are sold or the project is dismantled during this tenure, SECI will have a right to refund of VGF on pro-rata basis and if not paid by the developer then a claim on assets equal to the value of VGF released, on pro-rata basis.
  8. If the project is transferred or sold to a third party during its tenure (after initial lock-in period of 1 year as per provision under Clause 2.10, SECI will retain full rights to operationalize the PPA with the third party, which will be under full obligation to honour all the obligations and terms & conditions of the PPA.
  9. Solar Power Developers (SPDs) and SECI shall enter into suitable VGF Securitization Agreement creating a charge over the Project assets in favour of SECI as specified under sub-clause (7) above along with signing of PPA.
  10. In case of projects financed through loan, the charge created on the project assets shall be shared with the Lending Institutions.
  11. In case the lending institution exercises its right to step in or take over the project, SECI will also have right to step in along with the lending institution to reclaim or handover the project to another party for operation.
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 Source: Cerebral Business Research Pvt. Ltd.

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