Co-authored by Meredith Connolly, NRDC Energy Law and Policy Fellow
In the midst of celebrating Diwali, the festival of lights, India is making progress in expanding its solar energy market. The Ministry of New and Renewable Energy (MNRE) is moving forward with financing another round of solar projects through India’s National Solar Mission (NSM), releasing a new iteration of draft guidelines for project selection last week.
Keeping pace with Prime Minister Modi’s announced expansion of India’s ambitious solar targets, MNRE now targets adding 15,000 megawatts (MW) of installed grid-connected solar photovoltaic (PV) power through this second batch of Phase II projects. That’s an enormous jump from the earlier target of 3,000 MW planned for all of Phase II as of July’s draft guidelines – the new target plans for a whopping five times more megawatts during Phase II, Batch II alone.
Phase I nurtured the nascent solar market’s growth from the Mission’s launch in 2010 through the end of 2013 through 2 batches of solar projects – topping 2,000 MW of solar installed across India by end of 2014.
India is now well into Phase II (2013 to 2017), which has focused on scaling up the solar market and installing more megawatts in the ground, Batch I projects totaling 750 MW of grid-connected solar PV were selected in February 2014 and are being implemented by the Solar Energy Corporation of India (SECI) with viability gap funding support from the National Clean Energy Fund. The selection process for this new Batch II of the second phase is scheduled to kick off around December 2014.
Dividing the NSM into Phases, Batches, Tranches, and Parts
The Solar Mission – aiming to scale up to make India an international solar leader with 20,000 MW by 2022 – created a staged approach to growth, dividing the policy into three phases. These phases are further divided into “batches” of projects (each batch has its own guidelines), which are even further divided into “tranches,” or rounds, of project selection. Making things more complicated, the latest tranche has been divided into “parts,” each with a unique project focus. Yet, the iterative approach could be seen as allowing for more focused and incremental goals with shorter, achievable deadlines, and possibly more accountability.
Phase II, Batch II’s Tranche Targets for 15,000 MW
The targets for the three tranches in Batch II:
- Tranche I: 3,000 MW (2014-15 to 2016-17)
- Tranche II: 5,000 MW (2015-16 to 2017-18)
- Tranche III: 7,000 MW (2016-17 to 2018-19)
The NSM’s new draft guidelines double the amount of solar to be installed during this stage (Phase II, Batch II, Tranche I for those of you keeping track) from previous goals for the same stage. Targeting solar projects adding up to 3,000 MW (the prior target was 1,500 MW), the draft guidelines also subdivide this tranche of projects into three parts, with the first part being a 1,000 MW solar park in Andhra Pradesh. The second two parts of Tranche I, presumably also solar parks, will be auctioned off sometime next year.
The new guidelines also introduce some notable changes in policy mechanisms. With a focus on solar parks and reintroducing popular mechanisms such as bundling, MNRE has revamped its approach and focus for the three tranches that make up the second batch of projects. More details follow below.
NSM Phase II, Batch II, Tranche I Guidelines for 3,000 MW of Solar PV Projects
According to the revamped framework, here are some of the key guidelines as they currently stand (they could change by the time bidding commences around December 2014):
- Size: Projects must be 50 MW in size, with a maximum of 250 MW allowed per company or bidder.
- Timing: The financing for the 25-year power purchase agreement (PPA) must be arranged within 210 days, and the projects must be commissioned and online within thirteen months of signing the PPA.
- State-specific solar parks: With a focus on state-specific projects, Part I of this Tranche I will be a 1,000 MW Solar Park in the state of Andhra Pradesh. Parts II and III of Tranche I will be for solar parks as well. Prior NSM projects have not been state-specific nor solar park-specific, but rather were open to utility-scale projects in any state.
- Open competitive bidding through a reverse auction: This popular means of project selection based on the lowest tariff price proposed by bidding solar companies is back. Past reverse auction bidding processes have been praised as transparent and cost-efficient, although lessons derived from choosing low-priced but inexperienced companies during Phase I led to more stringent financing and experience selection criteria for Phase II. Phase II, Batch I projects had been selected based on reverse bidding for a viability gap funding subsidy with a set tariff.
- NVVN as implementing agency: NTPC Vidyut Vyapar Nigam (NVVN) will purchase solar power at the selected tariff rates and sell the bundled solar to the distribution companies. Phase II, Batch I was implemented by SECI. Because SECI is a relatively newer entity without as large of a balance sheet as NVVN, it was perceived as risky to lenders, which did not help reduce the cost of capital.
- Bundling of solar and conventional power: Reinstating a well-liked policy in Phase I to minimize the impact of the set tariff on distribution companies, the purchased solar power will be bundled with 1,500 MW of unallocated NTPC Power of conventional power allocated by the Ministry of Power before being sold.
- Streamlining land acquisition and infrastructure: A Joint Venture (JV) company made up of SECI, Non-Conventional Energy Development Corporation of Andhra Pradesh Ltd. (NEDCAP) and Andhra Pradesh Power Generation Corporation (APGENCO) will streamline the solar park development process, including acquiring the land and creating the necessary infrastructure (including roads, water, pooling substations) to avoid project delays, both of which were issues stalling solar development during Phase I of the NSM.
- Domestic Content Requirement (DCR): A reoccurring and, at times, controversial, element of the NSM, projects totaling 250 MW (25% of Tranche I, part I) will be required to use solar cells and modules manufactured in India. Solar developers may choose whether to apply for a project conforming with the DCR, with the tariff likely being higher for DCR-compliant projects. The technology-neutral wording – as appeared in Phase II, Batch I guidelines – will at least resolve the “thin film loophole" exposed during Phase I. Although only projects deploying solar photovoltaic (PV) technology are eligible, the guidelines are agnostic as to the use of crystalline silicon or thin film PV technology.
It remains to be seen whether this new focus on huge solar parks achieves the diverse goals of the National Solar Mission, but the expanded megawatt goal is an exciting development for a country in need of clean energy solutions. The return to proven mechanisms including the reverse auction and power bundling, as NRDC has recommended, are welcome elements of this tranche’s guidelines as well. The biggest question mark remains whether this direction will address the urgent need for more accessible, affordable financing for solar energy in India. As the bidding for this solar park opens in the coming months, we will continue to assess the success of the National Solar Mission and ways to ease financing for solar energy across the country – lighting the path to a bright and sustainable future for India.