CCEA approves Rs2,100-cr viability gap funding of solar power projects

The Cabinet Committee on Economic Affairs (CCEA) today approved viability gap funding (VGF) for setting grid-connected solar power projects of over 2,000 MW capacity on a build, own and operate basis by solar power developers (SPDs).

The CCEA, chaired by Prime Minister Narendra Modi, gave its approval for VGF to solar power projects under Batch-III of Phase-II of the Jawaharlal Nehru National Solar Mission (JNNSM).

This is estimated to help creation of an additional 2,000 MW capacity of grid-connected solar PV power generation projects. Besides, it would generate employment for about 12,000 people in rural and urban areas while also helping to clear the environment of about 3.41 million tonnes of CO2 emissions every year.

The total investments under this scheme is expected to be about Rs12,000 crore. The estimated requirement of funds to provide VGF for 2,000 MW capacity solar projects is estimated to be Rs2,100 crore (Rs 1 crore  per MW for open category and Rs1.31 crore per MW for domestic content requirement (DCR) category). This includes handling charges to Solar Energy Corporation of India at 1 per cent of the total grant disposed.

The tenders will be state-specific based on the demand from particular state. States / union territories / discomes / state utilities are the beneficiaries. This will also facilitate creation of employment and infrastructure in the states.

Installation of 2,000 MW solar PV plants will generate about 3,320 million units per year, which would be enough to supply power to almost a million households.

The VGF scheme will be implemented for setting up over 2,000 MW capacity of grid connected solar power projects by solar power developers on BOO basis through open and transparent competitive bidding.

Solar power will be provided at a pre-defined tariff of Rs5.43 per kWh for the first year, with escalation of 5 paisa per kWh each year till the tariff reaches the level of Rs6.43 per kWh.

This would take 21 years and the tariff, thereafter, would remain fixed at Rs6.43 per kWh. The levelised tariff would be Rs5.79 per kWh.

The overall effort is to continuously reduce government financial support for grid connected solar power as the prices of solar power comes down.

The scheme will be implemented by Solar Energy Corporation of India (SECI) as per guidelines of the ministry of new and renewable energy (MNRE). SECI will prepare necessary bidding documents for inviting the proposals for setting up of projects on a competitive bidding through e-bidding. SECI will also 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 finance ministry.

Out of 2,000 MW, 250 MW will be developed with mandatory condition of solar PV cells and modules made in India. This will be called the DCR category and remaining 1,750 MW will be in open category.

Some other important features are as follows:

  • Projects could be set up in the solar parks being developed under a separate MNRE scheme and also at other locations, which could be selected by bidders on their own;
  • Commissioning period would be 13 months from the date of signing of PPAs;
  • VGF is to be disbursed in six trenches - 50 percent after commissioning and balance 50 per cent at the rate of 10 per cent at the end of each year subsequently for the next 5 years,
  • Tenders will be state-specific based on the demand from a particular state;
  • Due to competitive bidding, there may be savings in the VGF amount of Rs2,100 crore. In that case, the total capacity will be increased from 2,000 MW, so that, maximum capacity can be set up in the VGF of Rs2,100 crore after accounting for grant to be given for payment security mechanism;
  • Bidders will be free to avail fiscal incentives like accelerated depreciation (AD), concessional customs and excise duties, tax holidays, etc available for such projects. However, no bidders will be allowed to claim both AD and VGF.