Background: The Government of India, as a part of National Action Plan on Climate Change, has been and is promoting solar power generation in India. In November 2009, the government approved the Jawaharlal Nehru National Solar Mission (JNNSM) with an objective of formulating policy for achieving the rather ambitious target of establishing a nationwide solar power capacity of 20,000 MW by the year 2022, in three phases.
This capacity of solar power includes solar photovoltaic (PV) and solar thermal grid connected power projects and additional off-grid connected solar power projects, viz. rooftop solar power generators etc. In this Article, we have focused only on the grid connected solar power projects, and discussed certain key concerns arising to the bidders.
Initiatives: To give an impetus to the solar power development, the Government has undertaken various initiatives, including -1) Issue of guidelines by the Ministry of New and Renewable Energy in respect of the first phase of the JNNSM for establishment of a solar power capacity of 1000 MW; 2) Appointment of NTPC Vidyut Vyapar Nigam Limited (NVVN) as the designated Nodal Agency for purchasing the relatively expensive solar power from the solar power developers and bundling the same with power allocated to it from the unallocated quota of the Ministry of Power; 3) Determination of tariff by the Central Electricity Regulatory Commission to be paid to solar power developers; 4) Availability of the carbon credits to the solar power developers; 5) Renewable purchase obligation of distribution licensees to mandatorily purchase portion of power from renewable sources; 6) Introduction of trading of renewable energy certificates; 7) Flexibility to the solar power developers to procure the proven technology from third parties and even invite equity participation from such technology providers; etc.
Bidding Process: Under the first Phase, NVVN has invited solar power developers to participate in the request for selection (RFS) and if required in Request for Proposal (RFP), in respect of 500MW capacity for Solar thermal power and 150MW of grid connected Solar PV Projects. Upon being declared a successful bidder, the developers are obligated to execute a power purchase agreement (‘PPA’) with NVVN.
According to media reports, the response to the RFS has been overwhelming. NVVN has received applications for the establishment of solar power projects aggregating to a total capacity of nearly 4000 MW. Therefore, the RFP bidding process (i.e. selection on the basis of the discounts provided by the power developers) seems inevitable.
Challenges: Ironically, the RFS and the PPA still throw certain serious challenges for the bidders. It was expected that RFS and PPA would be formulated on the basis of the Standard Bidding documents (SBD) provided by the Ministry of Power. RFS and PPA are based on SBD, but only to a limited extent. Key areas of concern for the bidders are as follows: 1) Bidders are expected to procure and arrange for the land, water and evacuation facilities on their own within stringent time frame. In view of the present difficulties faced by power developers on this front due to lack of synergy between central and state governments on policy and regulatory framework, extending local Government support would have been helpful. Even the risk of default by the transmission utility in providing transmission line is expected to be borne by the developers; 2) Adequate payment security mechanism is still not in place. NVVN is expected to revert with the payment security mechanism at a later stage. Even if such mechanism is not acceptable, subsequent withdrawal by a bidder could entail loosing bid security; 3) The PPA does not permit the developer to be substituted by the lenders in case of default, which is a common lender requirement; 4) The present draft of the PPA is not bankable and therefore raises serious doubts about the ability of a bidder to raise debt in this nascent and uncharted sector. Pari-passu charge on receivables of NVVN alongwith NTPC only adds to the difficulties of the lenders; 5) Performance guarantees provided by the developers are not reduced upon satisfaction of the conditions of the PPA, unlike under the SBDs; 6) Although the developer is entitled to sell the solar power to third parties in case of NVVN default, it will be virtually impossible to sell solar power to third parties at the current tariff rate. 7.) The ‘force majeure’ provisions are not as per SBD and seem inadequate; and 8) The drafts of the PPA and the power sale agreement to be executed between NVVN and procurers should have been drafted more diligently to avoid lot of apparent errors in these drafts giving rise to ambiguity and potential disputes.
Conclusion: While the various initiatives mentioned above is a step in right direction, NVVN should take proactive measures to address the above issues to ensure maximum participation by bidders and effective support to the projects from investors and lenders. Needless to state implementation of the next phases of establishing solar power capacity is dependant on successful implementation of this phase. Therefore, right policy steps and incentives are critical for the Government to harness the tremendous potential of solar power and to get anywhere close to the ambitious targets it has set for itself.
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The author is Partner - DSK Legal. The article has been written with the assistance from Shoubhik Dasgupta, Associate - DSK Legal