Increasing concerns from developers about delayed payments for solar park projects from utilities has prompted the Government of India to take steps to address the issue. The Solar Energy Corporation of India (SECI) has come out with a draft scheme on setting up of 15 billion INR ($223.25 million) payment security fund for all VGF projects under the Jawaharlal Nehru National Solar Mission (JNNSM) Phase-II.
VGF or viability gap funding is a mechanism under which solar power projects are auctioned through a competitive bidding process on build-own-operate basis. The winning bidders then sell power generated at a pre-determined tariff and get financial support from the government in the form of VGF. SECI is the implementing agency for all VGF-based projects.
Under the scheme, SECI is envisaged to set up a payment security mechanism with a corpus to cover three months' payment for various VGF schemes approved by the Ministry of New and Renewable Energy (MNRE). This will help ensure timely payment to the developers in case distribution companies (discoms), state utilities or bulk consumers delay or default in issuing payments. The fund will also 'provide support to SECI to meet financial implications on account of regulatory, policy or legal requirements not foreseen at the time of approval of the schemes as well as difficulties arising during implementation of PPA, PSA, VGF Securitization'.
A recent report by ratings agency CARE pointed out that the financial health of discoms may become one of the stumbling blocks in the country's aim to achieve its targeted capacity of 100 GW of solar power by 2022. There have been issues of delayed payments from discoms to solar power project developers.
The government has sanctioned 5 billion INR ($74.42 million) for the fund. This will be enhanced through budgetary support from the central government to cover the three months working capital requirement for the capacities allocated under VGF from time to time. The fund will also receive money from interest earned, incentives for early payment, savings on tariff reduction due to accelerated depreciation, among other measures. Once the entire capacity envisaged is commissioned, the estimated requirement is imagined to be 15 billion INR ($223.25 million).
SECI will be responsible to make the payments within the timeframe as mentioned under the power purchase agreement (PPA). A PSM Management Committee comprising heads of solar, finance and trading & commercial divisions from SECI will monitor the fund. Its recommendations will have to be approved by the Managing Director of SECI. MNRE will be apprised of the fund status on a quarterly basis.
Various VGF schemes under the JNNSM have been issued – 750 MW for Phase-II, Batch-I; 2,000 MW for Phase-II, Batch-III; and 5,000 MW for the most recent Phase-II, Batch-IV. There are other schemes under VGF that SECI is in charge of, like Solarization of Indo-Pak Border, 50 MW Special Scheme for high visibility area, and any other VGF scheme approved by MNRE from time to time.