Depleting Margins

Modified solar parks scheme entails higher capital costs for developers

By Khushboo Goyal

Renewable energy developers in India are largely constrained by two issues – inadequate land and power evacuation infrastructure. The situation is so critical that several tenders have been cancelled or postponed in the recent past. There have also been several instances of delays in project commissioning, with developers waiting for months for land approvals or vacant power evacuation bays. To address some of these issues, the Ministry of New and Renewable Energy has modified the Development of Solar Parks and Ultra Mega Solar Parks Scheme. The

modified scheme for the development of renewable energy parks (solar or wind or hybrid or other renewable energy parks), referred to as Mode 7, was notified through an official memorandum on March 9, 2019.

The strategies for the implementation of renewable energy parks under Mode 7 are:

  • The Solar Energy Corporation of India (SECI) will act as the developer for all renewable energy sources.
  • SECI will make government and private land available for setting up renewable projects by paying state governments a facilitation charge of Re 0.02 per kWh. This charge would be paid by developers along with the land lease or purchase cost. No central financial assistance (CFA) will be given for this purpose.
  • The renewable energy project developers are responsible for developing all the internal infrastructure of the parks including internal power evacuation, roads, levelling of land, telecommunications and other facilities. No funds will be provided from the CFA for this purpose. However, developers can avail of the line of credit from any other funds created to finance these parks.
  • All the external power evacuation systems will be developed by the central or state transmission utilities.
  • Under the existing solar parks scheme, around 16,650 MW of capacity remains to be allotted. Some solar parks might also be cancelled due to their slow progress. The CFA budget for this entire capacity will now be utilised for the development of external power evacuation systems under Mode 7, instead of the earlier ratio of 60:40 for internal and external power evacuation.
  • For construction of the external power evacuation infrastructure, renewable en-ergy project developers will pay 40 per cent of the cost of the transmission system (subject to a minimum of Rs 1
  • million per MW to a maximum of Rs 3 million per MW) as upfront charges to SECI. SECI will make this amount available to the concerned transmission utility. Apart from this, Rs 2 million per MW or 30 per cent of the cost of the transmission system (whichever is less) will come from the CFA allotted for the remaining 16,650 MW of solar park capacity, provided this does not exceed the total cost of the power evacuation system.
  • To safeguard developers from payment defaults, a payment security fund will be created for all projects in a renewable energy park. This fund would be created over time by SECI by levying an additional charge of Re 0.02 per kWh on the project developers in that park.
  • Developers can account for these extra costs including facilitation charges for land availability, transmission and internal infrastructure costs, and additional charge for the payment security fund while quoting tariffs for bidding. These costs will be considered by SECI while formulating auction terms.

The way forward

The new Mode 7 of the solar park scheme aims to address the concerns of state agencies in allocating land for renewable energy projects won under central tenders. It also aims to fast-track the development of the country’s transmission infrastructure, which has been lagging behind the power capacity additions. The establishment of a payment security fund will mitigate some of the payment risks for developers.

However, the new strategies entail more complications for developers. As per the new mode, developers will lose their claim on the CFA for implementing the internal infrastructure, which will be entirely diverted to transmission utilities. Developers will have to put in much more upfront capital in these projects to pay for the external transmission system. For instance, for a 50 MW project, Rs 50 million to Rs 150 million for the construction of an external power evacuation system will be required, in addition to the project and internal infrastructure cost. This drastic increase in capital costs will squeeze the already thin developer margins. Even if developers factor in all the associated costs in their tariffs the discoms may not be willing to purchase such expensive power. At a time when renewables have become cheaper than thermal power, these strategies may result in a tariff hike. That said, only time will tell if the new policy meets its aim or puts undue infrastructure burden on developers.

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