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Ergo Update

20-Dec-2019

Introduction

On 13 December 2019, the Ministry of New and Renewable Energy, Government of India (MNRE) issued Guidelines for Development of Decentralised Solar Power Plants (Guidelines). The Guidelines have been issued to promote production of solar energy near sub-stations and to ensure availability of affordable and reliable solar power in the rural areas of the country.

The Guidelines specify that as (Indian) power distribution companies (DISCOMs) have been incurring higher cost for procuring power, due to supply of power by such DISCOMs to agricultural loads (which is done either free or at highly subsidised rates) and the transmission and distribution loss of the feeder supplying power to agricultural loads being as high as 30%, the local generation of electricity will reduce the cost of power procurement for DISCOMs and will also improve energy efficiency.      

Overview of the Guidelines

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DISCOMs have been entrusted with the responsibility of allocating solar power capacity to developers for developing decentralised solar power plants. DISCOMs will procure power from decentralised solar power plants of: (a) capacity more than 2 megawatts (MW); (ii) connected to distribution sub-stations of rating 66/11 KV and higher; and (iii) capacity 2 MW and connected to distribution sub-stations of any DISCOM of rating 33/11 KV and below (where sanctions given under the MNRE scheme for installation of solar pumps and grid connected solar and other renewable power plants for farmers have been exhausted) (Solar Power Plants).

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Individuals / company / cooperatives with a net worth of 20% of the estimated project cost will be eligible to set up the Solar Power Plants.

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DISCOMs will procure power from Solar Power Plants for 25 years at a tariff: (a) determined by relevant the State Electricity Regulatory Commission; or (b) discovered through competitive bidding process and will execute power purchase agreements (PPAs) with the developers. DISCOMs to ensure ‘must run’ status on Solar Power Plants and will compensate developers for any failure to ensure the same.

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While developers will be free to procure their own land for developing the Solar Power Plants and setting up the connecting infrastructure, DISCOMs can themselves also procure land and provide connectivity to developers by laying 11KV lines and can thereafter float tenders for allocation of such parcel of lands to developers, either on lease basis / full cost basis or for free to attract lower tariff.

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In cases, where land and connectivity will be provided by DISCOMs, the Solar Power Plants will be required to be commissioned within 9 (nine) months from the date of issuance of letter of award (LoA), whereas in all other cases the Solar Power Plants will be required to be commissioned within 12 (twelve) months from the date of issuance of the LoA.

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Solar Power Plants under these Guidelines will also be eligible for sale of power through open access. Further, power trading agencies will be entitled to float bids for setting up Solar Power Plants and sell such power to DISCOMs / open access customers on a trading margin capped at INR 0.07/ kWh.

Comments

This is another step by MNRE to facilitate achievement of the ambitious targets set by the Government of India of installing 175GW of renewable energy capacity in the country by 2020, out of which 100 GW installation is proposed to be from solar. If the DISCOMs are able to implement the Guidelines effectively, this may open new opportunities for developers and would ensure cheaper power for rural consumers. In the Guidelines, MNRE acknowledges that land and connectivity are two road blocks which have in the past delayed timely commissioning of solar power projects. Considering this aspect, the MNRE has specified that DISCOMs can themselves procure land and laydown the connectivity infrastructure for the Solar Power Plants and can offer these land parcels / infrastructure to developers for developing the Solar Power Pants, which can result in lower tariff bids by developers for selling power to DISCOMs. However, considering the issues relating to DISCOMs financial position and sanctity of PPAs (especially the recent trend in few states to revisit the tariffs), the DISCOMs would need to provide an enabling and robust mechanism for implementing the Guidelines, to attract relevant stakeholders.

-      Dibyanshu (Partner) and Nikesh Tyagi (Associate)

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