Why in news?
The Ministry of New and Renewable Energy (MNRE) has come out with new guidelines for buying power from grid-linked solar power projects through competitive bidding.
What are the highlights?
- The guidelines are issued for long term procurement of electricity by the procurers from grid-connected Solar PV power projects of 5 MW and above.
- They are issued under the provisions of Section 63 of the Electricity Act, 2003
- PPAs - Power Purchase Agreement is a contract between the one who generates electricity and one which is looking to purchase it.
- Earlier instances of cancellation of contracts and distortion of agreements created concerns among the investors.
- The new guidelines have prescribed minimum PPA tenure to be 25 years to ensure lower tariffs.
- Also, unilateral termination or amendment of PPA is not allowed under the guidelines, ensuring a balance.
- Ease of doing business - The issues related to land, connectivity and clearances, and the extension in the case of delay have been streamlined for ensuring project preparedness.
- There is a provision for termination compensation to increase bankability of the projects by securing investment by the generator.
- This also secures the lenders against any arbitrary termination of a PPA.
- Additionally there are provisions to facilitate the procurers to take over stressed projects.
- Under this, procurers are allowed to acquire project assets for 90 per cent of the due debt in case of a loan default by the solar power generators.
- For facilitating expeditious completion of projects, early commissioning and part-commissioning have been allowed.
- The penalties have been rationalised to reduce the overall cost to the generator while at the same time ensuring compliance with the rules.
- Risk sharing - It provides for the government to compensate solar power producers for grid unavailability, back down, and transmission constraints, if any.
- Importantly, solar power producers are now secured against the financial losses due to errant distribution entities.
- The event of default and the consequences thereof are clearly defined to ensure optimal risk sharing.
- Payment Security Mechanism addresses the risks of delayed payment or non-payment.
- This is done through instruments like Letter of Credit (LC), Payment Security Fund, State Guarantee, etc to secure the generator's revenue.
What is the significance?
- Solar power is getting to be a critical element in India's renewable power expansion programme.
- In this backdrop, the guidelines are significant in reducing the off-takers' risks, encouraging investments, enhancing bankability of projects and improving profitability for investors.
- Also, the institutionalisation of tariff-based competitive bids by the government has ensured reduced risk and enhanced transparency.
- It will also help protect consumer interests through affordable solar power.
Source: BusinessLine
