Modifications in solar parks scheme may raise project costs for developers

Changes likely to complicate the process of setting up projects, squeeze developers’ already-thin margins, say players

The modifications in the ‘Development of Solar Parks and Ultra Mega Solar Power Project’ scheme, released by the Ministry of New and Renewable Energy (MNRE) earlier this month, will lead to increase in project costs, according to solar industry players.

An executive with a large utility-scale solar developer, who did not wish to be named, said the new guidance could lead to additional cost of 20 crore for each 100-MW solar capacity built in a solar park.

The annual impact per 1 MW could be in the range of 40,000-80,000 considering the modifications required by developers to add 0.02 per unit to the tariff as facilitation charge towards the State governments and another 0.02 per unit as charges for payment security mechanism when bidding for capacities in solar parks.

Industry experts say the proposed modifications are likely to complicate the process of setting up projects in solar parks as well as squeeze the already thin margins of the developers.

“I am not sure why the Ministry had to come up with these new suggestions as the previous schemes were working just fine,” a top executive of a renewable energy consulting company told BusinessLine. He said the industry is looking for some clarifications on the guidelines.

Modifications proposed

The MNRE had, on March 9, issued an official memorandum suggesting a new mode for developing solar, wind or hybrid parks in order to address the two most critical issues for developers — land allocation and developing power evacuation infrastructure.

Under the new mode (Mode-7) introduced by MNRE for renewable energy parks developed through Solar Energy Corporation of India (SECI), the developers will be required to pay State government a facilitation charge of 0.02 ($0.029) per unit of power generated from the projects for facilitating the identification of land and making its right of use available to SECI.

Funds from the central financial assistance (CFA) will not be used for making payments for these facilitation charges, according to the MNRE document. The new mode also suggests that while SECI will develop the external power evacuation infrastructure from the parks through state or central transmission utilities, the internal park infrastructure should be done by developers at their own costs. Instead of a 60:40 ratio between the development of internal infrastructure and external transmission system used earlier, MNRE has introduced the new ratio of 0:100.

No CFA will be provided for developing the internal park infrastructure, according to MNRE memorandum.

The document adds that CFA currently available for 16,650 MW capacity that is yet to be allocated under the solar park program would be utilised for the development of external power evacuation infrastructure.

Payment security

Another modification that would have an impact on the project cost for developers is a charge of 0.02 per unit towards Payment Security Fund (PSF) that SECI would set up for all projects in the RE parks developed under the programme.

Having such a fund, according to MNRE document, will help making the development of RE projects in parks more attractive as it would ensure continuous payment to the power developers and mitigate any payment risk due to default in payment by Discoms in any month, the document added.

[“source=thehindubusinessline”]