Government implements new rules for solar power procurement to improve transparency

The government has implemented new rules for buying power from grid-linked solar power projects through competitive bidding under the National Solar Mission to improve transparency and standardise auctions. These guidelines, prepared by the Ministry of New and Renewable Energy (MNRE), cover the grid-connected solar PV power projects with a size of 5 mw and above, an official said. [caption id=“attachment_3515391” align=“alignleft” width=“380”]  Image Reuters[/caption] The official said this will help in reducing off-takers risks, encourage investments, enhance bankability of projects and improve profitability for investors. The norms provide that the minimum power purchase agreement tenure (PPA) will be 25 years that will help ensure lower tariffs. Besides, unilateral termination or amendment of PPA is not allowed. The issues related to land, connectivity and clearances and the extension in the case of delay have been streamlined for ensuring project preparedness. The event of default and the consequences thereof are clearly defined to ensure optimal risk sharing. There is a provision for termination compensation to increase bankability of projects by securing investment by the generator and lenders against any arbitrary termination of a PPA. The guidelines also provide for payment security mechanism. The risk of generators revenue getting blocked due to delayed payment or non-payment has been addressed through provision of Payment Security Mechanism through instruments like Letter of Credit (LC), Payment Security Fund, State Guarantee and the like. The early commissioning and part commissioning of projects have not only been allowed, but incentivised, by way of allowing the PPA for a minimum 25 years from the scheduled commissioning date under the new norms. The penalties have been rationalised so as to reduce the overall cost to the generator while at the same time ensuring compliance with rules. The new framework also contains provision for force majeure. Now, the PPA would have provisions with regard to force majeure definitions, exclusions, applicability and available relief as per the industry standards. The successful bidder – if it is a single company – shall ensure its shareholding in the SPV company executing the PPA shall not drop below 51 per cent at any point prior to one year from the commercial operation date except with the prior approval of the procurer.