Viability gap funding under phase two of the NSM will deter viability of REC projects in India’ REVEALS LATEST RESEARCH
According to the October 2012 edition of BRIDGE TO INDIA’s latest quarterly report – the INDIA SOLAR COMPASS – the Ministry of New and Renewable Energy (MNRE) plans to provide viability gap funding (VGF) for solar projects in India under phase 2 of the National Solar Mission (NSM). BRIDGE TO INDIA believes that this could render projects under the solar Renewable Energy Certificate (REC) mechanism in India unviable.
VGF is financial support given by the government to infrastructural projects undertaken through Public Private Partnerships (PPPs), to make projects viable for a financial investor. Such projects have high economic value for the country but inadequate returns, such as roads, airports, railways and power plants. According to the INDIA SOLAR COMPASS, VGF has not been used for solar projects in India so far, but is now being considered for projects under phase two of the NSM due to inadequate private investments.
Further, according to BRIDGE TO INDIA, phase two of the NSM targets a capacity addition of 3GW through policy based allocations (which will include the VGF mechanism if implemented on time) and a further 6GW through the Renewable Purchase Obligation (RPO) and the REC mechanism. Obligated entities would, therefore, have the choice of meeting their RPOs through two options: buying power from projects under the NSM or by purchasing RECs – i.e. either purchase solar power from a project developer at INR 4,000 – INR 6,000/MWh under the VGF mechanism, or purchase RECs at more than INR 9,300/MWh (floor price till 2017) under the REC mechanism. In this scenario, the REC mechanism becomes an unviable option for entities looking to fulfil their RPOs. BRIDGE TO INDIA expects this to trigger a major drop in the demand for RECs.
“With no clarity on long term floor prices and project viability, the market in its current form would not be feasible“ says Dr. Tobias Engelmeier, Managing Director BRIDGE TO INDIA. Changes in the REC mechanism, although inevitable, would mean a complete overhaul of business models for REC project developers.
The INDIA SOLAR COMPASS also presents the impact of VGF on performance of plants. According to the report, VGF for projects under the NSM is likely to have a detrimental impact on allocation procedures, plant performances, bankability of projects, and project timelines. The complete analysis is available for download on BRIDGE TO INDIA’s website or by clicking here.
About BRIDGE TO INDIA:
BRIDGE TO INDIA is a consulting company with an entrepreneurial approach based in New Delhi, Munich and Hamburg. Founded in 2008, the company focuses on renewable energy technologies in the Indian market. BRIDGE TO INDIA offers market intelligence, strategic consulting and project development services to Indian and international investors, companies and institutions. Through customized solutions for its clients, BRIDGE TO INDIA contributes to a sustainable world by implementing the latest technological and systemic innovations where their impact is the highest.
About INDIA SOLAR COMPASS
As part of their extensive research on the Indian solar market, BRIDGE TO INDIA produces a quarterly market analysis report, The India Solar Compass, which provides analyses on the latest developments in the market. It provides key insights on the primary solar market driver of policy, projects, industry and financing. Subscribers include leading international component manufacturers, EPCs, project developers, investors, banks, insurance companies as well as public sector players and international organizations. To download this report, visit BRIDGE TO INDIA’s website or click here.