Viability of INR 60 billion Solar Market Opportunity in India for Investor

The Government of India (GOI) recently approved funds of around INR 18 billion from National Clean Energy Fund (NCEF) for providing capital grant under JNNSM Phase 2 Batch 1 “Viability Gap Funding”. The Phase 1 of the JNNSM was completed successfully with total capacity edition of around 540 MW of Solar PV across India. Now, with funds in hand the Ministry of New and Renewable Energy (MNRE) has released the revised guidelines for global bidding of 750 MW of Solar PV project.

The final detailed document of Request for Selection (RfS) is expected to be made available on 15-10-2013 by Solar Energy Corporation of India (SECI), newly formed company by GOI under MNRE to act as a nodal agency for JNNSM Phase 2 projects. The developers will be given 40 days to submit their bids along with the required document to SECI.

The much talked unique concept of Viability Gap Funding (VGF), introduced by the government to standardize the tariff among all the bidders will also enable  the government to attract investor for otherwise un-expected low tariff of INR 5.45 per unit.

However, the actual viability and returns for the developers at such low tariff even with VGF support is still a big question for the investor. The investor has to smartly judge the impact of various conditions of VGF, performance based payments and other requirements before assessing the viability of the projects and to avoid any loss or below expectation returns in future.

Some of the most important factor that will affect the financial planning of the investor are as follows:

  1. 50% of the VGF will only be released on successful commissioning of the project, the rest 50% will be released equally over than span of 5 years. This means that investor initially have to bring in more capital equivalent to actual cost of setting up the solar PV plant , which will definitely impact the cash flows of the project and will also increase the end cost of project.
  2. Penalties of lower generation (-10%) than projected to be payable to SECI and Discom. There is also no incentive for producing more than the projection (+10%), as for higher generation developer will only get 50% of the prescribe tariff of INR 5.45 per unit. This will make forecasting of generation utmost important which a difficult task for infirm solar power is otherwise.
  3. Requirement of creation of creation of Bank Guarantee and EMD of INR 30 lakh / MW
  4. Only 13 months of time given for commissioning for projects ranging from from 10 MW to 50 MW
  5. Current high volatile state of Indian currency against dollar and other international currency and high rate of interest in domestic banks

 

To analyses all these facts and to bring a clear picture for the investor IndianPowerSector.com team along with experienced bankers and project developers has developed a financial model exclusively for VGF scheme along with a short presentation of NSM Phase 1 with Successful Case Studies.

 

For further information please contact at  info@IndianPowerSector.com.

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