Success in the current solar power project market in India appears to hinge not only on technical improvements but also on achieving crucial economies of scale to drive down costs. This trend is reflected in the latest guidelines published on 5 February 2016 by the Ministry of New and Renewable Energy (MNRE) on the development of solar parks (the ‘Guidelines’).
The Guidelines are intended to facilitate the roll out of the MNRE’s ambitious plans to set up 25 solar parks each with a capacity of 500 MW or above between 2014-2019, targeting around 20,000 MW of solar power installed capacity. Administrative approval for the implementation of the Scheme for Development of Solar Parks and Ultra Mega Solar Power Projects (the ‘Scheme’) was granted in December 2014. The Guidelines list the 21 states which have consented to participate in the Scheme, along with the capacity, location and the names of the solar park implementing agencies (designated as the Solar Power Park Developer (SPPD)) for 27 projects.
The Role of the SPPD
Nominated by a state government, an SPPD can be formed by the state government via and of the following:-
- a public sector undertaking (PSU) or an SPV-type structure;
- a JV arrangement between the Solar Energy Corporation of India (SECI) (the MNRE agency responsible for the implementation of the Scheme) and a state agency;
- designating SECI as the implementation agency for a particular state; or
- by private entities (with or without equity participation from the state government or any of its agencies).
The SPPDs will be primarily responsible for acquiring the land and obtaining the clearances for the solar park and, where required, preparation of a detailed project report and O&M of the solar park for 25 years. Importantly, the SPPDs are also responsible for securing or facilitating delivery of the development of the internal transmission network on behalf of the Solar Project Developers (SPDs) and applying for the grid connection.
In addition, each SPPD is responsible for making the grant application to SECI for up to Rs. 20 lakh/MW (approx. £20,000/MW) or 30 per cent of the project costs including grid connectivity cost (whichever is lower) and which is payable on a milestone basis.
The SPPDs are expected to recover their investment by selling the land to SPDs or by entering into lease arrangements for a 30 year period or as per the policy set out by the respective state governments. The Guidelines entitle an SPPD to enter into back to back arrangements with SPDs as the ‘generator’.
Of note to Developers
The SPD is responsible for the remainder of the project development process. This wioll include obtaining the relevant regulatory permissions and clearances for the project, scheduling of the grid connection, payment of deviation linked charges, interconnection of the plot with the pooling station, entry into PPAs with the state utilities (based on either regulated prices set by the Central/State Electricity Regulatory Commissions or determined via a bidding process ).
Interested developers must note an important caveat that the acceptance for the development of the solar park under the Scheme does not guarantee a PPA or tariff for the power to be produced. In addition, SPDs are entitled to set up projects under any central or state government scheme or for third party sale.
Land acquisition costs (as a proportion of the overall project costs) for solar power projects in India are expected to increase in the long term as solar energy projects scale up, equipment costs come down and land areas with high solar generation potential located near electrical substations become more scarce and as a result more expensive.
Acquisition of large tracts of contiguous land with appropriate insolation levels for the concentrated development of generation projects is crucial to the success of solar park projects identified under the Guidelines as ‘flagship demonstration facilities’. Therefore requiring state governments to prioritise the use of inexpensive government owned waste/non-agricultural land rather than agricultural or private sector owned land and the insistence on keeping the land price low under both the Guidelines and the Scheme has the potential to deliver both short and long term benefits to developers looking to enter or expand their footprint in the solar power market in India.