Centre plans Solar Payment Security Fund

"This (Fund) will ensure an uninterrupted payment stream for sale of power by solar power developers contracted with NTPC Vidyut Vyapar Nigam Ltd (NVVN)," says the proposal from the Ministry of New & Renewable Energy.

The Rs 330-crore scheme — available only for photovoltaic projects that are set up in the first phase of the National Solar Mission — would provide "adequate security" to project developers and financiers to make power-purchase agreements more bankable and hence, secure project financing.

The security would provide lifetime payment assurance to private firms to invest in solar power projects. "Once the mechanism is approved, NVVN would come out with request for proposal for inviting applications for developing 700 MW of grid-connected solar power," says the proposal.

India's target is to set up 1,100 MW grid-connected solar plants by March 2013 with the long-term aim of 20,000 MW by 2022 towards country's energy security and environmental sustainability.

But the RFP and hence potential projects got delayed as ultimate buyers — state distribution utilities — were neither inclined nor financially sound to pay high tariff of Rs 15 to Rs 17.5 per kWh for solar electricity. The government then authorised NTPC subsidiary NVVN to pool solar with lower-priced thermal power and distribute the bundled power at Rs 5-6 per kWh. But this too was found insufficient to encourage private investments as the first buyer NVVN's balance sheet and net worth was skimpy to assure the bankability of the entire operation.

With NTPC not expected to stand guarantee for NVVN, the only option was that the Central government step in and float an insurance fund that would insulate NVVN and in turn insulate the solar power producers so that developers and financiers could scale up their commitment to the sector, says the proposal.

The proposed fund would meet payment liability only for the defaults against power capacity contracted with NVVN and would take care of payments for six consecutive months, assuming the default would not exceed 35 percent of the supplied power.

The reimbursements from the fund would not relieve the final buyer distribution utilities from their obligations to NVVN and the outstanding will continue with sufficient penal mechanisms.

If the default persists, the Centre could have the outstanding deducted from the Plan allocation made to the states.

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