The Union ministry of new and renewable energy has issued new guidelines for tariff-based bidding process for procurement of power from grid-connected solar photovoltaic power plants.
These guidelines, notified on August 3, 2017, have been issued under the provisions of Section 63 of the Electricity Act, 2003 for long term procurement of electricity by the procurers [distribution licensees, or authorized representative(s) or an intermediary procurer] from grid-connected Solar PV power projects. These guidelines will be applicable to projects above 5-mw installed capacity and will be applicable when the power purchase is done through tariff-based competitive bidding.
The key features of the new guidelines are:
- The “must-run” status for solar projects has been stressed upon. The offtake risk has been mitigated by a minimum compensation of 50 per cent of PPA tariff in the case of back-down. A back-down is a situation when power procurers (usually discoms) ask developers to unplug their power plants from the grid. In the event of grid unavailability, developers will be compensated by way of procurement of excess generation. The new guidelines also envisage outright compensation to developers in the event of grid unavailability.
- The PPA tenure has been kept at a minimum of 25 years. Unilateral termination or amendment of PPA is not allowed.
- Issues related to land, connectivity, clearances, etc. have been streamlined and so have the guidelines relating to grant of extension if projects are delayed. This has been done with a view to improving project preparedness.
- The new guidelines envisage optimal risk sharing between the developer and procurer, in the event of default. The guidelines have clearly defined events of default (with respect to both developer and procurer) and consequences thereof have been clearly specified. For instance, if there is an arbitrary termination of PPA, there will be a termination compensation aimed at increasing bankability of projects by securing the investment by the generator and the lenders.
- The risk of generator’s revenue due to delayed or non-payment by procurers has been addressed by way of a payment security mechanism through various instruments like letters of credit, payment security fund, state guarantee, etc.
- The new guidelines envisage a provision “change in law” that will protect the interest and provide clarity and certainty to generators, procurers as well as investors. This provision assumes effect from the date of bid submission and covers all aspects of changes in laws and taxes that have a direct effect on the project. The scope of this provision is comprehensive and is not limited to just taxes applicable on supply of power.
- Early commissioning or part-commissioning has been incentivized by allowing the PPA for a minimum of 25 years from the scheduled commissioning date. In this way, the developer has the advantage of a longer tenure of the power purchase agreement.
- Penalties have been rationalised, so as to reduce the overall cost to the generator, while at the same time, ensuring compliance with the commissioning schedule.
- While generators are free to repower their power plants, the procurer will be obliged to buy power only within the capacity utilization factor (CUF) range envisaged in the PPA.
- Bids have been allowed in terms of both power (capacity or MW) and energy (generation or kwh). Also, e-bidding has been emphasized upon to improve transparency.
