CCEA approves VGF support for setting up 5,000 MW solar power projects

Amid falling solar tariffs and increasing capacity addition, the Cabinet Committee on Economic Affairs (CCEA) has given approval for setting up of over 5,000 MW Grid-Connected Solar PV Power Projects on build, own and operate basis. The work will be implemented by Solar Power Developers (SPDs) with viability gap funding (VGF) under Batch-lV of Phase-ll of the Jawaharlal Nehru National Solar Mission (JNNSM).The total investments expected under this scheme is about Rs 30,000 crore.

The VGF support envisages creation of 5,000 MW capacity in four tranches of 1,250 MW each during four financial years viz. 2015-16, 2016-17, 2017-18 and 2018-19.  Minister of State Power, Coal and New & Renewable Energy Piyush Goyal said that there will be some capacity reserved for projects with domestic content, projects with foreign equipment can also participate in the bidding to get VGF.  Besides, this move would also help employment generation for about 30,000 people in rural and urban areas of about with reduction 8.525 Million T of CO2 emissions into environment every year.

The requirement of funds to provide VGF for 5,000 MW capacity solar projects is estimated to be Rs. 5,050 Crore (Rs 1crore per MW). This includes handling charges to Solar Energy Corporation of India (SECI) at 1% of the total grant disposed and Rs 500 crore for payment security mechanism for all three VGF schemes of 750 MW, 2000 MW and 5000 MW. Out of 5,000 MW, some capacity in each tranche will be developed with mandatory condition of solar PV cells and Modules made in India. The VGF amount would be Rs 1.25 crore for domestic content based projects and Rs 1 crore for open category.

The VGF scheme will be implemented by SECI as per MNRE Guidelines. SECI shall prepare necessary bidding documents for inviting the proposals for setting up of projects on a competitive bidding through e-bidding. SECI will enter into Power Purchase Agreement (PPA) with the selected developers and the Power Sale Agreement (PSA) with the buying entities.

The Central Electricity Regulatory Commission would clear the benchmarking of tariff. Under this regime, solar power project developers would bid for viability gap funding requirement in Rs/MW and the bidder with minimum VGF requirement would be selected. The bidders will be free to make use of fiscal incentives such as accelerated depreciation, concessional customs and excise duties, tax holidays and other such schemes available for solar power projects. However, accelerated depreciation and VGF cannot be claimed together.