The Jawaharlal Nehru National Solar Mission set an ambitious target of installing and commis-sioning projects, in three phases, to generate 20,000 MW of solar power in India by 2022. The first phase envisages selection and development of a total capacity of 1,000 MW, comprising 500 MW each of solar photo voltaic (PV) and solar thermal power. While the entire 500 MW of solar thermal projects was awarded in the first round of bidding, a total of 37 solar project developers successfully bid for only 150 MW of PV projects.
Making it attractive
The Ministry of New and Renewable Energy, through NTPC Vidyut Vyapar Nigam (NVVN), recently issued guidelines for selection of a second batch of PV projects. Key changes brought about under these guidelines are outlined below.
Capacity allocation: A project developer (including its parent, ultimate parent, affiliate and group company) can bid for a total capacity of 50 MW, subject to a maximum of three PV projects with no single project being more than 20 MW. In the first batch a project developer could only bid for 5 MW.
Net worth: A bidder must have net worth of at least ₹30 million (US$610,000) per MW of the PV project capacity up to the first 20 MW being bid for, and ₹20 million for each MW above 20 MW. Bidders in the first batch needed net worth of at least 150 million, irrespective of the project capacity.
Compulsorily convertible preference shares and debentures and share premium also count towards net worth. Successful bidders are required to capitalize project special purpose vehicles up to the net worth requirement before the power purchase agreement (PPA) is executed. Depending on the size of the underlying project, the amount that a successful bidder may have to put into the special purpose vehicle up front could be significant.
Control: A bidding company or consortium cannot change its shareholding until the PPA is signed. After that the bidding company or lead member must remain as the controlling share-holder for one year after the commercial operation begins. Controlling shareholding has been increased from a minimum of 26% (under the first batch guidelines) to more than 50% of the paid-up share capital (including any compulsorily convertible preference shares or debentures or both) and voting rights.
The equity lock-in requirements for solar power projects have proved to be one of the main reasons for the slow growth of the sector.
Domestic content: The guidelines for the first batch required that at least 30% of the equipment be sourced domestically. Now, photovoltaic modules made from thin film technologies or concentrator photovoltaic cells can be sourced from other countries, but all other material must be sourced domestically. The cost of setting up recycling units for plants using this technology and potential environmental compliance costs still need to be addressed.
Timelines: The timelines for achieving financial closure and commissioning of PV projects have been increased by one month each. Helpfully for project developers, financial closure refers only to lining up funds (by way of sanction of a loan) and does not require conditions precedent for drawdown to be met.
Bank guarantees and liquidated damages: In case of commissioning delays caused by reasons other than default by NVVN or force majeure events, NVVN can encash the bank guarantee provided by the project developer in proportion to the uncommissioned capacity of the PV project. Bank guarantees can be invoked for up to 16 months from the date of the PPA, after which the project developer will be liable for liquidated damages to NVVN at the rates given in the PPA.
If the PV project capacity is not commissioned 18 months after the PPA is signed, the contracted capacity under the PPA will be reduced by the uncommissioned quantity and the PPA (to that extent only) will be terminated. The entire project capacity will not stand terminated, as in the first batch.
As can be seen, the government has attempted to increase investment by liberalizing conditions on invocation of bank guarantees, timelines and financial arrangements. However, restrictions on change in control and domestic content requirements, which are seen as bottlenecks, remain. This may affect the success of projects in the second batch.
Saurabh Bhasin is a partner at the Delhi office of Trilegal where Arnav Joshi is an associate. Trilegal is a full service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 140 law¬yers, some of whom have experience with law firms in the United States, the UK and Japan.
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