core sector communique

Payment Security Mechanism for Grid Connected Solar Power Projects under Phase 1 of JNNSM.

The Cabinet today approved Payment Security Scheme to enable financial closure of projects under Phase 1 of the Jawaharlal Nehru National Solar Mission (JNNSM) by extending Gross Budgetary Support (GBS) amounting to Rs.486 crore to MNRE in the event of defaults in payment by the State Utilities / Discom to NTPC Vidyut Vyapar Nigam (NVVN), the Central Agency which will purchase Solar Power from the developers and sell it to the utilities bundled with unallocated Thermal Power available from NTPC utilities.

The scheme will facilitate setting up 1000 MW grid connected solar power projects to achieve targets of the National Solar Mission.

The core component of the Payment Security Scheme is to create Solar Payment Security Account (SPSA) financed from GBS to MNRE to have availability of adequate funds to address all possible payment related risks in case of defaults by distribution Utilities for the bundled power. The PPAs have a robust mechanism for recovering the payments for the supply of bundled solar power through Letter of Credit System. The SPSA, however, is not seen in the nature of margin money and is, therefore, not required to cover for the entire quantum of sale from solar energy.

The Payment Security Scheme (PSS) will be implemented by the Ministry of New and Renewable Energy (MNRE) with the provision of NVVN opening the SPSA for this purpose and draw funds as per mechanism/ provisions of the Scheme. The funds for each year shall be allocated by MNRE into SPSA.

A Fund Management Committee (FMC), constituted under the Chairmanship of Secretary, MNRE and representatives of M/o Expenditure, Planning Commission and M/o Power, will oversee the overall implementation of this scheme and shall be empowered to issue any directions to remove any difficulties with regards to its implementation. It will, however, be ensured by NVVN that all efforts are made by various stake holders to realize the amounts.

Background:

Jawaharlal Nehru National Solar Mission (JNNSM) was launched by the Government last year as a part of National Action Plan on Climate Change with a view to develop an enabling policy framework for deployment of 20, 000 MW of solar power by 2022 and 2,000 MW equivalent off-grid solar applications. Setting up solar power projects of 1,000 MW capacity during Phase-1 of JNNSM up to 2013 and a system of purchase of solar power by NTPC Vidyut Vyapar Nigam (NVVN) and its sale to State Utilities after bundling of equivalent capacity of solar thermal power was also approved. The NVVN will purchase solar power fed to 33 KV and above grid from the developers at a price already obtained under the competitive bidding and its supply to the Utilities after bundling the solar power with equivalent capacity from unallocated quota of thermal power.

Payment Security Mechanism approved by the Government is critical for achieving financial closure by the developers of the solar power projects given that the associated risks, especially, pertaining to technology and performance are not fully understood under Indian conditions.