India’s National Solar Mission: revisions recommended

The standing committee on Energy presented the 28th report on “National Solar Mission – An Appraisal” relating to the New and Renewable Energy to Lok Sabha, lower assembly of Parliament on July 28, 2017. The meeting presided over the current status of the mission, and recommended changes to streamline hindered schemes or policies towards the country’s target of 100 GW by 2022.

Stressing on the topic, the committee said: “The success of the mission solely and squarely hinges on the success of solar energy programs. Any unfulfilling result of our efforts on this count will have a cascading effect.”

The council observed disappointing results relating to the past two financial years of the National Solar Mission, it said, highlighting a total estimated investment of INR 5 trillion required to reach 100 GW of solar capacity, with most of the investment so far undertaken by private entities. The board has asked the ministry to play a more active role in investment, rather than acting as a bystander and thus leaving huge investment in the hands of the private sector.

Concluding the meeting, the committee recommended several suggested changes to policy and schemes which, if ignored, could derail India’s hopes of reaching its solar target of 100 GW by 2022. These are:

Use of Indian-made cells and modules
The committee observes that only 7 MW of solar is commissioned by the military, out of 357.5 MW allocated under the scheme. Approximately 6 GW of solar could be installed at Military stations and Ordnance factory boards (OFB). Under the mission, a 300 MW solar target has been set for the Ministry of Defense under the EPC mode of the WTO scheme (compliant to use Indian-made solar cells and modules) or under the developer mode (to procure imported or indigenous cells and modules(. Therefore, the committee has asked the Ministry of Defense to set a target of 5 GW of grid/connected solar projects, which should be tendered through the EPC mode so that only Made in India Solar cells and modules are used.

Central Finance Assistance
The Ministry provides up to INR 2.5 million per solar park for preparation of Detailed Project Report (DPR) and up to INR 2 million/MW or 30% of the project cost, including Grid-connectivity cost, whichever is lower on achieving the milestones under the Central Financial Assistance (CFA) scheme. However, up to now only 1,516 MW capacity, out of a 20,000 MW target capacity, has been commissioned. The Solar Energy Corporation of India (SECI) disbursed only INR 9 billion as CFA over the last three financial years, which is about 45% short of the target. Therefore, the board recommended SECI to identify the “potholes” and take corrective measures.

Revise Viability Gap Funding (VGF) and Bundling scheme
The committee is considering revising the VGF and bundling scheme because the current solar tariff bids went below INR 2.5/kWh and there is no benefit of this scheme to the sector. Under VGF, developers would be paid a tariff of INR 4.43/kWh or the discounted tariff through reverse auctioning for 25 years by entering a PPA with SECI. Power from these projects would be sold to various DISCOMs/bulk consumers/state utilities by SECI at INR 4.50/kWh or the discounted tariff (including a trading margin of INR 0.07/kWh).

Whereas bundling of PV with thermal was aimed to incentivize solar power, the decreasing tariffs is reversing the objective of the scheme. Therefore, the committee advises a revision to the Bundling scheme, where 20% of 15 GW of solar PV through NTPC should be bundled with unallocated thermal power in the ratio of 2:1.

The MNRE released a corrigendum on September 11 with small changes in the implementation of a scheme for setting up of more than 5 GW grid-connected solar PV with VGF under Batch-IV of Phase II of National Solar Mission, asking for a recommendation in removing difficulties in commissioning a project.

Grid-connected rooftop projects
The committee took a dim view of the Ministry’s 40 GW of grid-connected rooftop goal, concluding that the target should be reconsidered, a public awareness program conducted, and for the process of subsidy to be simplified. They also suggested a mandate for compulsory PV on new buildings, and the adoption of Single Window Clearance System for approvals like connectivity, net-metering, electricity inspection, limitation in sanctioned load, etc.

They singled out the net metering policy as the key driver for rooftop PV, as it reduces Aggregated Technical and Commercial (AT&C) losses and need for large tracts of land. It even helps DISCOMs to avoid buying expensive peak power. Therefore, the concept of cross subsidy should be reconsidered so that net metering for all users will make more financial sense, clear installation guidelines, and a proper implementation training of DISCOM’s staff can be devised.

However, DISCOMs cited existing drawbacks with net metering, including revenue erosion, tariff increase for non-RTS consumers, and backing down of conventional power etc., for which the board prescribed investment in concepts like standalone micro-grids.

Progress of National Solar Mission
The Ministry is short of 254.5 MW off-grid solar installation in their Phase II of NSM (2013-17) mission. The off-grid application is vital for remote locations where grid extension is uneconomical. Various issues mentioned related to the application, like high capital cost, complicated procedure of subsidy disbursal, and difficulty in local operation and maintenance. The ministry advised the establishment of a scheme to drive down cost and increase return of investment (ROI) and encourage Public-Private Partnership with rural entrepreneurs, and also to make the disbursement of subsidies hassle-free and to persuade MNCs to include off-grid solar projects as part of their CSR activity.

The board is also concerned about tariff bids reaching lows of INR 2.5/kWh, as which point projects can become unviable because the developers may find it difficult to raise funds and contain high project costs, which are also expected due to increased prices of imported modules. Moreover, such low tariffs would also affect the viability of those solar projects that have been earlier awarded at a higher rate, tempting renegotiations of tariffs with state DISCOMs, and potentially putting INR 4,800 million ($7.5 billion) worth of projects at risk. Therefore, imposing high anti-dumping duty or duty based on efficiency of the material imported to discourage import of poor quality material is recommended.

The Ministry also wishes to work towards aligning state-wide Renewable Purchase Obligations (RPOs) with the RPO trajectory, as notified by the Ministry of Power, and come up with penal provisions for states that are not willing to comply with their RPO.

The group also observes delays in signing PPAs after finalization of tenders (which is a consequence of a lack of direction from the parent Ministry), lengthy internal approval process, involvement of multiple ministries, and lack of prior experience of the government departments etc. These result in possible delays in project implementation, changes in scheme norms, change in cost/incentives, backing out of developers, and revenue loss for entity etc.

The Committee, therefore, suggested that the Ministry should devise a single window system wherein lengthy internal approval process and involvement of multiple Ministries can be avoided, and the formulation of model PPAs with the help of specialized agencies.

Solar manufacturing
The Committee notes that India, as of Q2 2017, has installed solar PV manufacturing capacity of around 3 GW for solar PV cells and around 7 GW for solar PV modules. However, the actual production is 1 GW and 3 GW respectively.

There is incentive from the government for solar manufacturing under Modified Special Incentive Package Scheme (M-SIPS) in providing a capital subsidy to promote large scale manufacturing. However, there is huge set back in domestic manufacturing and the committee accepted a necessity to support domestic market against overreliance on a single country. The board, therefore, commended that there should be excise duty exemption and zero import duty on raw materials, and provide VGF and low interest rate loans to domestic manufacturers. The Ministry is asked to formulate a dedicated program to support the complete supply chain and make India a manufacturing.