Solar Park Scheme changes set to drive up India solar power prices

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Changes made by the Ministry of New & Renewable Energy (MNRE) to its policy for encouraging renewable energy developers into dedicated solar parks appear set to drive up solar electricity tariffs.

The ministry has moved to address complaints from developers about a lack of power evacuation infrastructure from large-scale solar park sites by tasking the Solar Energy Corporation of India (SECI) to take responsibility for external power evacuation at the locations.

However, central government funding previously available to help developers with the cost of internal and external power evacuation will now be used solely for the latter, with developers told they will have to finance internal park infrastructure and factor the costs into the tariffs they submit during procurement exercises. In effect, energy consumers will have an increased infrastructure burden.

At the same time, the MNRE has incentivized state governments to source more land for solar park development by offering Rs0.02 for each kilowatt generated on such sites.

Developers take a hit

The changes were announced by the ministry as a new ‘Mode 7’ to its solar park development policy.

Previously, the guidelines provided central financial assistance of Rs20 lakh/MW or 30% of project costs for power evacuation infrastructure within solar parks and to transfer power off site. Under the Mode 7 change, the costs of power evacuation within the parks will be borne by developers and the CFA will be devoted entirely to off-site infrastructure.

To make developing renewable energy projects in such parks more attractive, SECI will set up a payment security fund to ensure continuous payment to developers for the energy they export to the grid. The fund is intended to mitigate risks associated with payment default by cash-strapped distribution companies.

Capacity explosion

Mode 7’s emphasis on transmission networks comes as India’s growing renewable energy capacity is outgrowing the grid. Industry watchers have expressed fears completed projects may not be able to start functioning because all ‘bays’ at the nearest substations are occupied and transmission lines are either at full capacity or not ready in time for plant commissioning.

The country needs an estimated $60-80 billion (Rs4.1-5.5 lakh crore) in the next five years to keep pace with rising generation capacity.

According to a January report by the Institute for Energy Economics and Financial Analysis, the country’s transmission network capacity grew at a compounded average growth rate of 12% between fiscal year 2013-14 and 2017-18. During the same period, the extent of transmission lines expanded at a rate of just 7%, from 274,588 km to 390,970 km.