Ministry explores alternatives to bank guarantees for solar projects

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The Ministry of New and Renewable Energy (MNRE) is exploring alternatives to the ‘earnest money deposits’ and performance bank guarantees which must be lodged by solar developers to be eligible to participate in tenders held to allocate solar generation capacity.

The ministry has consulted state-owned entities the Solar Energy Corporation of India and power company the NTPC about possible alternative guarantees to ensure projects will be seen through to completion.

The MNRE is exploring the possible provision of assurances by external auditors about the viability of potential tender bidders, documents known as letters of comfort. Corporate guarantees, which enable corporations to agree to fulfill the obligations of debtors, are also thought to be under consideration, along with the pledging of existing solar project revenue streams, which could be offered as an alternative to performance bank guarantees.

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Lobby group the National Solar Federation of India welcomed the proposal and said it “would encourage larger participation in the upcoming [tender] bids as this can help [lead to] better [solar energy price] tariffs for the bids while helping the entire [solar] ecosystem”.

The industry body called for such alternative guarantees to also be offered to existing contracts related to facilities yet to be commissioned, and said such a move would ease the liquidity concerns of developers and help bring projects to completion.

“It is estimated that bank guarantees to the tune of Rs 7,000 crore are with various government procurers [and/or] intermediary procurers,” the solar industry group wrote in a letter to the MNRE. “Releasing the said amount would enhance the capabilities of … execution of … [projects]. This would also help in getting working capital issues resolved to the extent possible for the developers.”