The Ministry of New and Renewable Energy (MNRE) has vide its Office Memorandum dated December 13, 2019 issued "Guidelines for development of Decentralized Solar Power Plants (Guidelines).

What is the objective?

The Guidelines were framed with the objective of providing a facilitative framework for development of decentralized solar power plants near distribution sub-stations in India and fulfilment of solar renewable purchase obligations.

What are the criteria for applicability of the Guidelines?

The Guidelines are applicable for procurement of solar power by distribution companies (DISCOMS) from decentralized solar power plants satisfying the following criteria:

  • Plants with capacity more than 2 MW
  • Plants connected to distribution sub-stations of rating 66/11 KV and higher
  • Plants with up to 2 MW capacity and being connected to distribution sub-stations of any DISCOM of rating 33/11 KV and below where the sanctions given to the DISCOM under PM-KUSUM have been exhausted.

What are the salient features of the Guidelines?

Some salient features of the Guidelines are set out below:

Implementation Arrangements envisaged under the Guidelines Responsibility Particulars of Implementation
Request for Selection (RFS) for development of solar power plants on build own and operate basis DISCOM
  • The DISCOM is to assess and notify on its website solar power capacity that can be injected in to identified distribution sub-stations.
  • The DISCOM is to invite bidders (either itself or through an authorized agency such as power trading agencies) to participate in the open competitive bidding process against the RFS and to be connected to the identified distribution sub-station.
Submission of technical and financial bids Bidders
  • The bidders are to submit financial and technical bids.
  • The financial bids are to indicate the tariff offered against total capacity for which the bid is submitted
Selection of developer DISCOM
  • The developer would be selected by the DISCOM on the basis of the lowest tariff offered by the bidders in the closed bid or e-reverse auction as the case may be.
Land Acquisition DISCOM / Developer
  • The DISCOM may provide land, take responsibility of evacuation of solar power from the plants and may charge fee for such facilitation.
  • Alternatively, the developer may be responsible for procuring land on its own and providing connectivity from the power plant to the sub-station.
Connectivity with the sub-station DISCOM
  • The DISCOM would be responsible for laying down a dedicated 11kV line from the plant to sub-station, construction of bay and related switchgear including metering arrangements at sub-station where the plant is connected to the grid.
Clearances required from State Government and other local bodies Solar Power Generator (SPG)
  • The SPG would be responsible for procuring all necessary clearances for setting up the Plant.
Execution of Power Purchase Agreement (PPA) DISCOM and SPG
  • The PPA is to be executed by the DISCOM and SPG, within 2 months of the date of issue of the letter of award.
  • The PPA would be for a period of 25 years from the Commercial Operation Date.
  • The DISCOM will be obliged to buy the entire power from SPG within the contract capacity.
  • The SPG would be required to achieve a minimum CUF of 15% on annual basis during the PPA period. However, in case of low Solar radiation zones, lower minimum CUF may be specified by the concerned DISCOM.
  • The SPG will be free to operate the plant after expiry of the 25 years of PPA period if other conditions like land lease, etc., permit.
  • As a payment security measure, DISCOM will have to maintain letter of credit and escrow arrangement as required in the PPA.
Providing bank guarantees to DISCOM SPG
  • The SPG is to provide the following bank guarantees to the DISCOM:
    • Earnest Money Deposit (EMD) of INR 1,00,000/MW in the form of Bank Guarantee along with Expression of Interest.
    • Performance Bank Guarantee (PBG) of INR 5 00,000/MW within 30 days from date of issue of the letter of award.
  • The DISCOM can prescribe higher PBG amount where land and evacuation facilities are being provided by DISCOM.
Validity of PBGs -
  • The PBGs shall be valid for a period of 12 months from the date of issue of the letter of award for the plant.
Encashment of bank guarantees / Release of EMD DISCOM
  • The DISCOM can encash the bank guarantee equivalent to EMD as penalty in case of failure by SPG to execute the PPA within the stipulated time period.
  • The DISCOM is to release the EMD within 15 days of the date of issue of the letter of award to selected SPG(s).
Commissioning and COD SPG
  • The SPG is to commission the plant within 9 months from date of issuance of the letter of award in cases where land and connectivity is being provided by the DISCOM.
  • In other cases, the plant is to be commissioned within 12 months of issuance of the letter of award.
  • A delay by the SPG in commissioning the plant would entitle the DISCOM to encash the PBG.

Our view: By laying down a framework for DISCOMs to procure solar power from decentralized renewable energy power plants, the MNRE has reinforced the importance of (i) energy efficiency and the decentralized use of solar energy; and (ii) easy accessibility of affordable and reliable solar power in the rural areas. Considering that land acquisition has been a major deterrent for solar developers, the provision of the Guidelines enabling the DISCOMs to acquire land should be a boost for the sector and hopefully attract interest and competitive rates from bidders.

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