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MP Policy Will Bring Shine Back to India’s Solar Market

  • ZAFAR ALAM KHAN says the Madhya Pradesh Government is doing its best to frame the State’s solar energy policy by March and has invited suggestions from investorsThe Madhya Pradesh Government is set to promote solar energy generation as part of its efforts to overcome the power crisis in the State.While talking to prospective investors in the solar energy sector, Minister for New and Renewable Energy Ajay Vishnoi recently said, “The Government will leave no stone unturned to promote the generation and use of solar energy.” Vishnoi told investors that the State Government is doing its best to frame the Solar Energy Policy by March-end.

  • The Minister also assured them of another round of meetings, if necessary, to further apprise them about the Government’s resolve to promote solar energy use. Efforts would be made to ensure that investors did not face any problems in the State. He also sought their suggestions for the proposed policy.The Minister considered the Government’s initiative to tap solar energy as a major achievement of the State after wind energy. The investors, too, praised the move to organise the meeting. They said that efforts of the State Government boosted their morale.

  • The meeting was informed that solar energy can be generated under the policy in five districts of the State bordering Rajasthan — Mandsaur, Neemuch, Guna, Rajgarh and Sheopur.About 800 megawatts of solar power can be generated in the State after ramming of the policy. Sates such as Gujarat, Rajasthan and many others have already been promoting the use of solar energy in the country.The new Madhya Pradesh solar policy unlike other Indian policies does not contain geographical limits. The second largest Indian State released its first solar policy last month, inviting bids for projects worth 200 MW. In a marked departure from the existing policies in other states the policy does not mandate any geographical limits on the location of the project. Therefore, they can be located in any other state. For transmission, a Power Purchase Agreement with Madhya Pradesh Power Trading Company can be signed.

  • In other aspects too, this policy adopts a new approach. For example, the size of solar projects may vary from five MW, to as much as the complete capacity to be allotted: 200 MW. For a project located outside Madhya Pradesh, the minimum size of the plant must be 10 MW. The Odisha Solar Policy is an exception — it allocated its complete capacity of 25 MW to a single bid by Alex Green Energy last month, and also did not specify the maximum capacity allowed for a project.With a similar scenario under the Madhya Pradesh Solar Policy, bids for projects of size greater than 25 MW can be expected. The Madhya Pradesh policy further specifies separate deadlines for projects of different sizes. The commissioning deadline for projects up to 25 MW is 13 months. It is proportionally more for larger projects — for example, for a 200 MW project, there is a 24 month deadline. This is the longest commissioning time allowed under any solar policy in India.

  • Although these deadlines make project execution seem more feasible which will be a boon for project developers, they will also attract many smaller and inexperienced players to take part in the bidding. Such participation could eventually lead to aggressive bidding, especially by the players who are serious about operating in the Indian solar industry.Concerning domestic content, unlike the states of Rajasthan and Gujarat, Madhya Pradesh’s guidelines adheres to those of the National Solar Mission (NSM). As such, crystalline photovoltaic cells and modules must be sourced locally, while thin film modules can be procured from international suppliers. For solar thermal plants too, 30 per cent of the raw materials have to be sourced locally.

  • The policy additionally makes an exception in the way it has structured its penalty clauses. There are different penalties for different stages of delay. The Performance Bank Guarantee (PBG) will be enchased, but in three steps: 20 per cent of PBG after delay by the first month; 40 per cent of PBG after the second month; and 100 per cent after the third month of delay. It also specifies a provision for the completion of project after an initial three month delay.The party with the PPA can choose to finish the project by paying monthly liquidated damages (LD). There is a tabulated list that shows the maximum delay allowed for a particular project with the LD charges. This is clearly a lesson from the Gujarat Solar Policy and an improvement over it. Under the second phase of Gujarat Solar Policy, the deadlines for the projects allotted were extended twice and eventually led the delayed projects to adhere to revised feed-in tariffs (FITs) — far lower than what they had actually signed for with their PPAs.

  • The deadline for bid submissions is March 21, 2012. The base FIT against which the bids will be evaluated for discounts is INR 15.35 per KW hour for photovoltaic projects (INR 13.94 /KWh including accelerated depreciation). The policy is also open for bids for solar thermal power projects for which the base tariff to be followed is INR 11.26 /KWh (INR 10.29 /KWh including accelerated depreciation). A company may bid for as many as three projects, irrespective of their locations.

  • The projects, if commissioned by their stipulated deadlines, will help MPPTC meet its target for Renewable Purchase Obligations for 2013. Madhya Pradesh is one of the largest power consuming States in India with a peak demand of nearly 8 GW and a peak deficit of close to 10 per cent. The State’s RPO demand for solar power is expected to rise to 400 MW by 2016. The State currently does not have any capacity for solar power generation.Madhya Pradesh is a neighbour to both Rajasthan and Gujarat — States with the highest solar irradiation and the largest areas of arid lands. With the flexibility to locate projects in States other than Madhya Pradesh, developers will be looking to base their projects in either of these States to make it more cost-effective. Should this work out, it will a major factor in driving down tariff.

  • While the land costs might seem like a good incentive to set up plants in these States, doing so will also increase the cost of wheeling and transmission. Grid evacuation could prove to be an issue. Plants usually depend on the nearest 33 KV substation, which is provided and owned by the electricity board of the State where it is located. If a plant outside Madhya Pradesh, which has a PPA with MPPTC, fails to get an evacuation from its native State, the cost of transmission lines leading to the closest substation owned by MPSEB will have to be incurred by the project owner.While the policy has redefined the perspective with which Governments have been looking at the solar energy industry, it will be equally important for MPPTC to take care of the very last mile as far as power transmission goes. It will also have to lay down clear guidelines for evacuation arrangements to avoid any administration issues in the future.

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