In a move that could encourage private solar power developers to sign power supply agreements with state-run NTPC, the government has decided to extend a tripartite agreement that provides payment security to the country’s largest thermal power producer by fifteen years from the current end-date of October 2016. It may also give similar benefit to the solar companies that qualify to sell power to NTPC Vidyut Vitaran Nigam, the power trading arm of the firm.
Under the existing agreement signed in 2011, any state defaulting on payments to NTPC risks a deduction from its annual transfers made by the Centre. This amounts to a payment security for NTPC. This clause has not been invoked so far as the threat of a deduction has ensured timely payments by SEBs, even as they are weighed down by R3 lakh crore of accumulated losses.
In February, the Cabinet had approved implementation of 15 giga watt (GW) of solar capacity by NVVN, mainly with private investment under the national solar mission. As per the scheme, the private firms willing to supply power at the lowest tariffs to be found under competitive bidding would enter into pacts with the power trader.
“The government has agreed to renew the agreement between the Centre, state government and the Reserve Bank of India (RBI). The pact would be extended by the same duration as the existing one and may also cover the private solar companies that have power purchase agreements (PPAs) with us,” Kulamani Biswal, director finance, NTPC told FE. Biswal added that a few states had already agreed to the proposal of extending the agreement while other states were being consulted on the matter.
Although the solar power tariffs has been falling consistently over the last 12 months and are close to grid parity, the developers are wary of discoms’ ability to pay on time. Experts believe that the opportunity to sell power to NVVN with guaranteed payment could lead to intense competition among independent producers and may see record low tariffs in the country.
The average tariffs discovered for solar power in the last three bids invited by Madhya Pradesh, Telangana and Punjab have been below Rs 6/unit.
“Solar power producers, especially foreign firms, have always been more keen on projects under national solar mission (NSM) compared to those under the aegis of state governments. Being a party to a payment security mechanism like the tripartite agreement is likely to see aggressive bids from such firms,” Jasmeet Khurana, head, market intelligence of solar consultancy firm Bridge to India told FE.
While NTPC has been tasked by the government to implement 15 GW of solar projects, the company had also committed to develop solar capacity of 10 GW on its own. The commitment however isn’t obligatory unlike the cabinet decision and NTPC executives have often emphsised that the target would depend upon availability of buyers.
Under the cabinet-approved plan for the 15 GW, the capacity addition would be achieved in three tranches. In the first phase, 3000 MW capacity will be bundled with unallocated thermal power from the NTPC’s stable. In the second phase, 5,000 MW under would be added with support from government to be decided after getting some experience while implementing the first phase while the balance 7,000 MW under third tranche will not have any financial support from the government.
It is estimated that implementation of first phase of the scheme will entail total investment of over Rs 18,000 crore, all of which will be met by project developers, mainly private.
“Successful completion of additional 15,000 MW capacity of Grid-connected solar PV power generation projects, mainly in the private sector, with largely private investment, under the National Solar Mission would accelerate the process of achieving grid tariff parity for solar power and also help reduce consumption of kerosene and diesel, which is presently in use to meet the unmet demand,” the government had said after the cabinet decision in February.
Although the government had envisaged a payment security mechanism in the form of a working capital fund with an estimated corpus of Rs 2300 crore to cover 3 months payment for bundled capacity of 3000 MW of solar capacity, the payment will now be linked to the tripartite agreement as these developers would sell power to NTPC directly.