New Bidding Guidelines For Solar Power Projects Positive For The Sector: ICRA

The recent notification of bidding guidelines by Indian government for the award of solar power projects is a positive development for the sector, says an ICRA note.

The guidelines require the procurers to provide a payment security through letter of credit equivalent to one month average billing and a payment security fund to support payment for at least three months of receivables for the projects tied up.

In addition, the procurer may also choose to provide state government guarantee in a legally enforceable form, both for payment of energy charges and termination compensation.

Says Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings, “Barring the Rewa Solar Park bid, where there is a guarantee by the Madhya Pradesh State Government to cover for payment delays, the payment security approved in the bidding guidelines has not been seen in power purchase agreements (PPAs) signed directly by the state distribution utilities (discoms) under state policy framework.”

“This measure, if implemented in PPAs signed directly by state discoms, is favourable for the solar power developers and improves the bankability of the PPA document.”

The guidelines also provide for compensation to solar power generators in case of off-take constraints arising from the delay in commissioning of transmission infrastructure, grid unavailability and grid back-down, which is favourable for solar power generators.

While wind and solar power projects enjoy a “must run” status under the Indian Electricity Grid Code (IEGC) and have to be scheduled before any other source of power, there have been instances in a few states like Tamil Nadu and Rajasthan, where grid curtailment has been observed.

Given the single-part tariff structure for these projects, the project cash flows and hence debt serviceability is directly linked to the actual generation and off-take by the procurers.

“It is noteworthy that these regulations shall be applicable only for new projects. The aforementioned concerns would continue to prevail for existing projects,” added Majumdar.