India’s solar power tariff saw a new dynamic with Rewa Ultra Mega Solar Ltd (RUMSL) getting a rate of ₹3.30 per unit raising questions on how this was achieved for the otherwise expensive green power.

This was achieved by working through the contract in such a way that it becomes beneficial for all — developer, procurer and the consumer, said Bhanu Mehrotra, Global Sector Lead for PPP Advisory on Solar, International Finance Corporation.

Lead adviser

IFC is the lead transaction adviser for this 750-MW project won by Mahindra Renewable, ACME and Solenergie Power. While the Madhya Pradesh government has provided State guarantee and land for the project, Madhya Pradesh Power Management Corporation Ltd and Delhi Metro Railway Corporation are the committed buyers.

IFC worked with several stakeholders — the Centre, the Madhya Pradesh government, PowerGrid Corporation and the Solar Energy Corporation of India (SECI) — to assist RUMSL in selecting private developers.

In the project, because the State government wanted to be the lead in terms of putting it together, SECI could not be the procurer. The State utility had become the procurer for signing the power purchase agreement, he said, adding that this meant viability gap funding was not available. The challenge now was to get tariffs that are competitive with what SECI or NTPC would have offered, he stated. Besides, the state DISCOM had a lower credit rating than Central public sector undertakings.

Credit rating

“The first thing we did was to advise RUMSL to bring in a higher credit rated entity. The Delhi Metro Rail Corporation as one of the potential buyer was identified. We showed DMRC that the landed cost of power from the Rewa project would be much lower than their other arrangements and that they would save hundreds of crores of rupees.”

A higher credit rating company to assure off take also lowered the credit risk on project developers and allowed them get cheaper loans, he pointed out. “We introduced a three-tier payment security mechanism to insulate the project developers from offtake and delayed payment risks,” Mehrotra said.

At the first level, M.P. Power Management Company Ltd was asked to provide a letter of credit equivalent for one month for the energy bill payments. In the second level, a payment security fund was instituted to be operated not by the utility, but by RUMSL — to provide assurance of another three months of payments if the state utilities erred, he explained.

At the third level, came the State guarantee. Under this, the State signs an agreement with the project developer, the Discom, MPPMCL and the RUMSL. This essentially means that if the first two layers are breached, then the State government will pay on behalf of the utility, he explained.

“This is unique because this is an assurance from the State government without the need for any additional budgetary outlay,” he said.

Another layer of payment security from the State government has been instituted in case of a transmission outage beyond 50 hours. Under this scenario, the State will bear the burden. This is also not likely to arise as a transmission system is seldom out of order for more than 20 hours.

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