Problems for JNNSM Phase 2

India’s JNNSM federal solar subsidy plan Phase 2 has gotten delayed by more than a year because of funding issues and regulatory confusion. Phase 1 of JNNSM was led by NVVN, which is the trading arm of India’s large state owned utility NTPC. Funding was relatively easy as the expensive solar power was bundled with cheap unallocated coal based power and solar to state utilities. However, now all funding and development is being done by the newly formed Solar Energy Corporation of India (SECI). There is less clarity on how this will work because this time there is no cheap unallocated thermal power to give away.

Read more about JNNSM Solar Policy Phase 2.

Developers are wary about getting timely payments from bankrupt distribution utilities. They are not sure how they will get the Rs. 5.45/Kwh promised to them for selling solar power to utilities. While SECI will provide the viability gap funding (VGF) of upto 30% of the capital cost of Rs 7.5 crores, the payment will be done in tranches. 75% of the payment will be done only after completion, which means that the effective IRR for the developers will decrease as well as increase the risks. The government had released the draft regulations for auctioning 750 MW of solar PV more than 3 months ago, but the closing of the bids has been repeatedly extended as developers are wary of the payment security.

Note India is not a lucrative market for solar energy developers because there are bigger markets with higher returns. Japan has become the best market, with IRR in the 25-30% range and it is expected that Japan might install 6-8 GW (compare to India’s 1 GW). China again is giving decent subsidies and is a huge market. International developers might not find the returns lucrative enough, given the big risks that they face in India in terms of payments. I think India solar developers such as Welspun, Azure, Essel will be the main participants as they have been in case of state solar auctions.