This Blog Post explores the role of Public-Private Partnerships in developing India’s solar energy sector. Further, it examines the National Solar Mission, a major initiative launched by the Indian government in 2010, and the success of its Phase I through reverse auctions. The Blog Post also discusses the challenges faced by Phase I, including technical and site-related issues and a lack of standardisation and understanding of solar energy among financiers. Additionally, the Blog Post covers the potential for PPPs to establish distributed or centralised solar infrastructure in India and the benefits and challenges of PPPs in the solar sector. The Blog Post concludes by discussing the potential for PPPs to drive the growth of India’s solar energy sector and meet the country’s ambitious renewable energy targets.
Keywords: National Solar Mission, Public-Private Partnerships, Solar sector, Energy sector, renewable energy targets.
According to the data estimate,300 million Indians lack access to the energy grid and those who have experienced frequent power outages. Because of this irregular power supply, the country still heavily relies ondiesel for backup power, which results in higher operational costs and inefficiency for the industries, not to mention pollution and economic turmoil. Given the tropical weather of India, around 300-330 days a year, this amounts to almost5000 trillion kilowatt hours (“kWh”) per year which holds the potential to ensure energy security, reduce reliance on conventional sources of energy and contribute to a more balanced regional development.
India’s energy sector is undergoing a transition, as now renewable energy sources constitute around24.7% of the total capacity in the country. While the public sector has the ability to provide incentives, policy frameworks, financing incentives, and other similar benefits, on the other hand, the private sector fills the gap by providing the necessary funds for developing the requisite infrastructure for solar energy generation.
2. Public Private Partnerships (PPP) Under JNNSM: Critical Analysis
One of the eight missions under India’s National Action Plan for Climate Change (“NAAPC”), the National Solar Mission was a major initiative launched in 2010 to involve the states in active participation for thepromotion of ecologically sustainable growth along with addressing the nation’s energy security concerns. Grid-connected and off-grid solar power has a promising future for replacing the need for importing conventional energy sources like diesel, coal, and other similar energy sources.
India’s solar sectorsaw a tremendous Compound Annual Growth Rate (“CAGR”) of approximately 59% from 2011 to 2021, all owing to the implementation of theJawaharlal Nehru National Solar Mission (“JNNSM”), better known as National Solar Mission. The Government set a target of 100 Gigawatt (“GW”) for2022 and a relatively high one of 300 GW for2030. This mission saw enthusiastic participation from Indian and foreign investors, wherein substantial discounts were offered to the benchmark tariffs determined by Central Electricity Regulatory Commission (“CERC”).
Phase I of JNNSM implemented the reverse auction approach wherein project procurement was done through competitive bidding, thus assigning the tasks of project identification, design development, technology selection, and other similar tasks to the developers, who, in turn, are selected based on the tariffs quoted by them. However, when Phase I was put up for bidding, there was a lack of on-field information and techno-commercial feasibility, which would inevitably lead to either a huge number of bidders bearing the colossal upfront investment costs or bidders participating in the bids, void of any substantial preparation, which paved the way of disruption of the overall project.
The same is seen after the completion of the bids of Phase-I, where several solar power projects are now facing technical and site-related problems, thus causing delays and halts in the project. Furthermore, there is an absence of proper standardisation of solar thermal designs in accordance with the Indian standard, with a limited understanding of this novel energy source among the financiers.
3. Prominent PPP Projects: Indian Perspective
Public-Private Partnerships (“PPP”) can be used to set up two types of solar infrastructures, either distributed or centralised, where the former is in the form of Photovoltaic (“PV”) panels scattered in various locations close to load centres, and the latter, the centralised plants that are located where the resource is best utilised and available and can be in theforms of photovoltaic or concentrated solar power.
As an industrial hub, India is a low-cost destination, and its solar energy production aligns with international commitments. Thus, domestic production and the scale of production in India have significantly lower solar power costs in parity with other nations. International Finance Corporation (“IFC”), in alliance with the Madhya Pradesh state government and Rewa Ultra Mega Solar Limited (“RUMSL”) in 2016,structured and tendered a 750 Megawatt (“MW”) solar park. Thus, a project agreement was signed between three winning bidders — Mahindra Renewables, Acme Solar, and Sprng Energy — for the Rewa Mega Solar PPP atjust Rs. 2.96/KWh ($4.4/KWh). This was the lowest tariff everawarded for a solar project in India, bringing prices at par with coal without any Viability Gap Funding (“VGF”).
Public-private alliances allow the transfer of knowledge, capital, technology, and expertise from the private to the public sector and allow the Government to collect corporate and other income taxes to help develop new energy infrastructure. PPP can be modified and expanded according to the needs of the Indian market by formulating appropriate frameworks that the Government can implement to bring in more private investments into the sector. Here, Foreign Direct Investment (“FDI”) can be a lucrative option for foreign investors to take advantage of the tax exemptions and lower salaries available in India to encourage competition among domestic and foreign companies.
Moreover, India has established a committee called the Public-Private Partnership Appraisal Committee, which helps standardise theauction and bidding of documents, streamlining the evaluation and approval of infrastructure projects. Competitive Renewable Energy Auctions for Solar are a great example of the application of PPP in encouraging more domestic business investments. Under this auction,various renewable energy purchasers compete and bid to buy a quantity of electricity from renewable energy sources.
4. Rooftop Solar Projects (RTS)
RTS initiative holds the potential to transform India’s energy gameplay completely, but the biggest hurdle faced by the Government is the economic unfeasibility that comes with it. This project is socially desirable from an environmental point of view, but still, there is more scope for its successful implementation. Some of the issues faced in its application are scarcity of finances, substantial upfront costs, and other similar issues.
Gujarat was one of the first states to formulate and establish a solar power plant policy in 2009 and has since then implemented numerous PPP projects and initiatives. One of the prominent projects launched by the Government of Gujarat is the Gandhinagar (Solar) PV Rooftop Program, which involves the installation oftwo solar capacities of 2.5 MW, each assigned to two developers. This novel concept is in line with the JLNNSM with the aim to provide access toaround 25 state government-owned building rooftops. One of the incentives offered by the Government is the concept of “green incentive,” i.e., the Government will offerRs. 3/KWh of electricity produced by the Solar PV system (“SPV”) to be paid by the procurer, i.e., Torrent Power. International Finance Corporation is the Lead Advisor for designing and implementing the transaction, and SunEdison and Azure Power won the bid as the developers for this project.
The Dahanu Solar Power Plant, worth $147.5 million, is implemented in Rajasthan, near the village of Dhursar in the Jaisalmer district. Here, the Asian Development Bank (“ADB”) provided a$ 48 million loan developed by Reliance Power Limited. This 40 MW plant is expected to produce approximately 60 million kWh of electricity a year and save almost 60,000 metric tons of harmful carbon dioxide emissions per year. Under this program, the total power generated by this plant will be supplied to Maharashtra.
Some of the critical challenges faced in the implementation of RTS are irregular and inadequate space available for the installations on the rooftop; in large cities where there are rented apartments and houses, ownership rights become ambiguous; absence of an official industrialstandard for residential SPV systems; low technical know-how; high prices; and other similar issues.
5. Policy Recommendations for PPP in Solar Energy
One of the significant challenges faced by a developing country like India is the lack of finances to establish the requisite infrastructure successfully; the same can be solved with PPP as an instrument to acquire public infrastructure and services. Since the nature of PPP is that of a contractual agreement, there is a need for a comprehensive and institutional framework to regulate the same. Alongside the regulations, there is a need to maintain flexibility, such as the governing bodies implementing laws that can be utilised by different geographical locations and ensuring proper monitoring and evaluation of the PPP project.
Recently, India stood 4th in solar PV deployment across the globe as of the end of 2021. Solar power installed capacity hasreached around 61.97 GW as of 30 November 2022. However, the reality is that just PPP is not enough as there is a need for proper training and experience on the part of the government officials and other stakeholders such as local private businesses and others. The Government can also establishPublic Private Partnerships Committees to ensure proper monitoring, measuring, and evaluation of the ongoing PPP and incorporate beneficial guidelines when it comes to training the members involved in the decentralised community.
6. Schemes Launched by the Indian Government to Promote Solar Energy in India
The World Bank, Solar Energy Corporation of India Limited (“SECI”), and the Government of India recently signed agreements for a $150 million IBRD loan, a $28 million loan from the Clean Technology Fund (“CTF”), and a $22 million grant from the CTF to help India expand its use of cleaner, renewable energy sources. Battery Energy Solar Systems (BESS) isconstructing the first solar subproject in the Rajnandgaon area of Chhattisgarh.
VGF is a brand-new kind of clever incentive program that was created to finance financially unviable but economically viable infrastructure projects. To make projects financially viable, the government typically gives a one-time grant. The SECI has promoted solar energy production in the nation using the VGF program. A variety of regulatory tools, including Renewable Portfolio Obligations (“RPO”), Renewable Energy Certificates (“REC”), and Feed-in-Tariff (“FiT”) schemes, are also available to support the nation’s renewable energy industry. RPO requires electric utilities and other required parties to purchase a predetermined amount of electricity from renewable energy sources.
Green bonds are fixed-income financial products that are used to raise money for environmental projects. The risk holdings for green bonds are comparable to those for regular bonds. Additionally, green bonds must have the necessary credit rating for institutional funding. Even though this type of financial instrument is still relatively new in India, its use on the local financial market has recently increased.
Green banks have become a distinctive tool for developing financing for sustainable energy on a worldwide scale. Such specialised financial institutions have shown to be a successful way to raise the required private capital by using the sector’s limited governmental backing. The first step in this endeavour in India was the decision by the Indian Renewable Energy Development Agency (IREDA) to look into the feasibility of establishing the country’s first green bank in May 2016. In order to accomplish India’s wide clean energy goals, this strategy was created with the idea that it would use the limited public resources to attract private funding. This resulted from a two-year conversation between a number of government agencies, including MNRE, IREDA, and other stakeholders.
Other commercial banks in India have begun to take steps to become green banks. As an illustration, the State Bank of India (SBI) offers low-interest long-term financing for renewable energy projects. In order to meet the demands of financing renewable energy, green banks have the capacity to reduce interest rates and offer flexible financing. In order to address the current financial problems, a green bank system in India has been proposed. This system would reduce foreign exchange risks, set up an escrow facility, provide blended lines of credit, and other things.
The solar energy sector in India has an unlocked potential to provide energy security, reducing the reliance on conventional sources of energy and thus contributing to balanced regional development. With the successful implementation of the National Solar Mission, the solar energy sector saw enthusiastic participation from Indian and foreign investors. In Phase I of this Mission project, procurement was done through competitive bidding, but it faced hurdles like the lack of on-field information and techno-commercial feasibility. This led to, firstly, the entrance of a vast number of inexperienced bidders into the bidding process and, secondly, some bidders having to bear the substantial upfront cost. Another remarkable initiative taken by the government for the promotion of solar energy in India has been PPP which allows the transfer of knowledge, capital, technology, and expertise from the private to the public sector and allows the Government to collect corporate and other income taxes to help develop new energy infrastructure.
Additionally, India hasestablished a Public-Private Appraisal Committee, which has the objective of maintaining the standardisation of the auction and bidding process, streamlining the evaluation and approval of the infrastructure projects. VGF is another initiative which is used by the government to finance financially unviable but economically viable projects by typically giving a one-time grant. Some recent initiatives have been taken by the Indian Banking Sector, such as establishing Green banks that provide finance at lower interest rates and follow a flexible approach. State Bank of India also provides long-term financing to renewable energy projects at lower interest rates.
The views and opinions expressed in this publication are those of the Authors and do not necessarily reflect the official policy or position of the authorities mentioned above. The Authors assume no responsibility or liability for any errors or omissions in the content of this Blog Post. The information contained in this Blog Post is provided on an “as is” basis with no guarantees of completeness, accuracy, and without any warranties of any kind whatsoever, express or implied.
About the Authors
Mr. Dipti Lavya Swain is the Founder and Managing Partner of DLS Law Offices and is a specialist in Private Equity, Mergers & Acquisitions (M&A), Venture Capital, and Insolvency and Corporate Laws.
Ms. Deepanshi Trivedi is an Associate at DLS Law Offices and specialises in Corporate Law, Mergers & Acquisitions (M&A), and Contract Drafting.
Acknowledgement: Ms. Charvee Kantiwal is a second-year law student at National Law University, Delhi (NLU-D).
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Preferred Method of Citation
Dipti Lavya Swain and Deepanshi Trivedi, “A Three-way Critique of Impact of Concession Agreements in the Indian Infrastructure Sector: From a Competition Law, Ports Sector, and GST Perspective” (IJPIEL, 28 February 2022)