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Phase 2 of the nation's National Solar Mission (NSM) would promote grid-tied solar photovoltaic (PV) and concentrating solar power (CSP) projects by offering Viability Gap Funding (VGF). This would replace the reverse auction mechanism used in phase 1.
This information was given by the Union Ministry of New and Renewable Energy (MNRE) recently.
The draft of NSM Phase 2 proposed VGF for promoting solar power projects. The policy has been criticized by Indian solar market analysts, with Mercom Capital (Austin, Texas, US) calling it a “risky” approach.
Under VGF, developers will sign a Power Purchase Agreement (PPA) for 25 years to sell power at a fixed tariff, likely in the Rs 5.5-6 per kWh to the utilities, explains Raj Prabhu of Mercom Capital.
Private firms would bid for the VGF requirement to cover the gap in funding after determining their capital costs to set up the project and the necessary debt and equity. Some industry players feel that this is a very much a risky approach considering how new solar power is to India.
The draft policy of NSM Phase 2 describes a significantly different policy from Phase 1, including leaving implementation mostly to state governments.