Given the financing landscape of Indian infrastructure, it is inconceivable for the Jawaharlal Nehru National Solar Mission to scale up to the levels envisaged under the subsequent phases and beyond without the active participation of Scheduled Commercial Banks, says a World Bank report.
The recently released report titled ‘Paving the way for a transformational future – Lessons from Jawaharlal Nehru National Solar Mission, Phase-I’ is based on a study that had been undertaken by the World Bank at the request of the Ministry of New and Renewable Energy to document the experiences during implementation of the first phase of JNNSM and gather lessons for the subsequent phases. The study received funding from the Energy Sector Management Assistance Programme. The global knowledge and technical assistance program, administered by the World Bank, provides analytical and advisory services to low and middle income countries to increase their know-how and institutional capacity for achieving environmentally sustainable energy solutions aimed at poverty reduction and economic growth.
According to the report, SCBs mostly shied away from financing projects under Phase-I of JNNSM and it was export credit agencies, multilateral financial institutions and some non banking financial institutions that accounted for the bulk of debt financing. Financing of most solar projects also happened on the basis of limited to full recourse.
The report points out that in the absence of an active debt market, SCBs had led infrastructure lending in India, accounting for 80 percent of the debt disbursements. Taking into account this scenario, the lack of active participation from SCBs in solar financing remains a major concern for JNNSM.
The SCBs consulted in the course of the study said they perceived several risks in lending to solar projects, particularly in the absence of risk reducing mechanisms. The other issue highlighted was the crowding out effect of concessional sources of financing in the form of supplier’s credit and direct lending by development banks, without the availability of concessional lines of credit for SCBs.
The second phase of JNNSM is likely to witness a huge scaling up of financing requirements, says the report. Around $ 4.1 billion will be required for building 3,600 MW capacity under the central scheme. The 6,400 MW proposed to be developed under state schemes is going to further increase the financing requirements of the solar sector.
The report expresses concern with regard to a number of other challenges that may be encountered in scaling up the country’s grid-connected solar program to levels envisaged under the subsequent phases of JNNSM. These relate to bottlenecks in the enabling environment (land acquisition and converting land use designations, delays in approvals and clearances at state level, limited field level data availability on solar irradiation, non availability of support infrastructure pertaining to water and power evacuation, limited coordination between central and state institutions and absence of a clear mapping of responsibilities of institutions in the public domain), payment security for future projects, failure of the Domestic Content Requirement in promoting local manufacturing (DCR under the Phase I policy required Crystalline Silicon cells and modules to be mandatorily procured from domestic manufacturers over batch 2 but the same was waived for Thin Film because of its low manufacturing base in the country), issues faced by solar PV manufacturers in the country (lack of raw materials, non availability of low cost finance and underdeveloped supply chain leading to high inventory costs), adequacy of the approach adopted for developing solar thermal parks and enforceability of Renewable Purchase Obligations and pricing of solar Renewable Energy Certificates.
The JNNSM, launched in January 2010, has set an ambitious target of deploying 20,000 MW of grid connected solar power by 2022 in three phases. The cumulative target for the first phase (up to 2012-13) was 1,100 MW. In the first phase, 950 MW solar power projects were selected in two batches through a process of reverse bidding. A total capacity of 420 MW has been commissioned at the end of the phase. In addition, a capacity of 50.5 MW under migration scheme, 88.8 MW under Indian Renewable Energy Development Agency-Generation Based Incentive scheme and 21.5 MW under old demonstration scheme has been commissioned, taking the total capacity commissioned to 580.80 MW. The crucial second phase (2013-17) targets a cumulative installation of 10,000 MW utility scale solar power projects. At the end of the third phase (2017-22), cumulative target of 20,000 MW will be achieved.