Government Extends Projects deadline Granting Major Relief to the Solar Power Developers

Developers had raised an alarm over a letter from the Ministry of New and Renewable Energy (MNRE) this month directing all states to strictly enforce deadlines for solar projects, eschewing extensions.

The government has granted major relief to solar power developers, allowing deadlines for project development to be extended in cases where there were delays caused by circumstances beyond their control.

Developers had raised an alarm over a letter from the Ministry of New and Renewable Energy (MNRE) this month directing all states to strictly enforce deadlines for solar projects, eschewing extensions. The ministry has now sent another letter that takes into account the concerns raised.

Dilip Nigam, an adviser to the National Solar Mission at the ministry told to ET that, “If there are delays of any kind on the part of the state government … like land allotment, transmission or evacuation facilities, connectivity permission or force majeure, the competent authority in the state may consider providing extension of the time duration.”

Solar tariffs have fallen dramatically in the last two years, from around Rs 7-8 per unit in mid-2015 to around Rs 2.50-3.50 at present, mainly due to a steep decline in the cost of solar cells and modules caused by global overproduction, especially in China. The MNRE was concerned that solar developers who had won projects earlier at relatively higher tariffs — when equipment costs were also high — might delay their purchase of solar equipment to benefit from falling prices and thereby reap windfall profits.

“One of the reasons for falling tariffs is lowering of prices of solar cells/modules internationally,” the first letter, dated July 3, said. “Falling prices may give undue benefits to developers at the cost of the government if project duration is extended… It is important that already awarded projects are completed on time.”

Power purchase agreements (PPAs) usually include severe penalties for failing to complete a project on time, but these are frequently not enforced and developers given extensions should they ask for them.

The letter evoked strong protests from developers who pointed out that project delays were often due to lapses on the part of the state government or the concerned power distribution company. They even feared the letter could be used by state discoms to renegotiate PPAs, citing the fall in equipment prices.

The second letter has made it clear that if a state government was culpable for any delays, the developer should not be made to pay for it. “It is clarified that the ministry had requested not to give time extension (only) if all the obligations are fulfilled by the concerned state government in a project,” it said.