The recently introduced JNNSM Ph-II document advocated providing Viability Gap Funding (VGF) for setting up solar projects in the country. The VGF will provide capital grant to the promoter bidding for the solar project and achieve the lowest capital cost/MW of installation through bidding. The capital grant will be allotted during the implementation phase of the project so that the project promoter can sell its electricity at a tariff range of Rs.5-6/unit. As the project promoter gets an initial subsidy as part of VGF, there will not be any REC benefits under the scheme.
Considering the fact that government plans to install about 2000 MW of capacity through VGF capital grant, it is expected to provide a capital grant of the order of Rs.3000 crore. The low cost of electricity can also be achieved through subsidized interest rates. Considering the fact that current solar prices are in the range of Rs.7.5-8 crores/MW, the cost of generation at this price is at Rs.7.50/kWh. If Government provides a low-interest loan at 6-7% interest rate rather than capital subsidy under VGF, the price range of Rs.5-6/unit can be achieved without any capital grant. This subsidized loan can be provided by Govt. of India thorough various International banks such as World Bank and ADB. This mechanism will not only keep the support to solar investment in a simple fashion but also help in achieving larger capacity installation beyond 2000 MW.
There is also support required in terms of providing infrastructure facilities and subsidized land. Government can invest the money which is allocated to VGF in land procurement and transmission infrastructure development and come with a concept of solar park for which bidding is called by the developers. This option will lead to streamlined development of large solar parks of the order of about 500 MW capacity range and will lead to cheaper electricity tariff as planned in the range of Rs.5-6/unit. Investing in VGF will lead to poor quality of modules and inverters sources by the project developers to compete for lower capex. While recent installations are achieving good PLFs in the range of 18-21 %, it is important that the Phase-II ensures and promotes quality installations so that people have faith in solar PV technology.