Research and development investment. All generators, except hydro-electric generators with installed capacity under 30 MW, thermoelectric generators with installed capacity under 5 MW, biomass generators, solar generators and wind energy generators, must invest at least 1.0% of their net revenue in research and development facilities.
Solar power plants
In 2010, the Indian government launched its flagship solar initiative known as the Jawaharlal Nehru National Solar Mission (the “National Solar Mission”). The National Solar Mission establishes a target of 100 GW of installed solar capacity by 2022 and stipulates the implementation and achievement of this target in multiple phases.
Solar power plants in India are set up under state solar policies or under the National Solar Mission. Capacity allocation under the National Solar Mission is staggered and through competitive bidding. Competitive bidding under the National Solar Mission is conducted using one the following schemes: (a) a bundling scheme, under which relatively expensive solar power is bundled with cheaper thermal power and sold to distribution utilities at a more affordable tariff; and (b) a viability gap funding scheme, under which viability gap funding is made available to project developers to subsidize the project cost.
Phase I of the National Solar Mission focused on promoting the development of grid-connected solar power capacity of 1,000 MW and mandated that NTPC Vidyut Vyapur Nigam Limited (“NVVN”) serve as the offtake counterparty to purchase the solar power under 25-year PPAs with solar power producers. NVVN is a wholly owned subsidiary of NTPC Limited, which is approximately 70% owned by the Indian national government. NVVN purchases the solar power from a solar power plant as a trading licensee, thereby minimizing the credit risk to the solar power plant. The tariff levels for Phase I were determined based on a competitive bidding process subject to a cap determined by the CERC under the bundling scheme.
In 2013, the Indian government approved the scheme for the development of 750 MW of grid-connected solar power capacity as part of Batch I of Phase II of the National Solar Mission and mandated that SECI serve as the offtake counterparty to purchase the solar power under 25-year PPAs with the solar power producers. In the Batch I of Phase II, the power is purchased by SECI at a fixed levelized tariff of INR 5.45/kWh (or INR 4.75/kWh in case of power plants utilizing accelerated depreciation). The solar power plant is entitled to receive viability gap funding support in an amount determined through a competitive bidding process. Such payment is made to the solar power plant over a five-year period from the date such solar plant commences operations and is funded by India’s National Clean Energy Fund, which is financed through a tax on coal used in India.
The Indian government had earlier proposed to set up 15,000 MW of solar projects through NTPC Limited/NVVN in three tranches: (a) 3,000 MW under the bundling scheme; (b) 5,000 MW with some support from the Indian government, the amount of which was to be decided based on results under the bundling scheme; and (c) 7,000 MW that will be implemented without any financial support from the Indian government. While guidelines for capacity addition for the first tranche were issued as Batch II of Phase II of the National Solar Mission in March 2015, the Indian government has sought to move away from the bunding scheme, and it is not clear when bidding pursuant to the second and third tranche will be conducted.
The Indian government is now focused on projects based on viability gap funding and, to further this objective, in August 2015 and March 2016 the Indian government issued guidelines for implementation of Batch III and Batch IV of Phase II of the National Solar Mission, consisting of 2,000 MW and 5,000 MW of capacity, respectively. Batch III and Batch IV are currently being implemented by SECI under the viability gap funding scheme.
In addition to the National Solar Mission, various Indian states have also initiated procurement of power from solar power plants through competitive bidding. In April 2015, Telangana issued bid documents for procurement of 2,000 MW of capacity. Similarly, Karnataka, in its latest solar policy, has made it mandatory for distribution utilities to purchase power from solar power plants with a capacity of 3 MW or above under the competitive bidding regime.
Wind power plants
Until recently, procurement of wind power was undertaken only through state specific wind policies; however, the Indian government is now promoting procurement of wind power on competitive basis at the national level, similar to procurement under the National Solar Mission. Several state policies provide for various incentives, such as exemption in payment of electricity duty, reduction of VAT, providing land at concessional lease rentals, and reduced wheeling and transmission charges. Additionally, an excise duty exemption is also available on wind operated electricity generators and concessional custom duty is applicable on import of specified components of wind turbines, subject to fulfillment of prescribed conditions. Until earlier this year, MNRE provided generation based incentives (up to INR 0.50/kWh) for grid connected wind