The draft policy of NSM Phase 2 describes a significantly different policy from Phase 1, including leaving implementation mostly to state governments.

On March 6th, 2013 India’s Ministry of New and Renewable Energy (MNRE) announced plans to use the model of Viability Gap Funding (VGF) to support grid-tied solar photovoltaic (PV) and concentrating solar power (CSP) projects through phase 2 of the nation’s National Solar Mission (NSM). This would replace the reverse auction mechanism used in phase 1.

VGF was already proposed in the draft of NSM Phase 2. 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 INR 5.5-6/kWh (~USD 0.10-0.11/kWh range) to the utilities,” explains Raj Prabhu of Mercom Capital.

“The developers are supposed to determine their capital costs to set up the project, raise the necessary debt and equity, and bid for the VGF requirement to cover the gap in funding. A pretty risky approach considering how new solar is to India.”