The National Thermal Power Corporation — India’s largest thermal power producer — is responsible for meeting a fourth of the country’s base load. Its revenues are protected by a tripartite agreement between the Reserve Bank of India, the Central Government, and the state governments.
Per this agreement, if any state electricity board (SEB) were to default on its dues owed to the National Thermal Power Corporation (NTPC), the respective state risks a deduction from the annual financial support flowing in from the centre. So far, this clause has not been invoked, as the threat of a deduction has ensured timely payments by SEBs, in spite of the fact that the SEBs are weighed down by a cumulative loss of over $50 billion.
NTPC’s safety net was set to lapse in October 2016. However, the Financial Express has now reported that the deal is set to be extended for another 15 years. As per media reports, the payment security is likely to be extended so as to also protect the solar companies that sell power to NTPC Vidyut Vitaran Nigam (NVVN) — the power trading arm of the NTPC.
If this happens, the reduced risks due to guaranteed payments would further catalyse competition among solar project developers.
As part of the country’s National Solar Mission, the Government of India has approved 15 GW of solar projects which will be routed through the NTPC/NVVN over three phases. In the first phase, 3,000 MW of solar power will be bundled and sold with coal power. Bundling of solar power with coal helps to sell it to the distribution companies, who on account of their poor financial health would otherwise be unwilling to buy the expensive (compared to coal) solar power.
It is estimated that implementation of Tranche-l of this scheme will entail a total investment of over $3 billion, most of which will come from private investors. The government has also planned for a payment security mechanism in the form of a working capital fund with an estimated corpus of about $350 million to ensure bankability of power purchase agreements and timely payment to project developers.
Solar tariffs have been falling in India quite spectacularly for some time now. For example in Madhya Pradesh and Telangana. Some experts have however raised questions on the viability of these projects.