India’s federal cabinet Thursday approved the allocation of 4.86 billion rupees ($108 million) toward a scheme to guarantee payments for electricity bought from solar power producers, as part of the government’s efforts to encourage development of renewable energy.
The funds will be used as guarantee in case state-run power utilities and distribution companies default on payments for solar power, which currently costs much more than coal-based electricity.
The payment security scheme aims to help solar power producers arrange finances for their projects, the government said in a statement issued after a cabinet meeting.
The scheme will help the federal government meet targets under its National Solar Mission, which aims to build 1,000 megawatt of solar power capacity by 2013 in the first phase. India aims to add 20,000 MW of solar power by 2022 under the solar mission.
The scheme will be implemented by the Ministry of New and Renewable Energy and NTPC Vidyut Vyapar Nigam Ltd. will be able to draw funds from the account as per the scheme’s provisions, the statement said.
NTPC Vidyut, a unit of India’s largest power generator NTPC Ltd., buys solar power from the producers and sells it to utilities bundled with coal-based power.
But most state-run distribution companies are cash-strapped with weak finances. This has elevated the risk of solar power producers not being paid for the electricity produced. That has affected solar companies building these new plants as lenders aren’t willing to give loans to projects where returns are risky.
Solar companies that have been awarded projects under the mission’s first phase in particular are facing hurdles in arranging finances. For the projects awarded so far, companies have to raise funds by the end of June.
India currently has 20,000 MW of renewable energy capacity, constituting more than 11% of the country’s total power generation capacity of around 174 gigawatts.
