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Solar parks optimise costs and infrastructure facilities

Solar parks are expected to be one of the key instruments for achieving the government’s solar target of 100 GW by 2022. Of this target, 20 GW is envisioned to be set up in solar parks. A solar park is a large area of land developed for setting up a number of solar power projects. Solar power developers are provided land in the solar park with all statutory clearances and common infrastructure facilities such as water, transmission lines, roads, drainage, and communication network in place.

The concept of solar parks is not new in India. It gained prominence several years ago with the Charanka Solar Park in Gujarat, followed closely by the Bhadla Solar Park in Rajasthan. The concept of solar parks is now being revisited with a strong focus from the central government, the Solar Energy Corporation of India (SECI) being notified as the nodal agency, and active participation from the states.

Key advantages

Solar parks address several project development issues and risks that are faced by individual developers and hence are a faster means of achieving large-scale capacity addition. As the segment moves towards building larger projects, solar parks will make more sense on account of benefits of shared infrastructure and easier access to infrastructure facilities as well as reduced costs owing to economies of scale. This will, in turn, ensure large-scale investments from domestic as well as foreign players. The key advantages of solar parks over individual projects set up by developers are as follows…

Land availability: Land acquisition and conversion as well as securing of other land-related permits is a major issue faced by project developers. For large-scale projects, in particular, acquiring contiguous and clean land area is a challenge. With solar parks, ensuring the availability of land with adequate solar radiation becomes the responsibility of the solar park developer.

Grid connectivity: For individual solar projects, obtaining grid connectivity is a difficult task. The issue is expected to become more challenging with the increasing scale of projects. In this context, assurance of the availability of reliable transmission infrastructure from the central transmission utility (CTU) or the state transmission utility (STU) through the solar park mitigates a major risk for the developer.

Availability of infrastructure and other facilities: It is not easy for developers to build infrastructure such as roads, water, warehousing, particularly for projects of, say, 100 MW or 200 MW. Additional facilities such as security and fire safety are also often overlooked by developers, owing to time and cost constraints. However, in solar parks, these would be available as standard facilities.

Economies of scale: An added advantage with solar parks is that due to shared infrastructure and proximity of projects, economies of scale can also be derived further.

MNRE scheme: Outline and progress

The Ministry of New and Renewable Energy (MNRE) has introduced a scheme for setting up 25 solar parks in various states, each with a capacity of 500 MW or above. The total target capacity under this scheme is 20,000 MW. SECI has been designated as the nodal agency for implementing the scheme and MNRE funds will flow to the states through it. The central financial assistance offered under this initiative is Rs 40 billion at Rs 2 million per MW or 30 per cent of the project cost, whichever is lower. Meanwhile, the choice of the implementing agency for the development and operations and maintenance of the solar park has been left to the state government.

As per the policy, solar parks may be developed through the following four modes:

  • Mode 1: The state designated nodal agency undertakes the development and management of the solar park. This agency could be a state government PSU or a special purpose vehicle of the state government.
  • Mode 2: A joint venture (JV) company is set up between the state designated nodal agency and SECI for the development and management of the solar park with 50 per cent equity from SECI and 50 per cent equity from the state government agency.
  • Mode 3: The state designates SECI as the nodal agency and SECI undertakes the development and management of the solar park on behalf of the state government on mutually agreed terms.
  • Mode 4: Private entrepreneurs promote solar parks without any equity participation from SECI, but may have equity participation from the state government or its agencies.

Financial model

The financial model for a solar park is designed by its implementing agency. The implementing agency may put in some of its own equity and raise a loan, depending on the funds and loan requirements. Subsidy from the MNRE could also help in bringing down project costs. The implementing agency can create a corpus for working capital to ensure future upkeep and maintenance of the solar park. It would also undertake the responsibility of allotting the plots to prospective project developers. The lease period would be 30 years or as per the state land policy.

Since most of the project development and infrastructure-related risks are mitigated in solar parks through a reliable entity, projects set up in a solar park are likely to be more bankable, which will, in turn, facilitate financing for larger capacities. Therefore, the financiers’ perspective on solar parks is fairly positive.

Power evacuation

Power evacuation from solar park consists of two parts: pooling substations and electrical networks within the park for collecting power from each park and transmitting it to the transmission substation at the park boundary, and transmission substations along with transmission lines up to CTU, that is, Power Grid Corporation of India Limited or the STU’s existing grid. The implementing agency is responsible for the first part and the STU/CTU is responsible for the second part of the evacuation infrastructure. For both the parts, the MNRE grant may be utilised along with other financing arrangements.

Future outlook

Solar parks have the potential to catalyse solar deployment in the states and bring down the cost of power. However, the parks must be carefully planned and the infrastructure judiciously deployed to ensure that the parks serve their purpose.

The major challenge associated with solar parks is their high costs, which are attributable to inefficiency in solar park implementation, infrastructure surplus compared to the requirement and high return expectation from the government entities involved at various stages. To address these issues, the implementing agency must identify the optimal infrastructure for the solar park and carry out a financial analysis in order to make the park cost effective and optimise its operations.

 

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