Under VGF Program, PSM for Solar Projects Receives Fund worth Rs. 5 Billion

The Ministry of New and Renewable Energy (MNRE) has announced the guiding principle for the payment security mechanism (PSM) for projects allocated under the viability gap funding (VGF) program. This has now acknowledged sanction from the President of India.

The MNRE has selected the Solar Energy Corporation of India (SECI) to execute these guiding principle that list down the scope, objective, utilization, maintenance, and procedure of implementing the PSM.

As per MNRE’s guidelines released in 2016, it was requisite to set up a mechanism with a grant of up to Rs. 5 billion ($69 million) in order to guarantee timely payments for power generated to project developers. The fund has been released to SECI in tranches which was made available to MNRE by the Ministry of Finance.

The PSM fund of Rs. 5 billion will be made accessible to cover energy payment risk from grid connected solar PV projects under the 750 MW, 2000 MW & 5000 MW VGF programs.

The goal of setting up the fund was to evade operational difficulties for large capacities of power purchase agreements (PPA) and to generate confidence among the project developers and financial institutions investing in them. The amount for the payment security mechanism has been realized from encashment of bank guarantees from developers and/or discount attributed to early payments by SECI.

The guiding principles for the PSM are expected to generate a definite level of comfort for the developers. However, the application of the mechanism seems broad and the amount devoted to secure payments does not seem adequate for the volume of projects it is supposed to back in case of payment defaults.

Even though payment delays persist to be a problem in many states, this program just addresses a definite set of projects under the VGF program.