India contemplates new funding model for solar mission despite budget deficit fears

Unlike the first phase of the JNNSM, which relied on a reverse auction model to select solar projects, the second phase of the solar mission is likely to adopt a VGF model, which would see one time or short term capital assistance supplied. That is, if there is funding available.
According to the latest information, the second leg of the JNNSM is scheduled to start this June. However, on the back of India’s ballooning budget deficit – said to have reached 8 to 9% of GDP – and the Indian government’s delayed announcement of funding for the second phase of the JNNSM, concerns have been voiced that 2013 might not see any funding allocated at all.
In a blog post, Bridge to India’s head of project development, Akhilesh Magal wrote, "There are worrying signs that the NSM phase two will be indefinitely delayed due to lack of funds. The funds were supposed to have come from the National Clean Energy Fund (NCEF)."
Mohit Anand, head of market intelligence at Bridge to India further told pv magazine today, "Things are quite uncertain right now. The Phase 2 will definitely come out and will have VGF in one form or another, but the exact details of budgetary allocations are not known at the moment, and hence [it is] difficult to predict the size of the allocations."
It is expected that VGF will be made available via India’s NCEF, and will be overseen by the Solar Energy Corporation of India (SECI).
VGF models
As aforementioned, the first phase of the JNNSM awarded solar projects based on reverse auction model. Funding was not an issue, explains Bridge to India, because solar power was "bundled" with previously un-allocated conventional power from the National Thermal Power Corporation’s (NTPC) generating stations.
"Because solar power was bundled in a ratio of 1:4 with thermal power, the price increase was marginal and therefore passed along the consumer value chain," wrote Magal in his blog. "However, under Phase 2, there is no more power available to bundle. This means, that the government would have to foot the bill for expensive solar power."
In its October 2012 Indian Solar Compass, Bridge to India explained that a VGF model "is not a strain on the government’s finances in the long term. However, it serves to incentivize solar in the present by bearing a part of the high capital investment involved in setting up a project."
For more information on VGF models, and their impact on projects, refer to the October 2012 Indian Solar Compass.