Payment Security Mechanism for Solar Industry

The Indian Govt is looking at payment security mechanism for solar power defaults; to compensate developers and power trader NTPC Vidyut Vyapar Nigam Ltd (NVVNL) for the losses incurred on account of default in payment for renewable power. The finance ministry has agreed on a budgetary support to compensate for such losses as part of a risk mitigation mechanism.

With the Central Electricity Regulatory Commission (CERC) making it obligatory for state utilities to buy renewable power, the government would like to prevent a situation where there is a payment default affecting the health of the nascent industry. Also the mechanism would make the debt raising easier for the industry.  

The mechanism is expected to help address the issue of shortfall arising out of sale of bundled power in the short-term open market and consequent losses of the NVVNL and power producers. Though not bringing the cost down, the mechanism would ensure NVVNL continued to pay the power producer if there was a break in payment chain. Under the mission, NVVNL would be bundling the more expensive solar power with the conventional power made available in the central pool and sell it to the state utilities and distribution companies. According to a government official, the money from the proposed Solar Payment Security Fund would be released if there was continuous default by the state utilities for three months.

If the fund gets the green signal, India would probably be the first country to have a payment security mechanism for solar power.

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