The first 750MW from Phase II of India’s National Solar Mission (NSM) have recently been allocated to developers using the Viability Gap Funding (VGF) mechanism for the first time, resulting in key developers questioning the sustainability of the VGF mechanism.

With over 2GW of utility scale PV already installed in India, another 750MW has recently been awarded under the government’s NSM and winning bidders have secured initial investments for their projects under the VGF scheme. Unlike the feed-in-tariff offered in Phase I, this is a scheme which provides a one-time or short-term capital assistance that bears a part of the high capital investment required in setting up a project.

The winning bidders were the ones who sought the minimum possible funds to make their projects viable. However, PV Insider’s feedback from the industry in India shows scepticism about the feasibility of the projects.  The scheme resulted in developers bidding too aggressively and too competitively to be achievable. As a result, even globally recognised developers such as SunEdison dropped out of their winning bids.

In PV Insider’s recent article ‘The reality behind India’s Viability Gap Funding scheme’, Gaurav Sood, Managing Director of SolaireDirect India, told PV Insider that he believes a generation-based scheme would be more favourable and that ‘it should be a tariff-based incentive in the future’. Similarly, another one of the winning developers and one of the largest PV developers in India, told PV Insider that ‘the VGF that was on offer was not sufficient for making projects commercially viable, even with the maximum VGF funding available, even with the maximum VGF that was on offer’ .

Some of the other key highlights in the article include a comparison between the constraints and successes of building up a local supply chain in India in order to fulfil domestic content requirements. Some developers seem confident in fulfilling the requirements, as Sood told PV Insider, SolaireDirect are ‘always in favour of promoting domestic module manufacturers’ whereas other winning bidders are expected to face difficulties.

The VGF mechanism will be discussed in further detail at the INDIASOL 2014 conference (October, New Delhi) with insights from MNRE, SECI and leading PV developers in India such as SolaireDirect, Welspun Energy and Moser Baer Solar. 

For more information about the article and to learn more about the INDIASOL event, please contact Sarah Kingham at sarah@pv-insider.com