Central Public Sector Undertaking (CPSU) Scheme Phase-II, 2019

Policy Update
Meyhar Kaur Walia

Background:

The Ministry of New and Renewable Energy (MNRE) serves as the primary authority of the Indian Government for all matters related to new and renewable energy. The Ministry aims to deploy new and renewable energy to supplement energy requirements, as it has been gaining importance due to concerns about the nation’s energy security.

On 5th March 2019, the Government of India, through the Ministry of New and Renewable Energy, approved the implementation of the CPSU Scheme Phase-II. This enables Central and State Public Sector Undertakings (PSUs) and other government entities to establish grid-connected Solar Photovoltaic (PV) Power Projects, with Vitality Gap Funding (VGF) support of Rs 8,580 crore. The power generated from these projects is intended for self-use or use by the government or government entities, either directly or through Distribution Companies (DISCOMs).

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Objective of the Scheme:

As part of the Paris Climate Agreement, India has committed to installing 40% of its electricity capacity from non-fossil fuels by 2030. With this objective, India has set an ambitious goal of setting up 1,75,000 MW of renewable energy capacity, including 1,00,000 MW of solar energy. Thus, the government has implemented the CPSU Scheme Phase II, or the 12,000 MW Government Producer Scheme for establishing 12,000 MW grid-connected Solar Photovoltaic (PV) Power Projects.

The objectives of the scheme are:

To promote national energy security and environmental sustainability by the use of domestically manufactured solar PV cells and modules for government purposes.
Scaling up the sizes of projects to achieve economies of scale.
To leverage the existing infrastructure and engineering capabilities of government producers, including land, transmission facilities, etc.
Providing long-term visibility for solar power development to support the establishment of India as a manufacturing hub in Solar PV.
To create effective business models and systems that can be adopted by various Central and State government entities.

Implementation of the Scheme:

The total project cost for 12,000 MW solar PV projects under the Government Producer Scheme had been estimated at Rs 48,000 crore and the required VGF support (Viability Gap Funding, refers to funding that helps bridge the gap between the cost of the project and the revenue it is expected to generate) is Rs 8,580 crore. The scheme will create a sufficient demand for domestically produced solar PV cells and modules, ensuring full utilisation of domestic production capacity for 3 to 4 years.

Allocation: The Solar PV power project capacity would be allocated to the Government Producers by way of bidding. Government Producers awarded capacity must ensure that the power is used for self-use or use by Government/ Government entities, either directly or through DISCOMS.

VGF: The release of VGF is to be in two stages:
i) First 50%: Given when the contract is awarded to the EPC contractor (Engineering, Procurement, and Construction firm). This includes both external contractors and the in-house EPC Division; and
ii) Balance 50%: Given on successful commissioning of the full capacity of the project.

Role of the Implementing Agencies: The Implementing Agency for the scheme is responsible for managing it on behalf of MNRE. For the first two stages (projects bid out up to 31.12.2020), the Solar Energy Corporation of India Limited (SECI) served as the Implementing Agency, while for later stages, the role was taken over by the Indian Renewable Energy Development Agency Limited (IREDA). The agency conducts VGF-based bidding, reviews proposals for WTO compliance, monitors progress, ensures compliance with the Domestic Content Requirement (DCR) by way of site inspection/ field visits, and manages fund disbursement. For these activities, the implementing agency is eligible to receive a fee of 1% of the VGF disbursed.

Timeline: The total 12,000 MW capacity will be added in 4 years, i.e., from financial year 2019-20 to 2022-23. Once a project is awarded, Government Producers will have 18 months to complete and start operating their solar projects.

Recent Developments:

Under this Scheme, the Government has sanctioned about 8.2 GW of solar PV power plants to date. NTPC Limited has secured the highest allocation under the scheme, receiving Rs 506 crore in Tranches I and II- mainly for projects in Rajasthan (Rs 380.1 crore) and Tamil Nadu (Rs 80.5 crore). It also secured Rs 581.94 crore in Tranche III for projects in Andhra Pradesh (₹22.45 crore), Gujarat (₹134.70 crore), Karnataka (₹112.35 crore), Rajasthan (₹311.97 crore), and Tamil Nadu (₹0.47 crore).

The SECI and IREDA had sought an extension for projects tendered under the Central Public Sector Undertaking (CPSU) Scheme Phase-II, which has now been extended until December 2025. This extension highlights the challenges faced by India’s renewable energy sector as the country targets 500 GW of non-fossil fuel power capacity by 2030, up from 172 GW currently. The country also fell short of its earlier goal of installing 175 GW of renewable capacity by 2022, with fossil fuels still accounting for over two-thirds of the total power generated last year.

The Ministry of New and Renewable Energy (MNRE) has amended the guidelines for the implementation of the CPSU Scheme Phase-II in 2021:

CPSUs can now use the solar power generated by paying up to Rs 2.45 per unit, which was earlier capped at Rs 2.80 per unit.
The maximum VGF in the first two phases was Rs 0.70 crore per MW, which was subsequently reduced to Rs 0.55 crore per MW for the third phase of the scheme.
All projects must be commissioned within 30 months from the date of the letter of award. Previously, projects up to 500 MW had a 24-month deadline, and projects over 500 MW had 24 months and an additional 6 months for the remaining capacity.

Challenges:

The sector is facing multiple challenges, including weak demand for tenders, land acquisition challenges, delays in signing power purchase agreements, and frequent project cancellations:

Land acquisition remains a significant challenge. For instance, the Rajasthan government has made it mandatory for companies to pay stamp duty when signing an agreement for the sale or leasing of land for solar projects, leading to an 8-10% increase in land expenses.
The country issued a record 73 GW of utility-scale renewable energy tenders in 2024, but about 8.5 GW was undersubscribed, five times higher than in 2023. This is due to complex tender structures and delays in interstate transmission readiness.
Between 2020 and 2024, about 38.3 GW of capacity, representing 19% of the total issued, was cancelled due to tender design issues, location or technical challenges, lack of bidder interest, and delays in signing agreements.

Such hurdles pose a significant challenge to India’s ability to meet its 2030 renewable energy target of 500 GW of non-fossil fuel capacity, slowing down the country’s transition despite policy intent and ambitious goals.

Conclusion:

The Central Public Sector Undertaking (CPSU) Scheme Phase-II has been launched with a strong vision to boost domestic manufacturing, strengthen energy security, and build India’s renewable energy ecosystem. While significant progress has been made, the sector continues to face certain challenges that have impacted the scheme’s impetus. The extension of the project until December 2025 and the amendments made reflect the complexities involved and the government’s responsiveness. As India strives to meet its ambitious target of 500 GW of non-fossil fuel capacity by 2030, the role of the CPSU Scheme becomes even more critical. Going forward, the significance of the renewable energy sector will continue to grow, making the adoption of a firm, well-coordinated approach increasingly essential for sustained progress.

References:

CPSU Scheme Phase-II (Government Producer Scheme) | MINISTRY OF NEW AND RENEWABLE ENERGY | India. (n.d.). https://mnre.gov.in/en/central-public-sector-undertaking-cpsu-scheme-phase-ii-government-producer-scheme-for-setting-up-12000-mw-grid-connected-solar-photovoltaic-pv-power-projects-by-the-government-producers-with-vi/
ET EnergyWorld & www.ETEnergyworld.com. (2021, May 11). MNRE amends guidelines for 12,000 MW CPSU phase-II solar project scheme. ETEnergyworld.com. https://energy.economictimes.indiatimes.com/news/renewable/mnre-amends-guidelines-for-12000-mw-cpsu-phase-ii-solar-project-scheme/82544485
Sethuraman, N. R. (2025, March 24). Rule change to drive up clean energy project costs in India’s top solar state. Reuters. https://www.reuters.com/world/india/rule-change-drive-up-clean-energy-project-costs-indias-top-solar-state-2025-03-24/
SolarQuarter. (2025, March 17). NTPC secures largest allocation under CPSU Scheme Phase II, strengthening India’s solar energy goals. SolarQuarter. https://solarquarter.com/2025/03/17/ntpc-secures-largest-allocation-under-cpsu-scheme-phase-ii-strengthening-indias-solar-energy-goals/
Sethuraman, N. R. (2025, March 6). India’s renewable energy sector hit by weak demand, cancellations, report says. Reuters. https://www.reuters.com/business/energy/indias-renewable-energy-sector-hit-by-weak-demand-cancellations-report-says-2025-03-06/
TOI Business Desk. (2025b, June 12). Storage shift begins: SECI floats bids for 2,000 MW solar with co-located battery systems; projects to support India’s 2030 grid targets. The Times of India. https://timesofindia.indiatimes.com/business/india-business/storage-shift-begins-seci-floats-bids-for-2000-mw-solar-with-co-located-battery-systems-projects-to-support-indias-2030-grid-targets/articleshow/121806927.cms
Ministry of New and Renewable Energy. (2023, December 7). Major ongoing renewable energy schemes and programmes: Written reply by Shri R. K. Singh in Lok Sabha. Press Information Bureau. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1983766

About the Author:
Meyhar Kaur Walia is a Research Intern at IMPRI and is pursuing her undergraduate degree in Political Science from Delhi University.

Acknowledgement:
The author expresses sincere gratitude to all those who provided guidance, with special thanks to Dr Arjun Kumar and Ma’am Aasthaba Jadeja.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.