October 2019

The sanctity of contracts and consistency in regulations are the two key considerations for any sector to attract investments. As far as the renewable energy sector in India is concerned, both of these have been called into question after the recent instances of PPA renegotiation in Andhra Pradesh and Uttar Pradesh.

In May 2019, the Andhra Pradesh government announced its plan to renegotiate all the PPAs signed between renewable IPPs and the state discoms. The aim was to look into the alleged cases of corruption related to the PPAs signed during the previous government’s regime. A few days later, the state discom sent notices to power producers and intermediary power procurers, such as SECI and NTPC, asking them to revise their wind and solar tariffs to Rs 2.43 and Rs 2.44 per unit respectively. This decision did not go down well with the industry for understandable reasons.

The Andhra Pradesh government’s order virtually called for a downward revision of the tariffs mentioned in the PPAs for 5.2 GW of wind and solar power capacity. Following close on its heels was the Uttar Pradesh government’s decision to stop procuring electricity from 650 MW of wind power plants, from October 2019 onwards. The state government’s explanation for the sudden move is that the PPA tariff of Rs 3.46 per unit has not been approved by the CERC. Of the 650 MW, about 440 MW of capacity is supplied by companies that quoted the lowest tariff in the maiden reverse auction for wind power projects held in 2017.

Such developments can throw a spanner in the works of potential investments in the sector, as well as the 175 GW renewable energy by 2022 and 450 GW by 2030 targets. Owing to the devaluation of the rupee, rising finance costs, transmission constraints, government-mandated tariff caps in reverse auctions and the cancellation of renewable project tenders, renewable capacity addition has slowed down. There have also been some noteworthy exits from the sector, with many more large and serious international developers and investors looking to sell their portfolios in the face of growing
regulatory uncertainties.

In this scenario, the announcements by the Ministry of Finance and the MNRE have lent some comfort to global investors about the sanctity of power purchase contracts in India. At a recent forum, Finance Minister Nirmala Sitharaman said, “However big the challenges may be, we will do everything to take our steps forward to make sure that our commitment to renewable energy is honoured.” In addition, the MNRE has issued a statement, clearly establishing the progress made towards meeting the 2022
target. For this, the state governments’ renewable energy objectives and vision must align with those of the central government. This will build greater confidence in the market and attract the investments needed to meet the targets.

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