Tariff Troubles: Concerns over PPA renegotiation in Punjab

Concerns over PPA renegotiation in Punjab

By Sarthak Takyar

Punjab, a state that had entered the limelight in the renewable energy space by installing the world’s largest rooftop solar project, is now facing criticism for its decision to renegotiate renewable energy power tariffs for old solar and biomass projects. Despite this knee jerk policy, it floated new regulations for grid-connected rooftop solar projects and floated many solar tenders in the past year. Renewable Watch provides recent statistics, a brief description of recent policy, regulatory and tender developments that have shaped Punjab’s renewable energy sector and the future outlook based on these trends…

Recent power statistics 

According to the Ministry of New and Re­ne­wable Energy, the total renewable energy capacity (excluding large hydro­power) in Punjab stood at 1,763.44 MW as of November 2021. Of this, 1,097.44 MW was solar power capacity including ground-mounted (828.58 MW), rooftop (222.51 MW) and off-grid/distributed (46.35 MW). The total biopower capacity in the state was 491.65 MW including bagasse cogeneration (299.50 MW), non-bagasse cogeneration (173.95 MW), grid-connected waste-to-energy (WtE) (10.75 MW) and off-grid WtE (7.45 MW). The total small-hydro capacity was 174.35 MW and there was no wind power installed capacity in the state. According to the Central Electri­city Au­tho­rity, the installed large hydro­po­wer and nu­clear power capacity in the state as of No­v­­ember 2021 was 3,809.12 MW and 196.81 MW respectively. The total thermal power capacity in the state was 8,729.51 MW comprising coal (8,315.5 MW) and gas (414.01 MW).

Meanwhile, Chandigarh’s renewable energy capacity comes entirely from installed solar capacity of 53.45 MW, comprising rooftop solar (46.3 MW), ground-mounted (6.34 MW), and off-grid/distributed solar (0.81 MW).

As per the Ujwal Discom Assurance Yojana (UDAY) portal, as of September 30, 2021, Punjab State Power Corporation Limited (PSPCL) reported aggregate te­chnical and commercial (AT&C) loss of 28.76 per cent and an  average cost of supply-average revenue realised (ACS-ARR) gap of minus Re 0.24 per kWh.

Renegotiation of renewable and thermal power tariffs

The Punjab government passed the Pun­jab Renewable Energy Security Reform, Termination, and Redetermi­nation of Power Tariff Bill, 2021, in November 2021. The bill pertains to the long-term power purchase agreements (PPAs) be­t­ween PSPCL and various renewable independent power producers (IPPs) located within Punjab. It in­volves projects with a cumulative solar and biomass capacity of 886 MW and 97.5 MW respectively. Acc­ording to the bill, the high tariff of power generators is beyond the optimum and affordable level, thereby ad­versely affecting the public good.

The state cabinet also approved the Punjab Energy Security Reform, Termi­na­tion, and Redetermination of Power Tariff Bill, 2021, in a bid to enact a law in public interest to achieve the sustained development of the electricity industry and provide electricity to consumers at an affordable price. This bill pertains to the long-term PPAs between PSPCL and coal-based th­er­mal IPPs Nabha Power Limited and Tal­wandi Sabo Power Limited located within Punjab. According to the bill, the crisis of fuel availability and the higher fuel cost pass-through claimed in the consumer tariff because of lopsided terms provided in the agreements lead to high tariff claims by generators which are beyond the optimum and affordable level.

In both the bills, by quoting various sections of the Electricity Act, 2003, the Punjab State Electricity Regulatory Commission (PSERC) states that in the interest of consumers it has the statutory authority to re­determine the tariff for power generation.

Regulations for net metering, gross metering and net billing

In the rooftop solar space, the key development was the notification of the Punjab State Electricity Regulatory Commission (Grid Interactive Rooftop Solar Photo Vol­taic Systems) Regulations, 2021, in August 2021.

Under this regulation, the maximum capacity of a rooftop solar system (AC side) to be installed at any eligible consu­mer’s premises, except domestic category consumers, should not exceed 70 per cent of the sanctioned load or contract demand of the consumer. In the case of do­mestic consumers, the maximum ca­pacity of rooftop solar systems shall not exceed the sanctioned load or contract demand of the consumer. The maximum capacity of rooftop solar systems under net metering shall not exceed 500 kWp. The maximum capacity under net billing or gross metering will be subject to the sanctioned load/contract demand. The minimum capacity of rooftop systems under net metering or net billing arrangements is 1 kWp for a single eligible consumer. Under gross metering arrangeme­nts, the minimum capacity will be 50 kWp for a single eligible consumer.

The systems installed under these regulations will be exempted from all wheeling, cross-subsidy, transmission and distribution, and banking charges as well as surcharges.

Key solar tenders

  • In December 2021, the Punjab Energy Development Agency (PEDA) invited bids for 18 MW of grid-connected solar power projects to be set up at four lo­cations of the Bhakra Beas Manage­me­nt Board.
  • In November 2021, PSPCL awarded SJVN Limited a 100 MW grid-connected solar project on a build-own-operate ba­sis at a tariff of Rs 2.69 per unit. Fur­ther, a 25-year PPA was signed between PSPCL and SJVN. The project has an estimated cost of Rs 5.45 billion. In the same month, the Anandpur Sahib Fo­un­dation floated a tender for a 1 MW rooftop solar project.
  • In October 2021, PEDA floated a tender for 220 MW of grid-connected solar pow­er projects of 1 MW, 1.5 MW or 2 MW capacity. The projects will be ins­talled under Component A of the PM KUSUM programme. Interested farmers, groups of farmers, panchayats, co­operatives, farmer producer organisations and water user associations could apply for the tender. The PSERC will acquire the solar energy generated by the plants at a predetermined levellised tariff of Rs 2.75 per kWh for a period of 25 years.
  • In September 2021, PEDA floated a tender for the installation of 243 grid-connected rooftop solar systems totalling 1.215 MW with individual capa­city of 5 kW at government schools and district institutes of education and training acro­ss Punjab. It also invited bids to develop 5 MW of grid-connected rooftop solar systems under the RESCO model acro­ss government buildings in the state.
  • In July 2021, PEDA announced a tender for 12,935 hybrid solar PV projects of 0.5 kW, 1 kW and 1.5 kW capacity each across Bathinda, Punjab. And, in May 2021, it invited bids for 5 MW of grid-connected rooftop solar projects on government buildings in the state.
  • In February 2021, PSERC approved the procurement of 500 MW of solar-wind hybrid projects from the Solar Energy Corporation of India at a tariff of Rs 2.69 per kWh with a trading margin of Re 0.02 per kWh. This announcement followed a petition filed by PSPCL to am­end the power sale agreement by redu­cing the trading margin from Re 0.07 per kWh to Re 0.02 per kWh.

Future outlook

The outlook for renewable energy promotion in the state seems bleak as the policy initiative on renegotiation of power tariffs dwarfs the positive development of new regulations pertaining to grid-connected rooftop solar projects. For the sake of “public interest”, the government seems to be renegotiating renewable energy tariffs in the range of Rs 7-Rs 8 per kWh, wh­ich were decided years ago, as the current tariffs are almost a quarter of it. This move by the state government is regressive as it is well known that the fall in rene­wable energy tariffs especially for solar projects was a result of lower cost of production due to many factors including economies of scale, availability of foreign and low-cost capital, and use of more efficient technologies. Unfortunately, Punjab is making the same mistake recently made by Andhra Pradesh, and in the process inviting legal trouble as well as dampening investor confidence.