Andhra Challenges Solar PPA Tariffs

July 28, 2019

andhra pradesh solar ppa

    While the Government of India is pushing for the adoption of several renewable energy technologies across different domains of application, it looks like newly formed Andhra Pradesh state government has something different on its agenda.

    Andhra Pradesh government led by Chief Minister YS Jagan Mohan Reddy has issued several letters to different solar and wind power project developers asking them to reduce tariff costs of their renewable energy power plants. Lot of things have happened in the month of July. Here are the series of events and my thoughts on the ongoing issue;

Series of events:

  • February 18, 2019: Andhra Pradesh DISCOMs demanded revision of tariff regulation for wind projects
  • June 11, 2019: Ministry of New and Renewable Energy (MNRE) wrote to the chief secretary of the government of Andhra Pradesh LV Subramanyam to ensure the integrity of past contracts signed with the renewable power developers.
  • June 25, 2019: Andhra Pradesh CM YS Jagan Mohan Reddy ordered a legal action against former CM N Chandrababu Naidu for dubious deals with renewable energy companies. He announced to set up a committee to revisit the electricity tariff costs and to recover the over and above amount paid to the companies.
  • July 14, 2019: All India Power Engineers Federation (AIPEF) supported Andhra Pradesh government’s decision to revise the high tariff costs associated with solar and wind power plants.
  • July 15, 2019: The Minister for Power R. K. Singh wrote to Andhra Pradesh Chief Minister Jaganmohan Reddy, asking him not to renegotiate power purchase agreements (PPAs) for wind and solar energy projects as it will harm the flow of investments in Andhra Pradesh.
  • July 17, 2019: Andhra government asked SECI to revise tariff for 400 MW of solar projects. It also warned SECI of termination of power purchase agreements by DISCOMs. 
  • July 25, 2019: Nine renewable energy project developers filed petition in Amaravati high court against government’s recent move regarding renegotiation of solar and wind contracts. The developers were
    • ReNew Power
    • Azure Power
    • ACME Solar
    • Axis Wind Farms
    • Khandke Wind Energy
    • Vena Energy Power
    • Ecoren Energy
    • Vayu Urja Bharat
    • Waneep Solar.
  • July 26, 2019: Amaravati high court imposed stay order on Andhra’s decision to revise various renewable power purchase agreements.
  • July 26, 2019: Andhra Pradesh shut down solar and wind power plants from their grid for about 2 hours.

andhra pradesh solar ppa

Aftermath:

    I will restrict my discussion to the solar PV field as I am rigorously following it for last 4-5 years. The general procedure to install a solar PV plant is that SECI organizes a competitive bidding among interested solar power developers and goes into the 25 years power purchase agreement with the winning bidder/s. The capacity, location of the power plant and capping of PPA tariff is done by SECI and concerned state government agencies. SECI then signs a power sale agreement with the state DISCOM. 

   Since 2014, cost of solar PV equipment like solar inverter, PV modules have reduced drastically due to large volume demands all over the world. This has led to the sharp decline in PPA tariff in 2018-19. SECI’s competitive e-reverse auction process has successfully discovered the PPA tariff up to as low as 2.44 Rs per unit. Back in the year of 2015, lowest PPA tariff used to be around 7 to 9 Rs per unit.

    Andhra government has proposed to revise PPA contracts having higher tariff to reduce its present as well as future financial burden associated with the power companies. The state government said that auctions were conducted at higher capping of PPA tariff and without prior consent of state agencies. 

    In addition to this, upon receiving stay order from the high court, state government has dared to disconnect the solar and wind power plants from the grid for a few hours. This has resulted in revenue loss to the power developers and sparked another controversy which may result into high voltage drama and the case may end up in the court. As per the recent amendments in the Electricity Act, renewable energy power plants should be given ‘must-run’ status and should be operated on priority over conventional power plants (like coal, nuclear and hydro) as they don’t consume any fuel. Looking at the seriousness of the matter, the case may go into supreme court if power developers take aggressive steps. 

    State government has to come up with strong evidence of corruption or evidence of failure in compliance by the developer to terminate the PPA signed by the earlier government. Rapid and high level developments are expected in coming weeks related to the issue. 

    If Andhra government any how manages to revise the tariff, other states will follow the trend. In that case, it will be a huge blow for the solar investors, especially foreign investors. In order to achieve 100GW solar PV installation target by 2022, central government needs to safeguard investors interest at any cost. Future of government schemes and solar PV companies will be decided by the result of this ongoing drama. In a nutshell, it’s a high time for all stakeholders!!

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Note: Dates mentioned in the series of events are tentative and based on the date of publishing corresponding news in the media.