Mumbai: Clean energy companies and their investors are worried about rising instances of state power distribution utilities (discoms) unplugging their generating capacity from the grid and delaying both payments and the signing of power purchase agreements (PPAs).
Two of India’s largest renewable energy companies, ReNew Power Ventures Pvt. Ltd and Tata Power Renewable Energy Ltd (TPREL), a subsidiary of Tata Power Co. Ltd, have been hit by such unplugging, also called back-down at their plants in multiple states, company officials said. Projects of other companies including Adani Green Energy Ltd and Hero Future Energies have also been hurt due to back-down and delays in signing PPAs, they added.
Some states resort to backing down wind and solar projects, jeopardizing investments already made in the projects, said Rahul Shah, chief executive of TPREL.
“Discoms in Maharashtra, Tamilnadu, Madhya Pradesh and Rajasthan have also been delaying payments to generators of wind and solar power by as much as 8-10 months, which puts their cash flows under tremendous pressure. These are negative signals for developers and investors who are evaluating the Indian market for investment in new renewable energy capacity,” Shah said.
According to ReNew Power’s estimates, discoms in Maharashtra, Rajasthan and Madhya Pradesh owe wind energy producers over Rs4000 crore in payments. A ReNew spokesperson said about 500 megawatt (MW) of its solar capacity and a smaller size of wind capacity is stranded in Jharkhand due to delays in signing PPAs.
A check of awarded projects shows 1200 MW of solar capacity of ReNew Power, Adani Power and ACME Solar and about 600 MW of wind capacity is stuck for the lack of PPAs in Jharkhand. Adani Power and Hero Future did not respond to emails seeking comment.
Many discoms are in poor financial shape and have started going back on their commitment to sign PPAs with solar power producers, multiple people in the renewables business said. In solar projects, which are won through reverse bidding process, a PPA is signed ahead of completion of the project, usually for a period of 25 years.
A back-down can happen due to availability of cheaper power elsewhere, lack of transmission infrastructure, absence of demand, or inability of the grid to buy power. Grids usually reserve the right to unplug power because of the variations in the amount of power generated. This practice, called power back-down, leads to losses of billions of units of green power.
Several companies have filed petitions against a state utility in Rajasthan on account of this, an official of Rajasthan Electricity Regulatory Commission said on condition of anonymity.
“Investors are losing confidence,” said Seema Changlani, director of Beont Capital, which helps Indian companies set up projects and attract new investments. “At times, the grid refuses to purchase renewable power in favour of cheaper thermal power. Investors finance projects on the basis of PPAs and absence of PPAs by discoms can hurt IRRs of these projects.”
Back-down and delay in payments have become a chronic problem, Dilip Nigam, adviser, ministry of new and renewable energy (MNRE) said on the sidelines of an event in Mumbai on Wednesday. “Discoms are backing down on renewable energy in the name of security of the grid and we have been taking up the issue separately. Renewable energy should have a ‘must-run status’.”
India has a total wind capacity of 27.4 gigawatt (GW) and solar capacity of about 9 GW. It has set itself the target of adding 100 GW of solar and 60 GW of wind capacity by 2022.
The government has set a renewable purchase obligation target for discoms, but this target is not being met. “This raises concerns over rising solar capacity and ability of the discoms to buy all of it. This (problem) is becoming bigger by the day,” Vinay Rustagi, managing director, renewable energy focused consultancy Bridge to India said.
The MNRE wrote to the Central Electricity Regulatory Commission in August highlighting the issue of back-downs. Tarun Kapoor, joint secretary, MNRE wrote in that letter that if any backing down has to be done, thermal power projects should be asked to back down so that some fuel is saved.
“This (loss of energy from backing down) can make solar power unattractive particularly when projects are being allotted through competitive bidding and tariffs have come down drastically,” he wrote. “They should be paid full tariff if they are forced to back down in rare cases.”
Solar energy tariffs have fallen from Rs15 over four years ago to below Rs5 per unit over the past 12 months, in part due to aggressive bidding in reverse auctions. Tariffs are expected to fall to Rs3.50 per unit in the next three years on account of falling cost of equipment and better technology, Mint reported on 26 July.