Andhra Pradesh green energy imbroglio impacting deals and payout schedule
3 min read . Updated: 16 Sep 2020, 04:21 PM IST
Premium- Buyers insistent on resolution of PPAs reopening by state government to be a condition precedent for payouts
NEW DELHI : Large green energy deals in Andhra Pradesh are hanging fire, with prospective buyers introducing a condition precedent; wherein a significant agreed upon amount will only be paid once the issue of reopening of power purchase agreements (PPAs) by the state government gets resolved, said two people aware of the development.
Not only has this impacted the deals’ value, it is also playing out on the payout schedule, with the dispute currently before the Andhra Pradesh High Court.
“Every buyer who comes to us, makes this condition that a significant part of the deal value will only be released once the issue gets resolved. These payout triggers has impacted the sale of our assets," said the chief executive officer of a New Delhi based firm clean energy firm cited above, requesting anonymity. The firm has been trying to sell its projects in the state since late 2018.
Green energy developers have been caught in a bind due to Y.S. Jagan Mohan Reddy-led Andhra Pradesh government’s decision to reopen renewable energy contracts inked under the previous N. Chandrababu Naidu government.
“One can’t blame the buyers as this is an extraordinary situation. It has now become a wait and watch strategy," said a second chief executive of a Mumbai based firm who also did not want to be named.
Andhra Pradesh has around 7.7 gigawatt (GW) of solar and wind projects and is home to India’s second-largest installed capacity of clean energy, accounting for around 10% of the country’s green energy capacity, with investments of ₹60,000 crore. Also, the state government is expediting efforts to float India’s largest solar tender for setting up 10 GW capacity to supply electricity to the farmers requiring an investment of around ₹35,000 crore.
Experts say honouring PPAs is non-negotiable in a rules based regime.
“India’s renewable energy sector has been seeing a lot of deal activity, both in terms of consolidation within the sector and also new players (including overseas players) entering the sector through the inorganic route. Given the size of the renewable energy opportunity in India, a progressive policy regime and a credible contract enforcement structure would go a long way in not only channelling much needed capital in to the sector but also enable bigger FDI (foreign direct investment) inflows," said Rajesh Ivaturi, partner, power and utilities at EY India.
India is seeking additional clean energy investment of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30.
“While the GOI (Government of India) is doing well on the former (progressive policies), they need to come up with stronger measures on the latter to improve confidence among investors," he added.
With 5.2 GW of solar and wind energy projects with an estimated debt exposure of over ₹21,000 crore in Andhra Pradesh hanging fire, New Delhi has pitched to set up an Electricity Contract Enforcement Authority to ensure that conditions in PPAs are followed, through the draft amendments to the Electricity Act 2003.
Mint earlier reported about developers running the risk of their loan facilities getting recalled. Also, a renewable energy chief executive officer’s council of lobby group Federation of Indian Chambers of Commerce and Industry raised the issue of power curtailment before union ministry of new and renewable energy, and said that despite reduced interim tariffs of ₹2.44 per unit for solar projects and ₹2.43 per unit for wind projects since July 2019 to be paid by the state, there is power curtailment happening.
Clean energy projects now account for more than a fifth of India’s installed power generation capacity. India now has 34.6GW of solar power and 38GW of wind power, and seeks to produce 100GW from solar projects and 60GW from wind power plants by March 2022.
