States are unwilling to sign power supply pacts despite wind and solar projects being already awarded
States’ reluctance to sign PSAs is now leading to a further delay in inking power purchase pacts
State electricity distribution companies (discoms) are hesitating to sign contracts after large clean power projects were awarded, as they spot cheaper tariffs elsewhere, a trend that could hurt India’s image of a rules-based regime, and its future as a green economy.
Solar and wind energy projects totalling 16.8 gigawatts (GW) worth a potential investment of around ₹60,000 crore are in limbo, two people aware of the development said, as steadily falling tariffs prompt cash-strapped discoms to shop for cheaper rates.
Discoms typically sign power supply agreements (PSAs) with intermediary procurers such as state-run Solar Energy Corp. of India (SECI), which in turn sign power purchase agreements (PPAs) with project developers. States’ reluctance to sign PSAs is now leading to a further delay in signing PPAs. India’s solar power tariffs hit a record low of ₹2.36 per unit at a SECI auction in June.
“The discoms’ stand comes despite the projects being auctioned and a letter of award (LoA) being given to the developers," said one of the two persons cited above, both of whom spoke under condition of anonymity.
Renegotiating auctioned tariffs could hurt India’s ability to attract global investors and damage the sanctity of India’ tendering process, at a time the country is running the world’s largest green energy programme. This also comes against the backdrop of the Andhra Pradesh and Punjab governments seeking to renegotiate clean energy contracts for operational projects.
“The ministry of new and renewable energy (MNRE) is aware of the issue. To clear this PPA backlog, the plan in the works involves bundling the comparatively high tariffs of these previously bid-out manufacturing-linked projects with that of the recently bid ones having low tariffs. This will result in a weighted average tariff at which the PSAs will be signed with the discoms," said the second person, a senior government official.
Queries emailed to a SECI spokesperson on Wednesday remained unanswered.
“With tariffs going downwards, discoms have been unwilling to sign PSAs despite the projects being already awarded to wind and solar developers," said the first person.
The Union power ministry has proposed setting up an Electricity Contract Enforcement Authority to enforce PPAs in the draft amendments to the Electricity Act, 2003.
To be sure, the covid-19 pandemic and the resultant lockdown has worsened discoms’ already precarious finances.
“Revenues of power distribution companies have nosedived as people are unable to pay for the electricity consumed while power supplies, being an essential service, have been maintained... The liquidity of the power sector is not expected to improve in the short term, as economic activity and power demand will take some time to pick up," a government statement said on Wednesday.
Debt financing for green energy projects has also been drying up, with large banks declining to fund projects that have committed to sell power at less than ₹3 per unit. Banks are wary of lending to developers as they suspect viability of projects promising power at rock-bottom rates.
The development also assumes importance given the rapid pace of clean energy capacity addition by India. 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.