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 (Bloomberg)
(Bloomberg)

Karnataka puts a stop on new solar energy projects

  • The Karnataka Electricity Regulatory Commission has said there will be no further bidding to procure solar energy from large-scale projects till further orders
  • Since Karnataka is a power-surplus state, the commission wants to restrict procurement from high-cost energy sources

Mumbai: In a first, Karnataka has stopped the building of new solar energy projects, balancing its renewable power purchase obligations and concerns on the financial health of the state’s power distribution companies (discoms). Last month, the Karnataka Electricity Regulatory Commission said there will be no further bidding to procure solar energy from large-scale projects till further orders.

The decision was communicated by the commission to the Karnataka Renewable Energy Development Ltd (KREDL) in letter dated 7 March. Mint has seen a copy of the letter.

KREDL is the state government body that issues tenders for bulk renewable energy procurement for Karnataka’s discoms.

In the letter, the commission observed that given the power-surplus situation Karnataka finds itself in, the state will have to restrict procurement from high-cost sources. The state’s discoms, the letter says, have already contracted to procure adequate power from solar energy sources, enabling them to meet their renewable purchase obligations (RPOs) not only for FY20 but for another couple of years as well. RPOs, which mandate that a percentage of a discom’s power supply must be purchased from renewable sources, have so far driven the growth of the green energy sector in India and is part of the government’s strategy to achieve the 175 GW of renewable power capacity by 2022. For FY20, the government has set the solar RPO at 7.25% and non-solar RPO at 10.25%. For the next 2 fiscal years, the solar RPO will rise each year to 8.75% and 10.50%.

However, the letter says, that since the state has exceeded its RPO obligations, “There is no requirement in the near future for procurement of power from solar power projects, either to meet RPO or general demand."

Ashish Khanna, CEO and MD, Tata Power Solar Systems and president, renewables, told Mint: “You have to respect the state regulator, although (this decision) is a bit unconventional. Karnataka has so far implemented renewable capacity of more than 1GW at Pavagada Solar Park of which we alone have executed 400 MW. Solar power should not be done only for RPOs, it is also about cost-effective power clean power. I think it is up to the Centre now how and where it intends to meet its aspirations in meeting renewable power targets."

Tata Power is currently setting up a 250 MW utility-scale in the solar park in Karnataka’s Tumkur district. “I don’t think this is a major setback to the overall goals," Khanna said. “When we speak of solar it’s not only utility scale projects, there’s is still potential for rooftop solar and solar pumps."

Karnataka had taken the lead in developing renewable energy projects over the past decade, a renewable energy consultant who did not want to be named, told Mint. “The state also has some of the only profitable discoms in the country and this is the first time we are seeing a state which has met all its RPO targets. So while we may not see any new solar projects, tenders for wind and hydel power are likely to continue."

The commission, however, will carefully evaluate from on how it expands its power needs from now on. According to the letter, “Even now, many discoms are defaulting in making payments for power supply to generators, especially renewable energy generators, because of cash flow constraints…Any further procurement will have adverse financial impact on distribution companies and also impact grid stability, apart from resulting in higher tariffs for consumers. “

Girishkumar Kadam, sector head and vice-president, ICRA Ratings, said not just RPOs, but the trajectory of solar tariffs, the variable nature of wind and solar, and a discom’s average power purchase cost between all sources of power play important roles in its power procurement decisions. “The problem is that discoms have already contracted two-part tariffs thermal power PPAs, where fixed charges need to be paid regardless of the offtake, and wind and solar power tariffs are in the 2.50-2.80 per kWh range. Discoms have to look at the competitiveness of renewable bid tariffs against their average power purchase cost. Ultimately, additional power costs will have to be passed on to consumers and the commission will look to protect consumers’ interests."

“On the bright side, in the last two calendar years, 58% of solar project awards happened under the National Solar Mission. So even if we see slowdowns in state project tendering, projects for power procurement by the central government will go on." Kadam said.

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