Reddy’s Andhra Pradesh govt plans to cancel previous green energy contracts

New Delhi: In what may have a wide ranging impact on the Indian energy sector, Y. S. Jagan Mohan Reddy-led Andhra Pradesh government has decided to execute a raft of decisions that include issuing recovery notices to all wind and solar power purchase agreements (PPAs) for the losses caused, challenge the must run obligation of in the wind and solar regulations of the state electricity regulator and cancel the previous N. Chandrababu Naidu-led government’s decision to ink PPAs for the projects in the so called “in- pipeline.”

According to the minutes of the review meeting held by Y. S. Jagan Mohan Reddy on 26 June seen by Mint, these PPAs include 21 wind contracts, Siemens Gamesa 600 MW hybrid project, Axis Energy hybrid project, energy storage projects and 600 MW of schedulable power. The meeting also decided to “keep thermal plants/other sources in standby if wind/solar is stopped during/after negotiations.”

The decisions also include plans to cancel land allotted at Anantapur to sovereign wealth funds GIC Holdings Pte Ltd and Abu Dhabi Investment Authority promoted Greenko Group’ solar-wind hybrid project.

Greenko group’s founder, president and joint managing director Mahesh Kolli declined comment.

This comes in the backdrop of Y. S. Jagan Mohan Reddy-led Andhra Pradesh government’s plan to reopen the power purchase agreements inked under the N. Chandrababu Naidu-led government. According to a Andhra Pradesh government order dated 26 June reviewed by Mint, a Cabinet Sub Committee has been set up to “identify the person/persons/institutions responsible for prima facie mala fide decisions and actions, and recommend appropriate action."

One of the terms of reference of the Cabinet Sub Committee that has spread uncertainty in the India clean energy space is to “Review all investments in power sector and infrastructure projects approved and Power Purchase Agreements (PPAs) executed during this period and recommend appropriate action in case of omissions, commissions, mala fide actions, loss of valuable public resources."

The Andhra Pradesh government has gone ahead with its plans despite the Union government’s efforts to impress upon the state to not do so given the action to revisit PPAs will shake investor confidence.

“The union government has spoken to the state government after the 26 June meeting and have been assured by the state that the investor’s confidence will be maintained,” said a person aware of the development requesting anonymity.

This also comes in the backdrop of the ongoing crisis in discoms due to their poor financial health, which has led to delayed payment to generation utilities. In an attempt to ensure timely payments by states to electricity generation utilities, the government has made it mandatory for state discoms to offer letters of credit as part of the payment security mechanisms in power purchase agreements.

Accordingly, the National Load Dispatch Centre and Regional Load Dispatch Centres have been directed by the power ministry to “dispatch power only after it is intimated by the generating company and distribution companies that a letter of credit for the desired quantum of power has been opened and copies made available to the concerned generating company." The provisions take effect from 1 August.

The union power ministry has proposed a “power sector council" to address issues between the Union and state governments as part of its 100-day action plan for the second term of Prime Minister Narendra Modi’s government. Other proposals include separation of wire and power supply business, setting up a pan-India power distributor and building renewable energy management centres.