Business News/ News / India/  Centre, Andhra reach a compromise on green contracts

NEW DELHI : The Centre and Andhra Pradesh have reached a compromise to end the impasse over the Y.S. Jagan Mohan Reddy-led government’s controversial decision to reopen renewable energy contracts inked by the previous state government.

The compromise was struck during a meeting attended by Union and state government representatives earlier this month. The formula includes non-revision of those power purchase agreements (PPAs) whose tariffs have been fixed by the state electricity regulator; concessional loans to the Andhra Pradesh government by state-run firms such as Power Finance Corp. Ltd, (PFC), REC Ltd and Indian Renewable Energy Development Agency (IREDA) to clear outstanding dues; and waiver of interstate transmission charges for green energy to help reduce the state’s financial burden.

The Andhra Pradesh government’s move had sent the wrong signal to international investors as it would have serious implications on India’s ability to attract overseas investments and perception about the sanctity of legal contracts. The move also drew criticism from the central government, as well as the governments of France, Canada and Japan.

“A compromise seems to have been reached. The committee, set up following the request of Andhra Pradesh energy minister Balineni Srinivasa Reddy, met on 7 November. It comprises the Union power secretary, new and renewable energy secretary, the state government’s principal secretary (finance) and its power secretary," a Union government official said on condition of anonymity.

Andhra Pradesh has around 7,700 megawatts (MW) of solar and wind projects. It 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 around 60,000 crore. The state has 4,092MW of installed wind power projects awarded through feed-in tariffs. Also, the resource-rich state has 3,230MW of solar power projects awarded through competitive bidding.

According to government documents reviewed by Mint, the meeting discussed issues such as “sanctity of PPAs, payment of renewable energy (RE) dues to generators, curtailment of renewable energy power and concessions that can be granted to state government of Andhra Pradesh for reducing financial burden due to renewable energy power purchased over RPO (renewable purchase obligations) prescribed by the central government".

Investors claimed that the decision of the Andhra Pradesh government could have put at risk 5.2 gigawatts (GW) of solar and wind energy projects, with an estimated debt exposure of more than 21,000 crore.

“Representatives of the state government informed that the state after bifurcation has been in a bad financial state and it is difficult for the state to make timely payments to the RE generators, particularly in a situation where RE power has been purchased in excess of prescribed RPO limit," the documents stated. “They (AP state government officials) requested for loan at concessional rates from PFC, REC and Ireda to tide over the present situation and make payments to RE generators."

The RPO requires power discoms to buy a fixed amount of renewable energy to cut reliance on fossil fuels.

Other decisions reached at the meeting included the state power utility paying the generators for curtailed wind or solar power if done for reasons other than grid safety, waiving off the interstate electricity transmission charges for sale of clean energy over and above the RPO limit to other states.

Anand Kumar, secretary in the new and renewable energy ministry, confirmed the development, saying: “We are providing all central government assistance to Andhra Pradesh to resolve this issue. They have agreed that all PPAs are sacrosanct."

The Andhra government is of the view that the state has the fourth-highest power purchase cost in India and is ranked among the top five high consumer tariff states. It also believes that the state has one of the highest industrial tariffs that has contributed to declining industrial production, with growth declining in the last five years by at least 10 percentage points.

The Union government has been trying to seek a solution to the pressing issue given that marquee investors such as Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, JERA Co., GIC Holdings Pte Ltd, Global Infrastructure Partners, CDC Group Plc, EverSource Capital and World Bank’s International Finance Corp. have invested in the state’s clean energy space.

Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 29 Nov 2019, 12:27 AM IST
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