Home / News / India /  Discoms leave 16.8GW solar and wind projects in a bind

New Delhi: In what may impact India’s green economy and potentially dent its rules-based regime image, falling clean-power tariffs has put an already awarded 16.8 gigawatt (GW) solar and wind energy capacity in limbo, said two people aware of the development.

Fund-starved state electricity distribution companies (discoms) are unwilling to sign contracts with intermediary procurers such as state-run Solar Energy Corporation of India (SECI) for these previously-awarded projects at a comparatively higher tariff. Due to the recent low-price bids, the discoms are tariff-shopping and are reluctant to ink power supply agreements (PSAs) for these projects that involve a potential investment of around 60,000 crore.

India’s solar power tariffs hit a record low of 2.36 per unit during a bid conducted by SECI in June.

Revisiting the auctioned tariffs could hurt India’s ability to attract global investors. It could also adversely impact the perception about the sanctity of India’s tender process at a time when the country is running the world’s largest green energy programme. This also comes in the backdrop of the Andhra Pradesh and Punjab governments seeking to renegotiate clean energy contracts for operational projects.

"The discoms’ stand comes despite the projects been auctioned and a letter of award (LoA) been given to the developers," said a person aware of the development cited above requesting anonymity.

Given that an intermediary procurer such as SECI signs power purchase agreements (PPAs) with the project developer after signing back-to-back PSAs with discoms, the inordinate delay in finalizing the PSAs has in turn delayed the signing of PPAs.

“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 recentlybid ones. This will result in a weighted average tariff at which the PSAs will be signed with the discoms,"said a senior government official cited above requesting anonymity.

Queries emailed to a SECI spokesperson on Wednesday night remained unanswered.

“With tariffs going downwards, discoms have been unwilling to sign PPAs despite the projects been already awarded to wind and solar developers," said the first person cited above.

Seized of the issue and facing global investors’ criticism, New Delhi 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 exacerbated the already precarious finances of the discoms.

“Revenues of the 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. Energy consumption has decreased substantially. 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," the government said in a statement on Wednesday.

The debt financing for green energy projects has also been drying up with large Indian banks declining to fund projects that have committed to sell power at less than 3 per unit. The banks have been wary of lending to developers as they suspect the viability of projects that have agreed to sell power at rock-bottom tariffs.

The development also assumes importance given the rapid pace of clean energy capacity addition by India. 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. The country is seeking additional clean energy investment of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30.


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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