In a climbdown, Andhra may give concessions to power producers

  • Amid pressure from Centre, the state may soften its stand on pricing during negotiations with producers
  • The move comes after the NDA government pulled out all stops to impress upon the state government not to cancel the PPAs inked by the previous TDP government

Utpal Bhaskar
Updated11 Sep 2019
Photo: Bloomberg
Photo: Bloomberg

In a softening of its stand, the Andhra Pradesh government led by chief minister Y.S. Jagan Mohan Reddy has communicated its willingness to renegotiate clean energy tariffs with developers, quoting an initial figure of 2.43 per unit and 2.44 per unit for wind and solar power tariffs respectively. Andhra Pradesh is trying to rework power purchase agreements (PPAs) signed by the previous government for wind and solar power with average tariffs (FY14) of 4.70 per unit and 5.8 per unit, respectively.

The state has India’s second largest installed capacity of clean energy, accounting for around 10% of India’s green energy capacity, with investments of around 60,000 crore. Of this, around 15,000 crore is equity and the balance is debt.

“We are not saying that 2.44 per unit is the tariff that we are fixated with. As a benchmark, when you negotiate with somebody you start with a number. So, if you are calling somebody for negotiations it means that you have your stand and they have their stand. It means that during negotiations something will settle,” said a state government official, requesting anonymity.

The move comes after the National Democratic Alliance (NDA) government pulled out all stops to impress upon the state government not to cancel the PPAs inked by the previous Telugu Desam Party (TDP) government.

“Basically, the discoms have to survive and they (the developers) also have to survive. So, it has to be a via media solution, which has to be workable,” the official added.

Paras Jain/Mint

Mint had reported on 2 September about the Union government’s plan to take legal recourse under the Electricity Act of 2003, which states that power offtake can only be curtailed for safety reasons.

“The state, after bifurcation, is predominantly an agricultural state. It is not an industrial state like Telangana, Maharashtra or Tamil Nadu. Also, our GST and revenue collections are entirely dependent upon monsoons. In such a situation, the state government is also not in a position to support the discoms through any subsidies due to this additional non-renewable burden,” the official said.

Andhra Pradesh has around 7,700 megawatts (MW) of solar and wind projects. 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 that were awarded through the competitive bidding route.

India’s wind energy sector has transitioned from a feed-in tariff regime, which ensures a fixed price for wind power producers, to tariff-based competitive auctions.

“All these developers have entered into an agreement with the state government and not the discoms, which means the payment has to be made by the state government and not the discoms. If nobody compensates them, then they will go into losses,” the official said.

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

“The regulator has increased the annual subsidy burden from 3,000 crore to 7,000 crore for the last two years. So, there is an additional subsidy of 4,000 crore, which has been added to the state’s outstanding liabilities of 3.62 trillion. And, of that, if only the energy department has a demand of 20,000 crore, which is because of accumulating subsidy amount every year, then there is no way that this can sustain,” he added.

The Andhra government has clarified that they will not open all PPAs, but only those where malfeasance has been established.

Some of the global investors in the state’s clean energy space include Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board (CPPIB), Japan’s JERA Co. Inc., Singapore’s GIC Holdings Pte Ltd, Global Infrastructure Partners, CDC Group Plc and World Bank’s International Finance Corp. (IFC).

The development comes at a time when India’s emerging green economy is expected to require investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30. India has become one of the top renewable producers globally with ambitious capacity expansion plans.

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