Low green energy tariffs raise PPA renegotiation

Low green energy tariffs raise PPA renegotiation
31/01/2018 , by , in ALLIED

India’s quest for low clean energy tariffs “possibly contributed” to the demands for renegotiation of the already signed power purchase agreements (PPAs), the Economic Survey said on Monday.

This in turn may result in legal battles and bring uncertainty for the sector, with the banks becoming wary to lend to such projects, the Survey cautioned.

This comes in the backdrop of India’s wind power tariffs plummeting to Rs2.43 per kilowatt-hour (kWh) at an auction conducted by state-run Gujarat Urja Vikas Nigam Ltd last month, beating the record low solar tariff of Rs2.44 per unit registered in May.

While solar power tariffs rose to Rs2.65 per kWh at an auction conducted by the Gujarat government in September, last month’s auctions conducted by state-run Solar Energy Corp. of India threw up winning bids of Rs2.47 and Rs2.48 per unit.

“The discovery of very low tariffs through the auctioning process, though a welcome news, possibly contributed to some demands for renegotiation of the already signed PPAs,” the Survey said.

Experts agreed with the analysis.

“This is an absolute legitimate issue raised by the Survey. One will have more confidence in technology and banks if contracts are honoured. Solar prices have fallen rapidly over a period of time—prices have fallen sometimes even in three months. But that should not mean that contracts signed few months back at higher prices becomes invalid few months down the line,” said Chandra Bhushan, who is deputy director general of the Centre for Science and Environment, a Delhi based think tank.

With green energy tariffs achieving grid parity, the Survey also pitched for revisiting the subsidies and incentives given to the renewable energy sector. These observations come at a time when the largest global green energy expansion programme is unfolding in India. The government has set an ambitious clean energy target of 175 gigawatts (GW) by 2022. While 100GW of the government’s targeted renewable energy capacity is to come from solar projects, 60GW is expected to be generated from wind power plants.

“Some discoms have hinted at the possibility of renegotiating the PPAs signed by them at tariffs higher than those in the recent bids. According to Crisil (2017), renegotiating the tariffs could result in risk for investments worth Rs48,000 crore,” the Survey said.

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