Bank NPAs alert: States demand to rework renewable power contracts dangerous; here is why

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Published: August 15, 2017 5:55:51 AM

Tamil Nadu, Karnataka, Andhra Pradesh and many other states have cited the recently discovered low tariffs for wind and solar power to try and beat down the tariffs they agreed to in power purchase agreements (PPAs) a couple of years ago.

Bank NPAs alert, Bank NPAs, NPAs, renewable power, power purchase agreements, Union power ministry, Indian Banks Association, Tata, Adani, SEBs If states want a lower tariff now, it could come at ruinous costs, ultimately affecting their own power sufficiency. (Image: PTI)

States forcing renewable power developers to cut tariffs agreed to in old power-purchase contracts must heed the warning banks have sounded. Tamil Nadu, Karnataka, Andhra Pradesh and many other states have cited the recently discovered low tariffs for wind and solar power to try and beat down the tariffs they agreed to in power purchase agreements (PPAs) a couple of years ago. With banks having lent heavily to the developers, the Indian Banks Association has written to the Union power ministry to intervene, warning that projects could turn unviable as a result of states reneging, leading eventually to NPAs.

Not only does cancellation of contracts and arm-twisting discourage investment—key to the ease of doing business is enforceability of contracts—banks that had assessed the projects for loans had done so keeping in mind the costs of technology then and the tariffs agreed to. If states want a lower tariff now, it could come at ruinous costs, ultimately affecting their own power sufficiency. Some would argue that if the government should allow a Tata or an Adani to renegotiate its contract for power projects, why shouldn’t SEBs be extended the same treatment?

It is important to bear in mind that while Indonesia jacking up coal prices—both projects had quoted tariffs based on lower prices of coal that they were to import from that country—can be considered a force majeure, falling costs of technology for solar and wind can’t be considered the same. In fact, the more reasonable assumption would have been that this would happen going forward given the research interest in the segments. All told, the Centre must get states to realise the gamut of effects this could have.

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