The renewables target won’t be met if states keep reneging on solar/wind power deals and auctions
With Uttar Pradesh the latest in a list of states unwilling to honour winning solar power bids, calling them ‘infructuous’, India’s reputation for upholding the sanctity of contracts has taken another beating. Tariffs for renewable power capacity have come off sharply over the past two years, to levels of Rs 2-2.25 per unit or even lower. That has prompted a clutch of discoms to disregard contracts signed earlier at higher tariffs. It was the Jaganmohan Reddy-led government in Andhra Pradesh that first reneged on power purchase agreements (PPAs) for roughly 7,000 MW of wind and solar capacity—contracted at Rs 4.40 per unit. More recently, the Gujarat Urja Vikas Nigam Ltd (GUVNL) said it would re-tender the PPA for the 700 MW Dholera solar park. Although the winning tariffs were Rs 2.78-2.81 per kWh, GUVNL wants an even lower rate.
The UP government may believe that the decision cannot be challenged because no letters of intent (LoI) were sent and no PPAs were signed. However, the three winners, one of which is a foreign consortium, reportedly plan to move the appellate tribunal for electricity (Aptel). In their defence, the producers say they simply agreed to the UPNEDA’s request for extending the validity of their bank guarantees and were in no way responsible for the auction being cancelled. UPNEDA’s remark in a letter to the winners that “it seems very likely that a fresh bid may deliver better tariffs for the electricity consumers of Uttar Pradesh…” suggests the decision was taken with a view to exploring fresh bids at lower tariffs. The discovered tariff of Rs 3.17 per unit is, no doubt, much higher than the Rs 2.69 per unit discovered at a May auction, and it is entirely possible a fresh auction could throw up a lower tariff. However, auctions that have been concluded can’t be disregarded.
Experts believe project costs should go up, with the basic customs duty (BCD) on modules and cells set to be raised to 40% and 25%, respectively, from April 2022. It is unlikely the safeguard duty on modules and cells of 15% which expires in end-July will be reimposed. Consequently, the increase in the tariffs, post the imposition of the BCD, could be 20-50 paise per unit. Already, some Chinese manufacturers have increased prices of cells and modules. With the difference in tariffs narrowing, projects where the tariffs are below Rs 3 per unit are less vulnerable to being delayed or even cancelled. Nonetheless, disrespect for producers’ investments sullies the country’s image and puts India’s renewable energy targets at risk. Unless there is a quick resolution, the targetted renewable energy capacities won’t come up as planned. The Union power ministry was contemplating an exclusive legal redressal mechanism to deal with the enforcement of contracts, but that has not materialised yet. Even if it does, it is unlikely it can command the heft to deter either the discoms or the producers from appealing in higher courts. While central-government entities like SECI and NTPC, which are financially sound, are auctioning more power—their share is tipped to go up from 20% in March 2020 to about 30% in March 2022—ultimately, the state discoms need to behave more responsibly. In fact, a few projects—roughly a capacity of 18-19GW—tendered by SECI also remain suspended since the PPAs haven’t been signed. Right now, India’s target to set up 175GW of renewable energy capacity by 2022 looks out of reach.