Andhra Pradesh Government Justifies its Stance on Revisiting of Solar & Wind PPAs

DISCOMs owe developers ₹200 billion, the state government asserts


Justifying its decision to renegotiate Power Purchase Agreements (PPAs) for solar and wind projects signed by the previous government led by Chandrababu Naidu, the new government of Andhra Pradesh has said that the state DISCOMs have unpaid dues to the renewable power generators to the tune of ₹200 billion ($2.9 billion) and accumulated losses of about ₹150 billion ($ 2.2 billion).

The previous government had allowed the DISCOMs to bear the fixed costs in purchasing power due to the backing down of available thermal power in favor of expensive wind and solar power during 2014-2019.

A communique received by Mercom from Ajeya Kallam, the principal advisor to Chief Minister Jaganmohan Reddy, has detailed the government’s justification in the renegotiation of the PPAs.

According to the government note, during 2014-2019, before the last elections, many PPAs were signed in excess of the mandated 5% Renewable Power Purchase Obligation (RPPO), for up to 23% and the tariffs for these projects were high.

For instance, the report mentions that wind power was purchased at ₹4.84 (~$0.07)/kWh, while thermal power was available at ₹4.2 (~$0.06)/kWh (fixed cost of ₹1.1/kWh+ variable cost of ₹3.1/kWh).

Due to the back down of thermal power, the DISCOMs had to bear the fixed cost component of ₹1.1 (~$0.01)/kWh, thus the effective cost of renewable power purchased turned out to be ₹5.94 (~$0.086)/ kWh.

Similarly, for solar power purchased more than the RPPO, the cost after adding the backdown cost of thermal power, came out to be ₹8.09 (~$0.11)/kWh (₹6.99 (~$0.1)/kWh+ fixed cost of ₹1.1 (~$0.01)/kWh).

The government has argued that the purchase beyond RPPO led to a loss of ₹10 billion ($146 million) to ₹15 billion ($219 million), due to the ensuing backdown costs of thermal power.

It has further added that the present government does not endorse the view of the previous government that the Plant Load Factor varies with states for wind power. The communique states that though wind power could be purchased at ₹3.53 (~$0.05)/kWh (2.43+1.1), it was purchased at  ₹5.94 (~$0.086)/kWh. The same was the case for solar, where it could have been purchased at ₹3.54/kWh (2.43+1.1) but was bought at ₹8.09 (~$0.11)/kWh.

This amounted to losses in the range of ₹30 billion ($438 million) to ₹25 billion ($ 146 million) per year for the past three to five years.

The government note also mentioned about losses due to the undue favor extended to private developers of gas power projects by purchasing gas-based power at higher rates, even after some PPAs had expired.

Arguing that all of these factors had led to a lack of industrial development and a huge debt burden for Andhra Pradesh, the present government decided to renegotiate the PPAs.

The note has mentioned that the previous government had incorporated the “Must- Run” clause for their convenience, at the expense of the state exchequer. It also added that the new government had constituted an expert committee and a cabinet sub-committee to investigate into possible irregularities committed and once proved, appropriate legal action would be initiated against the offenders.

Through the constitution of the High-Level Negotiation Committee, the government would ensure a free, fair, and transparent meeting with all the stakeholders in its attempt to try and arrive at a sustainable tariff for both wind and solar projects for the long term.

“Internal government corruption and allocations should not affect private producers in any case as they are not privy to such information. Even if the tenders were done with the view to benefit a few, far more have to lose than those who benefit,” said a solar project developer in conversation with Mercom.

Recently, Mercom had reported on Minister for Power R.K. Singh writing to Andhra Pradesh Chief Minister Jaganmohan Reddy, trying to dissuade him from his views on the renegotiation of PPAs.

Earlier in this month, Reddy held a review meeting with the state’s energy department to deliberate on the recent decision to revisit the PPAs of the solar and wind power projects that were allotted during the previous government led by Chandrababu Naidu.

The  Ministry of New and Renewable Energy (MNRE) had earlier expressed its serious concerns over the state’s impending decision to renegotiate PPAs, which were not adhered to by the state.

Later, a High-Level Negotiation Committee to deliberate and bring down the costs in all the high-priced PPAs for wind and solar power projects signed during the term of the previous Chandrababu Naidu-led government was constituted.

Andhra Pradesh is among the top five renewable energy generating states in India and as per NREDCAP data, it has 8.16 GW cumulative installations as on June 30, 2019.