Tariff Adoption Delays are Hurting Investments and Jobs in the Solar Sector
With widespread issues like lack of transmission infrastructure and land availability, rising instances of delayed tariff adoption have further slowed down the pace of project development
According to Section 63 of the Electricity Act 2003, authorities such as the state electricity regulatory commissions (SERCs) are expected to adopt tariffs that have been discovered through a transparent bidding process. This procedure of tariff approval was mostly a formality that was complied on time so that developers could start the construction of power projects. But that has not been the case anymore.
When solar or wind auctions conclude, the tariffs discovered by the respective projects have to be approved by the SERCs. The auctioning authorities submit a formal petition to the commission, which is expected to give its approval. While this process takes place, developers meanwhile have time to sign the power purchase agreements (PPAs) with the off-takers. However, in the last year and a half, several SERCs have been delaying the procedure of tariff adoption due to a number of reasons.
According to sources, this procedure has become a major pain point for developers. Across India, there have been cases of delays that have complicated the project development process. For example, in Andhra Pradesh, 21 wind projects were threatened to be canceled since their PPA was not approved. In Maharashtra, the tariff for 1,170 MW of solar projects faced hurdles in getting approval, and in Gujarat, wind developers are often asked to match the lowest tariff. All across these states, developers are facing the risk of auctions being canceled or retendered.
In October 2019, Mercom reported that in a respite for renewable developers in the state, the Andhra Pradesh Electricity Regulatory Authority (APERC) approved the tariff for three solar park projects – 750 MW (Phase – II) Solar Park at NP Kunta, 750 MW Kadapa Ultra Mega Solar Park, and 250 MW solar power from Kadapa Solar Park under NSM Phase-II, Batch-II, Tranche-I. But later the Andhra Pradesh distribution company has filed a petition in the high court challenging this, which has again put the projects on hold.
Expressing his frustration due to the delays in the tariff adoption process, a senior executive from a solar company told Mercom, “This has become a serious issue for solar power developers. Some of these regulators are taking more than a year for formally adopting tariffs, DISCOMs also seem to be delaying the procedure in some states. Due to the non-adoption of tariffs, lending institutions are reluctant to provide debt financing to the developers.”
In the recently released revised bidding guidelines of solar energy projects, the Ministry of New and Renewable Energy (MNRE) has tried to address the issue of tariff adoption. The amended guidelines have provided relief to the developers by stating that in case the distribution licensee approaches the appropriate commission for the adoption of tariff and the commission does not decide on the tariff within 60 days of submission, the tariffs will be deemed to have been adopted by the appropriate commission.
However, the developers have raised concerns about this as well. An executive from a Delhi-based renewable power generator mentioned, “The new guidelines do not lay linkages between financial closure timelines and commissioning dates with the adoption of the tariff. The amendment has addressed this issue partially. The timeline for the adoption of tariff by the appropriate commission has been decided to be 60 days. In case of failure in doing so, the tariffs will be considered to have been adopted by the appropriate commission. The timeline for filing the petition by the intermediary procurer or DISCOMs also needs to be defined in these guidelines.”
Renewable energy developers have also mentioned that they are faced with challenges when raising capital for projects that can get delayed due to tariff adoption. Lenders are wary of financing projects which can get stuck in limbo.
A representative from an Indian non-banking finance (NBFC) company told Mercom that “As a financier of renewable energy projects, we cannot take the risk of unforeseen delays in the project development timelines due to issues such as tariff adoption. This can be a deal-breaker for us. Hence, we would stay away from such projects.”
Speaking about the issue, an executive at a large power development company commented, “On the tariff adoption, the amendment says that if a particular Commission doesn’t adopt tariff, after six months, it is deemed to be adopted. But the tariff adoption comes under the Electricity Act, and guidelines can’t replace the statute. It is good that MNRE is trying to address this, but until this is addressed in the Electricity Act, what is said in the guidelines will be null and void.”
There have also been cases of state regulators rejecting tariffs after the bidding process, and then recommending the retender of these projects. For instance, in September 2019, the Bihar Electricity Regulatory Commission (BERC) rejected a petition filed by Bihar State Power Holding Company (BSPHCL) on behalf of North Bihar Power Distribution Company (NBPDCL) and South Bihar Power Distribution Company (SBPDCL) for the adoption of the tariff. The petition requested tariff adoption at ₹3.45 ($0.049)/kWh and the regulatory approval for the procurement of 250 MW of solar power. The BERC also suggested that in case the bidders and BREDA cannot arrive at a renegotiated tariff in its suggested range, then the instant bid process should be canceled, and BREDA should retender the projects.
The renewable energy sector is already plagued by issues related to the acquisition of land and transmission infrastructure, which have led to several instances of delays in commissioning timelines. If the tariffs discovered through bidding processes are not adopted by regulators timely, it could further dissuade developers from participating in tenders in certain states. Many developers are wasting resources by embroiling themselves in hearings against SERCs by dragging them to the Appellate Tribunal for Electricity (APTEL) as well.
“There is a big disconnect here, and the regulators seem to be operating in a vacuum without any awareness that their actions are causing investors to shy away from investing in their states. This means in an economy that needs employment creation badly, regulations are eliminating these jobs without any consequence,” said Raj Prabhu, CEO of Mercom Capital Group. These actions are really bad for the economy.
In August 2019, the APTEL provided relief to renewable energy generators in the state of Andhra Pradesh. The tribunal has directed the Andhra Pradesh State Electricity Commission (APERC) not to allow the state DISCOMs to withdraw the proceedings pending for approval/adoption of tariff pertaining to the competitive bidding process. It also restrained the APERC from conducting a public hearing on the tariff adoption process as the tariff had been discovered through a competitive bidding process.
Image credit: MC Gran Rapids Solar
Shaurya is a staff reporter at MercomIndia.com with experience working in the Indian solar energy industry for the past four years in various roles. Prior to joining Mercom, Shaurya worked with a renewable energy developer and a consulting company. Shaurya holds a Bachelors Degree in Business Management from Lancaster University in the United Kingdom.