Low green energy tariffs raise PPA renegotiation

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. 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 comes at a time when the largest global green energy expansion programme is unfolding in India. The National Democratic Alliance 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 Rs48000 crore,” the Survey said. This comes at a time the government is trying to boost electricity demand in the country and improve India’s per capita power consumption of around 1,200 kWh, which is among the lowest in the world. According to federal think tank NITI Aayog’s draft national energy policy this is expected to go up to 2911-2924kWh in 2040. “Making the term of future PPAs shorter may not be desirable as it could only increase the cost of capital without much gains. Affordable financing holds the key for financing sustainable energy projects. Risk mitigating instruments such as payment guarantee fund or a foreign exchange fund available to developers could be a way forward,” the Survey suggested.