Solar/wind power deals and auctions: Investor sentiment won’t tolerate too many shocks

Though the profitable tariffs have been Rs 2.78-2.81 per kWh, GUVNL desires a good decrease charge.

With Uttar Pradesh the newest in an inventory of states unwilling to honour profitable solar energy bids, calling them ‘infructuous’, India’s repute for upholding the sanctity of contracts has taken one other beating. Tariffs for renewable energy capability have come off sharply over the previous two years, to ranges of Rs 2-2.25 per unit and even decrease. That has prompted a clutch of discoms to ignore contracts signed earlier at larger tariffs. It was the Jaganmohan Reddy-led authorities in Andhra Pradesh that first reneged on energy buy agreements (PPAs) for roughly 7,000 MW of wind and photo voltaic capability—contracted at Rs 4.40 per unit. Extra just lately, the Gujarat Urja Vikas Nigam Ltd (GUVNL) mentioned it could re-tender the PPA for the 700 MW Dholera photo voltaic park. Though the profitable tariffs have been Rs 2.78-2.81 per kWh, GUVNL desires a good decrease charge.

The UP authorities might consider that the choice can’t be challenged as a result of no letters of intent (LoI) have been despatched and no PPAs have been signed. Nevertheless, the three winners, certainly one of which is a overseas consortium, reportedly plan to maneuver the appellate tribunal for electrical energy (Aptel). Of their defence, the producers say they merely agreed to the UPNEDA’s request for extending the validity of their financial institution ensures and have been by no means chargeable for the public sale being cancelled. UPNEDA’s comment in a letter to the winners that “it appears very doubtless {that a} recent bid might ship higher tariffs for the electrical energy customers of Uttar Pradesh…” suggests the choice was taken with a view to exploring recent bids at decrease tariffs. The found tariff of Rs 3.17 per unit is, little question, a lot larger than the Rs 2.69 per unit found at a Could public sale, and it’s fully attainable a recent public sale might throw up a decrease tariff. Nevertheless, auctions which were concluded can’t be disregarded.

Specialists consider mission prices ought to go up, with the essential customs obligation (BCD) on modules and cells set to be raised to 40% and 25%, respectively, from April 2022. It’s unlikely the safeguard obligation on modules and cells of 15% which expires in end-July will probably be reimposed. Consequently, the rise within the tariffs, put up the imposition of the BCD, may very well be 20-50 paise per unit. Already, some Chinese language producers have elevated costs of cells and modules. With the distinction in tariffs narrowing, tasks the place the tariffs are beneath Rs 3 per unit are much less susceptible to being delayed and even cancelled. Nonetheless, disrespect for producers’ investments sullies the nation’s picture and places India’s renewable power targets in danger. Except there’s a fast decision, the targetted renewable power capacities received’t come up as deliberate. The Union energy ministry was considering an unique authorized redressal mechanism to take care of the enforcement of contracts, however that has not materialised but. Even when it does, it’s unlikely it might command the heft to discourage both the discoms or the producers from interesting in larger courts. Whereas central-government entities like SECI and NTPC, that are financially sound, are auctioning extra energy—their share is tipped to go up from 20% in March 2020 to about 30% in March 2022—finally, the state discoms have to behave extra responsibly. In actual fact, a number of tasks—roughly a capability of 18-19GW—tendered by SECI additionally stay suspended because the PPAs haven’t been signed. Proper now, India’s goal to arrange 175GW of renewable power capability by 2022 seems to be out of attain.