States must not leave investors in the lurch: Reneging on PPAs/reauctioning will hurt capital invested in renewables

This can be a sector that has attracted giant sums of capital, and can proceed to take action given it’s vital for the setting. However this capital must be revered.

With tariffs having come down sharply to ranges of round Rs 2-2.25 per unit, and in some situations, beneath Rs 2 per unit, a clutch of states has both refused to purchase solar energy or has reneged on the facility buy agreements (PPA). First, it was the Andhra Pradesh authorities that demanded tariffs within the PPAs for five.2GW of wind- and solar-power capability be revised downwards. Subsequently, the Uttar Pradesh authorities stopped procuring electrical energy from 650 MW of wind energy crops, claiming the Rs 3.46-per-unit PPA-tariff had not been authorised by CERC. Final August, Gujarat had auctioned 700MW of photo voltaic capability to be in-built Dholera for which a tariff of Rs 2.78 per unit had been found.

However with tariffs crashing beneath the Rs 2 per unit mark, the state determined it could maintain the public sale once more. Though energy producers have taken the matter to courtroom, states stay undeterred. CRISIL estimates that power-supply agreements for about 7GW of capability, bid out at auctions previous to February 2020, are but to be closed out since tariffs have dropped thereafter. Of this, about 3GW is susceptible to reauctioning and even cancellation for the reason that tariffs found have been comparatively excessive.

In a wierd method, the fundamental customs obligation (BCD) to be levied on import of photo voltaic modules and cells of 40% and 25%, respectively, beginning April 2022 might rescue about 4.2GW of photo voltaic tasks which have been bid out however are but to search out consumers. Because the imposition of the levy will lead to tariffs hikes of about Rs 0.25-0.50 per unit, this may ‘appropriate’ the value. Consequently, state-run energy discoms might lastly agree to purchase the facility on the found worth of lower than Rs 2.75/unit.

Additionally, CRISIL believes cost dangers are anticipated to reasonable over the subsequent two years as an even bigger proportion of the operational capability could have tariffs of lower than Rs 3 per unit. The analysts level out that even now funds are comparatively common for tasks with decrease tariffs. At present, round 35% of the operational photo voltaic capability is working with a tariff of beneath Rs 3 per unit; by finish FY23, this share is predicted to extend to roughly 60% for the reason that bulk of the recent capability arising with tariffs of beneath Rs 3 per unit. Furthermore, many extra tasks are being auctioned by central counter-parties like SECI and NTPC that are financially sound and, due to this fact, more likely to make funds on time. The share of those entities is tipped to go up from 20% in March 2020 to about 30% in March 2022.

It will be important that discoms shut out PPAs as a result of, due to the pandemic, building of each photo voltaic and wind energy capacities has been delayed. The goal of 160GW by FY23 is now more likely to fall brief about 40%. That’s a giant setback, however what’s extra worrying is that ongoing tasks might get hit due the poor monetary well being of discoms; on the finish of March, 2021 they owed turbines some Rs 68,000 crore. Whereas the Centre threw them a life-line in Price range FY22, most discoms stay disproportionately leveraged. A mixture of delayed funds—knowledge from Praapti exhibits they’re stretching reimbursement intervals—and non-closure of PPAs submit auctions might flip tasks unviable. This can be a sector that has attracted giant sums of capital, and can proceed to take action given it’s vital for the setting. However this capital must be revered.