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Thursday, 24 Aug 2017
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Solar, wind power projects face tariff conundrum

At present, India has a total of 58,303.35 MW of renewable power, of which 32,508.17 MW comes from wind power, while solar energy accounts for 13,114.85 MW.

As per a report by the parliamentary committee, the total investment for commissioning of 100 GW solar power has been estimated at Rs five trillion, and most of the investment is done by private entities.

The solar tariff has seen a falling trend in the past seven years. The per unit price of solar power has dropped from Rs 10.95 in December 2010 to Rs 2.44 in May 2017. This has resulted in competitive auction and low bids by private entities.

The findings of the report also stated that some of these renewable projects are becoming unviable because the developers find it difficult to raise funds and contain project cost. A lower solar tariff also tends to affect the viability of solar projects which were awarded earlier.

Against this backdrop, the state governments are forcing renewable power developers to cut tariffs agreed to in old power-purchase contracts. Some states like Tamil Nadu, Karnataka, Andhra Pradesh and many others have cited the recently discovered low tariffs for wind and solar power to try and beat down the tariffs they agreed to in the power purchase agreements (PPAs) a couple of years ago.

Andhra Pradesh and Karnataka, which constitute a quarter of the country’s installed wind power projects, are renegotiating or scrapping the purchase agreements with developers in a bid for lower power tariffs for wind energy projects.

Bangalore-based Atria Power has lost investments of Rs190 crore to build a 24 MW project in Karnataka.

International Finance Corp-backed Hero Future Energies will have to renegotiate the tariff for its 70 MW of commissioned projects out of a planned 120 MW in Andhra Pradesh.

Southern Power Distribution Company of Andhra Pradesh, a power retailer, has also decided to renegotiate the PPAs as developers building renewable power projects at low tariffs through auctions in one state should not sell clean energy at higher tariffs in another state.

On 22 August 2017, Ministry of power laid out the latest guidelines for renewable power producers. The new rules are for buying power from grid-linked solar power projects through competitive bidding under the National Solar Mission. The guidelines will ensure improvement in transparency and will standardise auctions.

1. For timely completion of the project, the guidelines specify strict timelines for completion of land acquisition, transmission connectivity and other approvals to avoid project delays.

2. The minimum power purchase agreement tenure (PPA) will be 25 years, which will help ensure lower tariffs.

3. The guidelines also provide for payment of security mechanism. The risk of generator's revenue getting blocked due to delayed payment or non-payment has been addressed through provision of Payment Security Mechanism through instruments like Letter of Credit (LC), Payment Security Fund, State Guarantee and the like.

4. The new standard PPA will allow substitution if the developer defaults on payments to its lender(s).

With these guidelines in place, the state governments will have to lower tariffs or lower the support from the viability gap fund as the bidding parameter.

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