The Andhra Pradesh Electricity Regulatory Commission (APERC) is considering whether to reduce the duration of the power purchase agreement (PPA) from 25 years to 5 years due to the fall in prices of wind and solar energy.

The commission has written to the Advocate General of Andhra Pradesh for advice on the legal feasibility and possibility of reviewing the PPA in force and changing their duration.

The issue of review of PPAs was raised during a public consultation to finalize the retail supply tariff order for FY2019-20 by various stakeholders.

“PPAs in respect of non-conventional energy (NCE) generators should not be made for a period beyond five years. PPAs should be reviewed given a reduction in prices of wind and solar power, and new PPAs should be entered. Power purchases should be made at the prevailing market rates through transparent, competitive bidding”, said one of the stakeholders present during the consultation process.

In response, the Southern Power Distribution Company of Andhra Pradesh Limited (APSPDCL) stated that NCE purchases are being made according to the regulations of the commission and state policies. To reduce the power purchase cost and to avail the benefit of reducing prices, DISCOM is procuring solar power through competitive bidding in a phased manner and wind power through competitive bidding after April 1, 2017. However, a review of PPAs is under the purview of the commission.

To decide on the issue of review of PPAs, the commission has written a letter addressed to the Principal Secretary, Energy, Government of Andhra Pradesh. It says –

“It is requested to obtain the considered opinions of the learned Advocate General of Andhra Pradesh to advise on the legal feasibility and possibility of reviewing the Power Purchase Agreements in force and restricting the period of such Power Purchase Agreements to five years or any other period in respect of existing or future Agreements. On receipt of such advice, the appropriate future course of action can be evolved.”

“Changing PPAs abruptly from 25 years to 5 years will have negative consequences for the solar industry in the state. I cannot see many investors willing to take on the risk and finance a solar project based on a 5-year PPA. With the added risk, this proposal can end up increasing the cost of solar. The market is still too young to absorb something like this,” said Raj Prabhu, CEO of Mercom Capital Group.

Recently, Andhra Pradesh DISCOMs filed a petition with the APERC seeking relief in the terms and conditions for tariff determination for wind power projects in the state between FY 2015-16 and FY 2019-20.

The petition also seeks revision in the PPA for wind power projects and the tariff fixed by APERC in its orders dated December 13, 2019.

According to Mercom’s India Solar Project Tracker, Andhra Pradesh has installed solar PV capacity of ~2.75 GW and a project pipeline of 1.9 GW.