The Karnataka State Government has annulled a Karnataka Electricity Regulatory Commission (KERC) order requiring them to sign wind power purchase agreements (PPAs) in the state. The Karnataka State Government in its order to the KERC invoked Section 108 of the Electricity Act 2003.

Section 108 of the Electricity Act allows the state government to get involved in policy when it is in the public interest.

The state government has directed KERC to approve PPAs at the rate of ₹4.50 (~$0.069)/kWh for 270.50 MW of wind projects. The Bengaluru Electricity Supply Company (BESCOM) will enter into PPAs for projects aggregating 100.50 MW and Hubli Electricity Supply Company (HESCOM) will enter into PPAs for 170 MW of projects.

The state government also stated that for wind projects to be commissioned before March 31, 2018, developers will enter into PPAs with the state distribution companies (DISCOMs) at a tariff of ₹3.74 (~$0.058)/kWh, fixed by the KERC. The developer will have to pay ₹2 million (~$30,757)/MW as bank guarantees to Karnataka Renewable Energy Development Limited (KREDL) for the projects to be commissioned from September 4, 2017, to March 31, 2018, the control period fixed in the revised tariff order of the KERC.

Background

KERC identified a need for a mid-term tariff revision to ensure that consumers get the benefit of lower cost wind power generation. KERC then invited comments on the discussion paper ‘Revision of Generic Tariff for Wind Power Projects and Mandatory Procurement of Wind Power through Bidding.

In September, KERC fixed ₹3.74 (~$0.058)/kWh as the generic tariff for wind projects in Karnataka to be applicable through March 31, 2018.

In a letter addressed to the Additional Chief Secretary, Government of Karnataka, KERC noted, “The additional capacity of 242.50 MW from wind projects that have been commissioned up to March 31, 2017, is not substantial and will not cause considerable grid disruption. The KERC, therefore, decides to approve the PPAs signed by BESCOM and HESCOM, subject to the project developers opting for a tariff of ₹3.74 (~$0.058)/kWh.

Cause

According to KERC, increasing procurement from wind power projects in the state is not good for their financial health and they insist that wind PPAs already signed will be sufficient to meet the state renewable purchase obligation (RPO) for the current financial year as well as another couple of years. DISCOMs also say that procurement of power from such sources will lead to a violation of long-term PPAs with thermal power projects, resulting in payments of fixed charges to thermal power projects, and increased costs of power for consumers.

DISCOMs in the past have defaulted on payments to the renewable energy generating units due to cash flow constraints. The PPAs signed at ₹4.50 (~$0.069)/kWh will aggravate the problem as DISCOMs will have to pay two parties and they are already struggling with debt.