The Punjab government has passed a Bill to revise the long-term power purchase agreements (PPAs) between the Punjab State Power Corporation Ltd (PSPCL) and the renewable energy generators. The Bill seeks to reduce the tariffs for renewable energy projects approved by the state electricity regulatory commission.

The Punjab Renewable Energy Security Reform, Termination, and Redetermination of Power Tariff Bill, 2021, was unanimously passed in the state Legislative Assembly.

The government’s move follows recent statements by the state’s New and Renewable Energy Sources Minister Raj Kumar Verka that the tariffs discovered through a competitive bidding process in the range of ₹7 (~$0.094)/kWh to ₹8 (~$0.11)/kWh seven to eight years ago were considerably higher than the current tariffs.

The Bill provides a list of solar projects with a total capacity of 886 MW and 97.5 MW of biomass projects for which PPAs with independent power producers have been signed.

In the Bill, the government has argued that it is necessary to enact a law in the public interest and provide measures to provide electricity to the consumer at an affordable price.

It argues that the state regulatory commission had the statutory authority to redetermine renewable energy tariffs in the interests of consumers. It says that the commission could set temporary tariffs until they are finally redetermined.

The legislation could come in for a legal challenge, as some experts have pointed out.

Attorney Aditya K Singh, an Associate Partner at Link Legal, had earlier said that this step would go against the provisions of the Electricity Act, 2003.  “The state government cannot legislate or issue directions concerning The Electricity Act, 2003. State actions cannot be contrary to a Central Act. The Electricity Act is a complete code in itself, and its power under Sections 61 and 62 of determining tariffs has been validly exercised.”

Singh said that developers had made significant investments in these renewable energy projects. Developers calculate the return of investment based upon the tariff agreed, among other parameters. If the tariffs are terminated and revised, it will jeopardize their financial arrangements.

“The bill could instill a negative impact on the investor sentiments and affect the renewable investments in the state,” he said.

This is not the first time a state government has tried to renegotiate tariffs. In 2019, Chief Minister of Andhra Pradesh YS Jaganmohan Reddy announced that the government would review the PPAs signed between the state’s DISCOMs and power generators. The decision had alarmed power producers, investors, policymakers, and legal experts. However, the Andhra High Court had quashed the state government’s order and letter issued to renewable developers to reduce their quoted tariffs. After the developers went to Court to resolve this issue, the High Court directed the DISCOMs to pay the monthly bills at ₹2.44 (~$0.033)/kWh for solar power and ₹2.43 (~$0.033)/kWh for wind. But the generators are still filing affidavits in the Court for the payments due.

According to Mercom India Solar Project Tracker, over 800 MW of large-scale solar projects are operational in Punjab, and about 440 MW tendered pending auctions. The tariffs for the projects in operation range from ₹5.62 ($0.075)/kWh to ₹8.74 ($0.12)/kWh.