Re-Examine Punjab's Bill on Renegotiating Renewable Energy Tariffs NSEFI

The National Solar Energy Federation of India (NSEFI) has requested Union Law and Justice Minister Kiren Rijiju to re-examine the Punjab Renewable Energy Security, Reform, Termination, and Re-Determination of Power Tariff Bill, 2021.

The Bill, passed in the Punjab State Assembly on November 11, 2021, has been referred to the President of India for his approval by the Punjab Governor. NSFEI contends that if the President approves the Bill, it will be detrimental to the renewable energy industry.

NSFEI claims that the Bill, which will allow redetermination of the already finalized tariff of operational projects, contravenes the Electricity Act, 2003, and is against the National Electricity Policy, 2005 and the National Tariff Policy, 2016.

According to the Federation, the Bill will render the renewable energy projects unviable and burden the sector with a negative investment outlook.

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

NSFEI claims that the enactment of the Bill will endanger India’s goal of 500 GW of renewable energy by 2030. The group maintains that this will impact future investments in Punjab and affect investments across India due to the fear of other states following suit.

Bill transgresses the Constitution

NSFEI also alleges that the Bill is a violation of the Constitution of India, which states that any repugnancy between a law made by the state legislature and an existing law made by the Parliament on a subject covered under the concurrent list will be void. The Bill also conflicts with the provisions of the Indian Contract Act, 1872 by depriving renewable power generators of their vested rights under concluded power purchase agreements (PPAs).

The industry association argued that tariffs discovered under the competitive bid process must not be tampered with. Any termination of PPAs or renegotiating the tariff will violate the sanctity of contracts and adversely affect the developer’s ability to repay loans, leading to the recall of loan facilities and widespread bank loan defaults.

NSEFI pointed out that the landed purchase cost of solar is ~₹6.5 (~$0.086) /kWh against the overall total power purchase cost of ₹4.3 (~$0.057) /kWh. Considering the overall energy generation from solar is only over 4% of the state’s energy mix, and the purchase cost impact being ~₹ 0.06 (~$0.00079) /kWh, the negative impact of breaching the sanctity of contracts would far outweigh any benefits.

The bad precedent set by Andhra Pradesh

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 quashed the state government’s order.

The High Court directed the distribution companies (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.