Amid surging demand for renewable energy in India, delays in finalizing Power Sale Agreements (PSA) and Power Purchase Agreements (PPA) are creating significant obstacles for developers and policymakers alike.

In April 2023, the Ministry of New & Renewable Energy introduced an agency-wise bidding calendar for Renewable Energy Implementing Agencies (REIA) — Solar Energy Corporation of India (SECI), NTPC, NHPC, and SJVN — aiming to roll out 50 GW of renewable energy projects annually through FY 2027-28. This move was expected to accelerate India’s energy transition and help meet its ambitious clean energy targets.

As a result, solar tenders issued by various agencies in the first quarter of 2024 saw a 122% year-over-year increase, totaling over 30.7 GW, with a 92.2% rise quarter-over-quarter. Solar auctions also surged dramatically, recording a 229% increase from the previous quarter and an extraordinary 2,957% year-over-year growth.

However, this surge in tenders and auctions led to a large capacity being stranded due to the absence of prequalified offtakers. Over 43 GW of projects are waiting for PPA signing as of June 30, 2024.

“Previously, we issued tenders only when a procurer approached us, leading to a faster PSA process. With the new trajectory in place, we must release a certain number of tenders, even if offtakers haven’t been secured,” explained an official from a REIA in a conversation with Mercom.

This shift in strategy has led to delays in signing PSAs, as tenders are being issued before offtakers are locked in, disrupting the earlier process.

The industry was somewhat prepared for this challenge, as stricter penalties for obligated entities — including power distribution companies (DISCOMs) that failed to meet their Renewable Purchase Obligations (RPOs) — were expected to accelerate signing PSAs.

The Electricity (Amendment) Bill 2022 introduced penalties for non-compliance with RPOs, ranging from ₹0.25 (~$0.0030)/kWh to ₹0.35 (~$0.0042)/kWh for shortfalls in the first year, increasing to ₹0.35 ($0.0042)/kWh to ₹0.50 (~$0.0060)/kWh for continued non-compliance beyond the first year. These penalties are designed to enforce stricter compliance, encouraging DISCOMs to expedite PPA signings to avoid financial penalties.

Developers say there is growing frustration in the industry about difficulties signing offtake agreements.

“The current process is inverted, leading to delays. The government and REIAs should have considered securing offtakers before setting out the trajectory,” a renewable energy developer said.

Another developer added that the large volume of tenders without secured offtakers has led to challenges in signing PPAs. Many tenders have been bundled with thermal power or face opposition from DISCOMs, leading to legal disputes.

For instance, DISCOMs like TANGEDCO in Tamil Nadu and West Bengal have raised objections to certain tenders, even after the Central Electricity Regulatory Commission (CERC) adopted the tariffs, causing further delays. “These disputes have significantly slowed the pace of PPA signings, particularly for projects where the structure of the tender or bundled power is seen as unfavorable by the DISCOMs,” the developer said.

The developer also referred to tariffs associated with hybrid power tenders involving solar, wind, and storage. “While the tariffs for these projects are slightly higher, they are justified by the reliability of supply, particularly during peak demand hours, enabled by energy storage.”

However, the developer noted that DISCOMs have hesitated to sign such PPAs due to concerns about transmission charges, particularly with the inter-state transmission charges waiver applicable for only projects commissioned by June 30, 2025.

Despite these concerns, the official from one of the designated tendering agencies noted that the higher capacity utilization factor of wind-solar hybrid power and firm and dispatchable renewable energy tenders has made these projects more attractive to DISCOMs, with many willing to pay a premium for the enhanced reliability these projects offer.

While government mandates push for greater renewable energy adoption, finding offtakers for renewable energy remains a critical challenge for developers. Even with penalties for non-compliance with RPOs, DISCOMs are wary of committing to renewables, especially with transmission charges uncertainties.

“Setting an annual bidding trajectory for government agencies was a great idea to help meet the 2030 renewable energy goals. However, without fully streamlining the entire process from bidding to procurement and securing buy-in from DISCOMs, the program won’t be effective. Simply announcing tenders is pointless. The policy should be adjusted so that bidding capacities by agencies only count if the auction is successful and power is actually procured,” said Raj Prabhu, CEO of Mercom Capital Group.