In yet another letter to the chief minister of Andhra Pradesh, Power Minister R.K. Singh has urged Jaganmohan Reddy not to revisit power purchase agreements (PPA) for solar and wind projects in the state.

In a similar letter written in July 2019, RK Singh had asked the chief minister to exercise restraint in solar and wind PPA renegotiations.

In the latest letter, Singh has addressed the concerns raised by the Andhra state government and mentioned that the financial distress suffered by distribution companies in the state was not due to renewable energy projects. Instead, the distress was caused by the inability of the state to increase tariffs in FY17, FY18, and FY19 consistently.

According to the latest letter, as per the UDAY program, Andhra Pradesh had to increase tariffs by 3.6% for FY17 and 5% for both FY18 and FY19. However, the state increased tariffs by only 0.81%, 5%, and 0% for the three years, respectively. In his letter, Singh has also requested for the tariffs to be rationalized according to the norms.

Further, the power minister also pointed out that wind and solar tariffs are more competitive than thermal power tariffs which are expected to increase up to ₹22 ($0.28)/kWh in present value terms. Whereas wind and solar tariffs are likely to remain the same.

Emphasizing on the financial viability of existing solar and wind PPAs, Singh stated that the cost of renewable projects developed in 2014 was at a weighted average tariff of ₹6.75 ($0.095)/kWh which was in line with the capital costs incurred by developers then. But the tariffs discovered in recent bids were below the ₹3 ($0.042)/kWh level based on present equipment costs, and therefore it was inappropriate to compare the two.

The letter goes on to name specific developers that were involved in cases with the state government due to the tariff renegotiation attempts. It also points out that these developers built solar and wind capacities before 2014 in Andhra Pradesh, and a major part of their renewable energy portfolio was acquired from others.

Singh also encouraged that if the state authorities felt that these projects were allocated to developers via corrupt means, then it is well within the states right to bring the guilty to justice.

Singh underlined that further investment and development in the renewable energy sector would be based on policy stability and that these projects are crucial in the battle to fight climate change. Hence, the chief minister should not revisit these PPAs based on “apprehensions and irregularities” as this would send a wrong message to investors across the world.

In July 2019 Mercom analyzed how Andhra Pradesh’s decision to renegotiate solar and wind PPAs set a bad precedent for the industry.

More recently, in a much-needed relief for the renewable developers, the Andhra High Court quashed the state government’s order and letter issued to renewable developers to reduce their quoted tariffs.

Image credit: Suntech Power