Concerns over the sanctity of renewable energy contracts in Andhra Pradesh in the wake of political developments could deliver a killer blow to the industry, developers said.
Andhra chief minister YS Jaganmohan Reddy, who took office at the end of May, has said he will revisit solar and wind power purchase contracts because he believes they were signed at higher rates than in other states.
At an informal meeting with developers on Monday, Andhra Pradesh energy officials maintained that tariffs above Rs 2.50 per unit would be renegotiated. Most tariffs in recent auctions have come in at about Rs 2.54 per unit.
Reddy has formed a committee to review the prices and, depending on its report, may seek to renegotiate the contracts. In his view, the higher rates could be attributed to corruption.
Ministry of New and Renewable Energy secretary Anand Kumar wrote to Reddy a couple of weeks ago, cautioning him against renegotiating the agreements.
“These are valid contracts. They cannot be revisited unless there is a clause for review,” Kumar told ET. “These contracts were accepted by the SERC (State Electricity Regulatory Commission) through a public hearing. They would have to go to APTEL (appellate tribunal), high court or the Supreme Court, follow the due legal process.” Power minister RK Singh is also said to have urged Reddy to rethink the move.
Developers alleged the move is aimed at attacking former chief minister N Chandrababu Naidu and while they are optimistic the move won’t hold up in court, they still have some concerns.“Until the time it gets thrown out, my lending is stuck,” said the managing director of a power producer. “This is the outcome of extreme and ill-considered policy whiplash.”
Due to the sensitivity of the matter, all developers requested anonymity. Andhra Pradesh accounts for about 14% of India’s installed renewable energy capacity and almost all large developers have solar or wind projects in the state.
Another top executive said distribution companies could stop payments for the power currently being supplied.“They are not going to pay us now or after the court order – we don’t know for how long. Massive debt servicing pressure will build up and that will lead to NPAs (non-performing assets) because some will not be able to service their debt,” the person said.
Consequently, wind and solar tariffs may move upwards because the risk premium will increase, the person said.“Investors and lenders will become uncertain about investing in India,” the executive said.
“PPAs are legally binding contracts. We believe if Andhra were to re-open PPAs, it would greatly affect investment into the state as well as the country,” said President, WIPPA (Wind Independent Power Producers Association).
Then there’s the possibility that other states will follow suit. “The larger worry is that other states will start behaving like Andhra. There will be a domino effect – existing contracts in other states could get opened up,” said a solar developer.
However, MNRE secretary Kumar said there won’t be any negative impact on future wind and solar tenders. Developers and investors have faith in the Indian legal system,” he said.