The Andhra Pradesh Southern Power Distribution Company Ltd (APSPDCL) has served a notice to Solar Energy Corporation of India (SECI) to slash tariffs from ₹4.50 a unit it had contracted in 2016 to ₹2.44.

The notice relates to SECI, as a nodal agency of the government, facilitating the setting up of 400 MW solar power under the Viability Gap Fund scheme during October 2016, where the tariff for power supply from these plants was fixed at ₹4.50/unit for the entire power purchase agreement (PPA) period and approved by the State power regulator.

This move comes in the backdrop of the YS Jaganmohan Reddy government deciding to renegotiate PPAs to bring down the tariffs quoted by wind and solar power projects. A Government Order was issued on July 1, 2019 outlining the government thinking and intent.

The notice quoted Supreme Court in civil appeal of 2012 between Gujarat Urja Vikas Nigam Ltd versus Tarini Infrastructure Ltd wherein it was held that the Court must lean in favour of flexibility and not read inviolability in terms of PPA insofar as the tariffs stipulated therein, as approved by the Commission is concerned.

“It would be a sound principle of interpretation to confer such a power if public interest dictated by surrounding events and circumstances requires a review of tariff,” it held.

The notice stated that if the tariff was not reduced, the State Discoms, in view of their financial position, have no alternative than to terminate the PPA.

After the approval of the tariff for this 400 MW, the solar power tariff dipped to ₹2.44 per unit, which was also discovered in the bidding process conducted by Rajasthan in May 2017.

Citing these, the Discom requested SECI and the developers who have set up solar units to reduce the tariff to ₹2.44 per unit from the date of commissioning of the project.

They were asked to revise the bills within 10 days that have been already submitted and are due for payment. “Otherwise, you may submit your stand before the high level negotiation committee appointed by the AP government,” the notice served said.

This move by the State has far reaching consequences and may open up other issues regarding tariffs and PPAs entered into with many other companies in the past.