Centre cautions Andhra Pradesh against revising PPAs

Venkatesh Ganesh Mumbai | Updated on September 21, 2019

Power Minister RK Singh   -  BL

Power Minister RK Singh has asked Andhra Pradesh Chief Minister Jagan Mohan Reddy not to revisit power purchase agreements (PPAs) as this sends wrong signals to investors and jeopardises India’s commitment to climate change.

In a letter to the Chief Minister, a copy of which is available with BusinessLine, the power minister said the growth in deployment of renewable energy resources is important from a climate change mitigation point of view and for achieving energy independence.

This letter is in response to Jagan Mohan Reddy writing to the Ministry alleging that the PPAs entered by the previous government in the State benefited only three companies, they were financially unviable and they imposed a heavy burden on the State.

Inadequate tariff increase

Singh said the current energy situation in Andhra Pradesh cannot be attributed to renewables as the costs incurred on power purchases are passed through to tariff. “The present situation of the discoms is due to the fact that as against the proposed increase in tariff for AP, as per UDAY norms, of 3.6 per cent in the financial year 2016-17 and 5 per cent each in fiscal 2018 and 2019, the actual increase was only 0.81 per cent, 4.5 per cent and 0 per cent respectively,” he said.

Earlier, Reddy had written that in 2014, the weighted average price of solar power (in AP) was ₹6.75 per unit and now is available at less than ₹2 per unit, which has put pressure on the State’s finances.

This decline has been largely due to a fall in the cost of solar cells, modules and equipment and can be attributed to the economies of scale, stated Singh.

The feed-in tariff of ₹4.84 per unit in 2016-17 can be compared to wind tariffs in Rajasthan, which was ₹5.76 per unit, Maharashtra which charged ₹5.76 per unit, Gujarat charged ₹4.18 per unit and Madhya Pradesh charged ₹4.78 per unit.

Renewables viable

If the cost escalation rate in coal power is taken into consideration, then the power from thermal power plants available at ₹4.2 per unit will almost double every 10 years and after 25 years, it will be in the range of ₹20-22 per unit at present rupee value. “Whereas the wind power projects for which PPAs were entered into in 2016-17 will continue to provide power at ₹4.84 per unit, even after 25 years and thus wind and solar power are viable alternatives, said Singh.

With regard to Greenko, ReNew Power and Mytrah, they had developed majority of their capacity before 2014 and later enhanced their portfolios through acquisition of assets in the State.

The larger concern continues to be the kind of message that revoking PPAs send to international investors. Apart from Canada Pension Plan Investment Board (CPPIB), Caisse de dépôt et placement du Québec (CDPQ), other international investors who are present in India’s renewable energy sector, include Canada’s Brookfield Asset Management, the private equity arms of Goldman Sachs, JPMorgan and Morgan Stanley, Dutch fund manager APG, amongst others.

Singh noted that globally, development of renewables is done through fixed tariffs that remain uniform over the life of the plant.

As of February 2019, total renewable power installed capacity (excluding large hydro) in the country stood at 75.06 GW.

Published on September 21, 2019

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