Four days before the last date for submitting bids for securing rights to sell solar power to Tamil Nadu’s electricity distribution utility Tangedco, several niggling issues in the power purchase agreement are worrying prospective bidders.
Tangedco’s tender calls upon developers to put up solar power projects in the State, at locations of their choice, and sell power to the utility at tariffs that would be arrived at through the competitive bidding process. The tender wants to buy power from up to 1,000 MW of solar projects.
Days before the last date for submission of bids, letters are being sent by prospective developers to Tangedco seeking clarifications. Apparently, the pre-bid meeting that was held on December 19, has not put all their doubts to rest.
It has been pointed out that the Tangedco’s clarification note says that the state-owned utility company in-charge of transmission, TANTRANSCO, would be responsible for setting up transmission system and maintaining it. “TANTRANSCO is not a party to the contract and if it fails to maintain the substation and the grid fails, it is attributable to “force majeure”. “A good escape route for Tangedco,” comments S. Padmanabhan, a Chennai-based energy consultant.
He further points out that the PPA says that “both the parties shall comply with the policies and guidelines issued by the Government of India and the Government of Tamil Nadu from time to time”. Padmanabhan fears that this “negates the contractual obligations under the PPA”. He says that any successive government and even this government can unilaterally change the terms of PPA without the concurrence of the supplier who is bound by the same. This could include issues such as tariff and security mechanism. “All PPAs worldwide have the protection under "change of law"- not this draft. TNEB is a massive defaulter to its suppliers and this clause will help them escape their commitments,” Padmanabhan says.
Another solar company, which did not want to be named, said that there was confusion over whether or not the special purpose vehicle formed for the purpose of bidding, should satisfy the “Rs 1 crore per MW” networth condition. Tangedco’s note says the SPV should satisfy the networth condition “on its own”. But elsewhere, it also says that the parent company’s networth will be considered.
The developer said that if the SPV has to meet the networth criterion, very few developers would participate in the bids.
Developers see timely payment of dues as a risk, even with an LC (letter of credit) mechanism in place. Again, Padmanabhan points out that “the draft LC has not been attached. How can one trust an organisation that has such payment record?”
One solar company, which has put up several projects in Gujarat, said: “This PPA is not bankable.”
Does all this mean that solar power developers will not be interested in bidding? Perhaps not. Almost all the companies that Business Line spoke to said they would bid for “fewer megawatts” than they would have, had the PPA been clearer and friendlier. Several expressed doubt that there would be sufficient interest for 1,000 MW. While bids may flow in for 1,000 MW, most will be at as high tariffs as would not be acceptable to Tangedco.