Decline in renewable PPAs: Lower auctions lead to 41% drop in capacity signed by DISCOMs

The quantum of capacity for renewable power purchase agreements signed by the DISCOMs has dropped significantly (41 per cent) in FY23 compared with FY22, mainly due to lower auctions.

Various DISCOMs for renewable energy projects have signed power purchase agreements of over 35 GW capacity during the last two years and the current year, according to information provided by MNRE (Union Ministry of New and Renewable Energy). 

During FY23, renewable power purchase agreements of 11,800 MW capacity were signed by various DISCOMs. This is much lower when compared with PPAs signed for a total capacity of 19,944 MW in FY22.

During the current fiscal, PPAs for 3682 MW of capacity have been signed up so far.

Manish Gupta, Senior Director & Deputy Chief Ratings Officer, CRISIL Ratings says renewable power purchase agreements saw a decline in FY23 mainly because of lower auctioning of capacities compared with FY22. 

“Key reasons for lower auctioning include higher cost of solar modules in FY23 when compared with FY22 which led to increase in project cost. Implementation challenges due to uncertainties around the Great Indian Bustard (GIB) issue. Other issues such as the applicability of an approved list of module manufacturers further contributed to an increase in project costs,” he adds.

According to V Sriram, Co-founder and Partner, Sammati Consulting and Analytics, there were two major factors for the drop in PPA agreements. 

While the government provided an ALMM (Approved List of Models and Manufacturers) exemption till March 2024, it was announced in March 2023, and there was a slowdown in execution till the relaxation was announced. So projects in the pipeline were delayed. Also, the 40% customs duty on panels and 25% on solar cells has given rise to concerns as the tariff in competitive bidding seems to be falling, and the serious players may be worried if the same is sustainable at such duty levels,” he states. 

In FY22, the solar segment accounted for a significant portion of PPAs. Of the total 19944 MW, about 79 per cent (15,796 MW) was signed in the solar power sector. Andhra Pradesh signed up for 7000 MW of solar energy projects, and Telangana signed up for 2045 MW of solar power projects. Rajasthan, Madhya Pradesh and Tamil Nadu signed up for 1921 MW, 1500 MW and 1000 MW solar projects, respectively.

In FY23, PPAs signed for 6309 MW of solar projects, 3130 MW of hybrid projects and 2300 MW of wind power projects. Gujarat and Maharashtra signed PPAs for 1520 MW and 1086 MW solar projects, respectively. Madhya Pradesh signed PPAs for 1070 MW capacity of hybrid projects, while Uttar Pradesh signed up for 1160 wind power projects.

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