Falling renewable tariffs inducing power purchasers to renegotiate contracts

August 29, 2017 10:56 pm | Updated 10:56 pm IST - NEW DELHI

Falling tariffs in the renewable energy sector are resulting in power purchasers looking to renegotiate earlier agreements they had committed to at higher tariffs, putting Rs 48,000 crore worth of projects at risk, according to Crisil.

“In all, about 7 GW of solar projects tendered or awarded at tariffs of Rs 5-8 per unit over fiscal 2015-2017 could be at risk,” Prasad Koparkar, Senior Director at Crisil Research said. Power purchase agreements or letters of intent for these capacities, in Uttar Pradesh, Andhra Pradesh, Karnataka, Telangana and Punjab, were inked at tariffs 12-66% higher than the APPC (average power purchase cost) of these states.”

“Even in wind energy, 2-3 GW of projects which were allotted or had PPAs signed over Q3-Q4 fiscal 2017… are at high risk of renegotiation,” Mr Koparkar added. “Taken together, Crisil Research believes investments worth Rs 48,000 crore are currently at risk.”

Bids for solar projects in India were for tariffs as low as Rs 2.44 per unit in May 2017, which is 45% lower than the Rs 4.43 per unit seen in March 2016. In the wind sector, the quoted bid tariff of Rs. 3.46 per unit in February 2017 was 17% lower than the previous lowest tariff of Rs. 4.16 per unit.

“If discoms have their way, downward revision of PPA tariffs would adversely impact the returns of wind and solar energy projects already constructed,” Crisil said in a report. “A 10 paise per unit reduction in tariff impacts equity internal rate of return by 80-90 bps for wind power and by 150-160 bps for solar power. Concurrently, this could spark a spate of court cases and the essence of the National Solar Mission may be lost in delays.”

The ratings agency added that banks, too, would be more cautious while lending to renewable energy projects if discoms begin renegotiating PPA tariffs, without any legal grounds or force majeure conditions.

“It also casts doubt on enforceability of contracts,” the report added. “This, at a time when India needs a whopping Rs 6 trillion investments to meet its commitment of 175 GW of renewable energy power by fiscal 2022.”

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.