Increasing its pressure further on renewable energy developers, the Andhra Pradesh government has amended its solar and wind power policies, effectively taking more control over setting tariffs from such power generation units. According to industry sources, the move would create further confusion in the investment environment in the renewable energy sector in the state.
Deleting older provisions, the new order mandates that the transmission and distribution charges for wheeling power would be determined by the state power regulator. The state government claims that the move is in response to the "abnormal spurt in power purchase cost and deteriorated financial position of the AP discoms".
In its latest order, AP energy department also states that tariff from renewable energy-based electricity will not be more than the "difference between pooled variable cost and balancing cost". Balancing cost refers to the expenses that power distribution companies (discoms) incur in order to accommodate renewable energy in the system. Variable cost mainly includes the expenses on fuel and its transportation for power generation by conventional sources.
The new government in Andhra Pradesh, against the advice of the Union power ministry, has formed a committee to revise "abnormally priced wind and solar" PPAs, saying there might have been linked with "malafide intentions" and could have "resulted in unjustified burden on the consumers of the state". In his letter to Narendra Modi earlier this year, Andhra Pradesh CM YS Jaganmohan Reddy had stated that "the effective cost of wind power was coming to Rs 5.94/unit as the state, under contractual obligation, had to continue paying Rs 1.1/unit fixed cost to thermal power plants even when they were not using this electricity to accommodate renewables". AP was buying wind power at Rs 4.84/unit when thermal energy, which had to be backed down, was already tied up at Rs 4.2/unit, Reddy claimed.
Crisil had noted that the state's move of revising PPAs could put additional stress on about 5.2 giga-watt (GW) of wind and solar energy projects with an estimated debt exposure of over Rs 21,000 crore. Union power minister RK Singh had said that the move "has alarmed the sector and the investors" and "if this is not corrected, the FDI will stop coming, the banks will stop financing, and the growth in the renewable energy sector will come to a halt". Since FY15, FDI in the renewable energy sector has been a whopping $4.8 billion.