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Power purchase agreement: Honour contracts, don’t halt growth, Centre tells Andhra Pradesh

Anupam Chatterjee
The new committee is set to meet wind power generators in Amaravati on July 15 to commence discussions on tariff revision. (Representational image)

In an attempt to persuade Andhra Pradesh chief minister YS Jaganmohan Reddy against revising power purchase agreements (PPAs) with renewable power producers, which is seen as a blow to the sanctity of contracts and could potentially hurt investor sentiments, Union power minister RK Singh has written to the state to take a cautious approach in this matter. Congratulating Reddy on his recent election victory in a letter, reviewed by FE, Singh wrote: "If an impression goes out that the rule of law does not prevail or the contracts are not honoured, then the investments will dry up and growth will come to a halt."

The new government in Andhra Pradesh has formed a committee to revise "abnormally priced wind and solar" PPAs, saying these have "resulted in unjustified burden on the consumers of the state", besides contributing to the financial woes of state-run discoms. It believes that many of these agreements were signed with "malafide intentions".

"We are also with you in your campaign against corruption and would like to see that the corrupt get their just deserts," Singh wrote, adding that contracts can be revised "in those cases where prima facie case of corruption is made out based on objective evidence".

Andhra Pradesh, which sourced 18% of its electricity from renewable energy in FY19, plays an important role in the country's green growth narrative, as it houses about 12% of India's wind and solar capacity.

"Almost all the major pension funds of the world are invested in India through renewable energy companies," Singh reminded Reddy. Since FY15, FDI in the sector has been $4.8 billion.

The new committee is set to meet wind power generators in Amaravati on July 15 to commence discussions on tariff revision. According to the resolutions of the AP power department meet held on June 19, the state's various utilities want to fix tariffs of several wind power projects at Rs 2.25/unit, claiming that shift in market dynamics and technological interventions hardly justified the Rs 4.84/unit tariff determined through the earlier mechanism.

State officials also plan to write to NTPC and the Solar Energy Corporation of India to reduce electricity price from solar power projects being implemented through these agencies to Rs 2.50/unit. Research firm India Ratings believes that uncertainty exists for wind and solar power projects whose tariffs are higher than the state's FY18 weighted average power price of Rs 4.46 per unit.

Even with the state's aggregate technical and commercial losses - a benchmark for power pilferage and discom inefficiency - of 11% is one of the lowest among the country, its FY19 discom losses stood at Rs 1,563 crore.