Tariff renegotiations of Solar PPAs. Can we really bring foreign investments with this level of regulatory uncertainty ?
The attempt to renegotiate solar projects tariff by states such as Andhra Pradesh Gujarat Uttar Pradesh and Telangana is not a healthy sign for the investors in Renewable Energy Projects. During last decade we have witnessed that solar tariff have come down almost 80% of the tariffs at which PPAs were signed with the solar developers a decade back. The solar tariffs started at 16.90 Rs/kWh have reached close to 2.36 Rs/kWh in recent bids . Achievement of low tariffs has been only due to the learning by doing and improvement in supply chain as well as development of domestic capacity. However most of the states feel that the 25 years tariff PPA signed few years back have led to increase in their losses. Some of the states are now attempting to reduce the gap between their cost of supply and average revenue realisation and in that attempt they find renegotiation with solar developers as most convenient option.
In case of Andhra Pradesh the erstwhile government before chief Minister Jaganmohan Reddy signed PPAs with solar developers at the rate of Rs.5.5/kWh, however in the similar tenure the average tariff realised under the central government tenders were much lower as compared to the state discovered PPS. And now the new government want to renegotiate tariff retrospectively to the tune of Rs. 2.38/kWh retrospectively. This type of political and regulatory uncertainty halts investments in renewables and not a good sign for the growth of Indian solar sector.
In a similar attempt in the state of Uttar Pradesh about 80 MW project are stuck in limbo since 2015 where in the state Discom are attempting to the legacy at direct with the solar developers that The APPC level.
In the state of Jharkhand the government has already renegotiated tariff with the solar developers for 1200 MW of solar projects and the revised tariff is Rs.4.99 per unit.
While most of the state Discoms balance sheet are in RED, renegotiation of solar tariff makes these projects non bankable and the financing institutes are reluctant in funding these PPAs which are signed by the state governments. It may be noted that the 70% of the LCOE (Levelised Cost of Energy ) in case of solar projects is for the debt financing cost, and if the uncertainty is accounted by the solar developers in their bids it may increase the ooverall tariff in upcoming bids. There is a significant uncertainty in the projects under development where in PPS have been signed with the state this comes and financial institutions and equity investors reluctant to fund these projects because of regulatory uncertainties send fear of states honoring the PPAs for 25 years long term.