Has Punjab Scored A Self Goal With Its Talk Of Renegotiating Solar tariffs?

Contract renegotiation or reneging?

News Reports of the government of Punjab contemplating renegotiation of solar power rates for pre 2016 projects paint a strange picture. While the reports quote the view of Punjab government sources that the difference in rates between then and now is too high to be allowed, they don’t mention the fate of the other state government, Andhra Pradesh, which tried to do something similar. All Andhra achieved with its methods was a delay on fresh solar and wind installations of probably over 2.5 GW during the period it started the disputes. And the fact that the Andhra state government has finally decided to buy from SECI should not be lost on any one too. One has to wonder if these noises are not just a way to detract from the larger issues facing the power sector in Punjab. Or the fact that this is not the first time we have seen the state float the idea of clawing back dues owed to power firms.

The Punjab  issue is the same old story. Of older prices being too high, when compared to the prices ruling now for solar power. Not only does this completely ignore the small matter of contracts which should be sacrosanct in any state that seeks to be attractive to investors, but also the fact that these contracts are actually between state government backed entities and other parties. Reneging or ‘renegotiating’ such contracts, with over 60% of the tenure left, would be as close to a default as one can call it, short of refusal to pay. Especially since most of these contracts donot offer any scope for renegotiation, especially on grounds of lower prices in the future!

So will the damage be as serious as Andhra Pradesh? Not really.

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For one, Punjab doesn’t really have as much solar capacity to renegotiate on, unlike Andhra Pradesh which  placed over 2 GW of projects in jeopardy with its illegal move to renegotiate. Secondly, there seems to be a well established legal precedent here, unlike the stet government finds some other way to arm twist developers.  The odds are overwhelmingly in favour of developers legally. Importantly, unlike Andhra Pradesh, which actually managed to conduct a (subsequently cancelled ) auction for 6.4 GW on its own, Punjab really doesn’t have much to offer by way of great prospects for solar in the state for now. prospects it has just ruined further with such ill thought moves. Already, positive moces to add solar capacity on paper have been botched up by poor on ground support, as in the case of solar rooftop.

Punjab seems to have total functional solar capacity of just over 800 MW for now, with a further 150-200 MW under construction. Of  these, projects at prices over say, Rs 7, that  are giving the government so much heartburn, would probably account for close to 400 MW. In a state that is lurching from a power crisis to another, such an amount is small change, especially if it adds to its solar capacity aggressively at the much lower rates today, eventually bringing down the average cost to a very competitive level. Keep in mind that this is the same state that was forced to buy from the power exchanges at prices much higher than Rs 7 during the recent power crisis in September.

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