No Backing Down by AP On PPA’s with RE Firms

No Backing Down by AP On PPA’s with RE Firms

With its latest move to challenge the High Court  ruling of September 24, that barred it from renegotiating existing PPA’s with many RE players, and put the onus on the APSERC, the Andhra state government continues to muddy the investment climate for renewables. In fact, as and when an analysis is finally done on the waste that 2019-20 has been for the industry, the Andhra actions will come in for special mention probably.

The industry, which had heaved a sigh of relief for the respite the high court order had provided, now finds itself reconciled to the notion that in the Andhra government , they have a party that is both stubborn and unwilling to be bothered about the short term, or even the long term  impact of its decisions. After all, this is the same government that had no compunctions in effectively killing the biggest infrastructure project launched by the previous government, the new state capital of Amravati. That project had a lot more at stake in terms of sunk costs as well as upcoming scale.

Th Andhra imbroglio had started right after the new state government of Jagan Mohan Reddy, of the YSR congress, rode into power with a massive majority. The Southern Andhra Power Distribution Company had, on July 12, shot off letters to 139 power plants, asking both solar and wind operators to revise tariffs down to Rs 2.44 and Rs 2.43 levels respectively. This was clearly unfair, and was duly contested by all the parties concerned. Among parties thaat sought to intervene was the central government, which sent off letters to the state to desist, and even multiple foreign ambassadors and financial stakeholders, who warned of the risks such arbitrary action posed to the financial viability of these projects, as well as future investments. Clearly, nothing has made an impact.

By alternating between blaming the decision on maintaining ‘grid stability’ and its inability to honour power at such ‘high costs’, the state government has done its cause no favour, as no third party evaluation has confirmed its correctness on either front. Even the renewables being disputed, with a total share of total power that is under 5% of total state consumption, are hardly likely to make the outsize impact on state finances that the state claims.  Perhaps it is the excess capacity in terms of underutilised gas based power plants that gives the state the buffer to start this battle. After all, many of those gas plants would gladly supply power at the Rs 5 -7 range that these RE plants are under attack for.

What looks certain is the likelihood of the Andhra premium pushing up rates eventually for all projects, due to wary financiers as well as developers, besides a rush to execute projects only with central agencies like SECI, or NTPC. What it does to India’s overall RE targets, a pet project of Prime Minister Narendra Modi, should be a cause for concern.  With Andhra key state both due to its location and power demand, a misfiring market there will likely have an impact on overall renewable numbers, which are already looking shaky. For the Andhra CM, increasingly looking opposed to the central government, perhaps, that was always the intention all along ?

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